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Will an election bring a tax giveaway?

Ed Monk

Ed Monk - Fidelity Personal Investing

Today the Queen’s Speech to the House of Lords will lay out what the Government plans to do during the new parliamentary year.

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We’ve also learned that there will be a Budget delivered by Chancellor Sajid Javid on November 6, when the Government explains the tax and spending changes it intends to make. Both events are traditional set pieces that spell out the Government’s intentions and plans for the country - and both should be taken with a huge pinch of salt.

The ongoing turmoil in UK politics means that any plans announced today or in a Budget next month are immediately overtaken by events. The Government needs a majority in parliament to pass laws, and it cannot currently claim one after 21 MPs were effectively removed from the Conservatives over their stance on Brexit.

Similarly, any Budget drawn up now would be contingent on there being a Brexit deal that keeps the economy on broadly the same trading terms that it currently enjoys - at least for a transition period until our new status kicks in. In the absence of a deal, the Government would probably have to tear up its plans and instead concentrate on ensuring short-term negative impacts of Brexit are mitigated.

But that’s not to say the Queen’s Speech and Budget (if it takes place) are of no value at all. There is likely to be a general election soon and both events will give clues as to how the Government hopes to win over the electorate - including the chance of giveaways in some areas.

In fact, we could soon see an arms race between the parties on what they are prepared to offer voters. After many years of austerity that followed the financial crisis, and then several more years of prudence under ‘Spreadsheet’ Philip Hammond, the tone has changed remarkably.

Both parties have committed to hugely expensive policies that mean existing public borrowing rules are already being tested, yet, with an election looming (and an era-defining election at that), neither seems in the mood to tighten the purse strings.

Beyond extra spending on neglected areas such as the NHS and policing, an election campaign could see giveaways in the several areas relating to our personal finances. Low paid workers could see a promise to extend the National Living Wage to younger workers and raised for all ages.

There have been growing calls from Conservatives for Inheritance Tax to be scrapped in a bid to win middle class votes while the complicated Tapered Annual Allowance for pensions could also be loosened.

Property tax could become a major focus, particularly if the slowdown in house prices continues. There has been talk of raising the threshold on stamp duty to £500,000, meaning any sales below that level would have no tax to pay.

Then there’s the big one - income tax. Prime Minister Boris Johnson has already talked of a grand rise in the higher rate threshold to £80,000, which would amount to a giant giveaway to high earners. Although few really expect the proposal to survive the Treasury’s actuaries, a more modest income tax offer could emerge.

The downside to all this, of course, is that the public finances will take a hit and the deficit - remember that? - could jump. But with an election to win, who will worry about that?

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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