The Labour Party in the UK has unveiled its political manifesto in the run up to the 12 December 2019 general election.
Party leader Jeremy Corbyn made several promises spanning areas such as pensions and tax.
He said the Labour Party intends to keep the retirement age at 66, following speculation that it could rise in the next few years.
The party has noted it will “create a single, comprehensive and publicly run pensions dashboard that is fully transparent, including information about costs and charges”.
Helen Morrissey, pension specialist at Royal London, told International Adviser: “Labour has issued an ambitious series of pension commitments in its manifesto.
“Some such as the pledge to improve access to pensions for those on low incomes and the self-employed should be congratulated as should the pledge to establish an independent Pension Commission to plot a way forward for increased minimum pension contributions.
“However, others, such as the pledge to leave the state pension age at 66 and to compensate the 1950s women are likely to cost many billions of pounds and with no money set aside to meet these commitments it will be difficult to see how they can be funded.”
Steven Cameron, pensions director at Aegon, said: “Labour’s intention to create a single publicly run pensions dashboard rather than the current government’s support for a range of commercially run dashboards will restrict the private sector’s ability to offer this service to its customers.
“This could be seen as a nudge towards nationalisation.”
Overseas
Tom Selby, senior analyst at AJ Bell, said: “A quirk in the state pension system means people who retire to certain countries overseas do not benefit from uprating in line with the triple-lock, which increases the payment by the highest of average earnings, inflation or 2.5%.
“Over the course of someone’s retirement this could cost tens of thousands of pounds.
“The reason for this is that a reciprocal social security arrangement needs to be agreed with the country the person is retiring to. Successive Governments preferring to focus state pension cash on people living and working in the UK.
“There is also a Brexit element to this. At the moment UK nationals who retire to the EU automatically receive state pension uprating.
“While the current government has committed to continuing with this arrangement over the short-term, there are as yet no guarantees beyond the next few years. Presuming Labour’s pledge extends to UK nationals in all countries around the world, this could push the cost up considerably if we eventually leave the EU.”
Pensions hints
While Corbyn has not made any significant commitment to the private pension space, in the manifesto the party said it will widely open up the opportunity to create collective defined contribution (CDC) pension schemes.
“We will legislate to allow the CWU-Royal Mail agreement for a collective pension scheme to proceed and allow similar schemes,” the party said.
But not much was said about the treatment on pension tax by the current opposition party.
Cameron added: “Noticeable by its absence is any prominent indication that Labour would undertake a fundamental reform of the tax treatment of pensions.
“Any major reform would require extensive and detailed consideration and may not be seen as a priority at this time.
“Labour’s commitment to look to widen access for the low paid and self-employed to auto enrolment schemes is welcome and likely to be mirrored by all parties.”
Tax overhaul
In other taxation areas, however, Labour said it will “crackdown on tax avoidance and evasion”, as well as reform the tax relief system.
For instance, it plans to reverse the inheritance tax (IHT) cuts brought in by former chancellor George Osborne, since it will “most likely benefit high income and wealthier households”.
Laura Suter, personal finance analyst at AJ Bell, added: “Labour previously talked about plans to scrap inheritance tax in its current form and instead give everyone a gifting allowance of £125,000 during their lifetime – with anything above this taxed at income tax rates.
“However, these plans were curiously absent from the manifesto, with the party just saying it would ‘reverse cuts to inheritance tax’, so scrapping the residence nil rate band.
“While a complex tax that’s little understood, scrapping it will be a blow to those who wouldn’t count themselves as rich but have gained property wealth through rising property prices.”
Capital gains tax
There will be a drastic change to capital gains tax (CGT) under a Labour government.
The party said: “Capital gains tax was last moved to income tax rates by conservative chancellor of the exchequer Nigel Lawson in 1988.
“Labour will tax capital gains at the same level as income tax and abolish the lower income tax rate for dividend income.
“It is also a potential inefficiency and source of avoidance that income tax and capital gains tax have separate annual tax-exempt allowances, allowing the wealthy to separate their income into different forms in order to benefit from double tax relief.
“With a separate dividend tax rate some people with significant income from different sources can benefit from three separate tax-free allowances and there is evidence that business owners declare income in different ways purposely to take advantage of different rates and allowances.
“Primary residences will continue to be exempt from capital gains tax.”
Income tax
Income tax would increase for those earning over £80,000 ($103,625, €93,482) a year, Corbyn said.
Suter added: “Sticking with their 2017 manifesto pledges, Labour will increase the number of people paying the 45% income tax rate, cutting the threshold from the current £150,000 down to £80,000, and introducing a new 50% rate for those earning more than £125,000. The move will cost taxpayers £5.4bn.
“The party will also bring the tax on gains from investments in line with income tax, echoing similar pledges by the Green Party. The pledge to bring capital gains and dividends into the income tax regime will raise £14bn for the Government.
“The move to crack down on dividends will hit business owners who pay themselves through dividends rather than income, but also investors, with the capital gains tax allowance being slashed from £12,000 to £1,000 – which will cost up to £4,400 a year for those earning £50,000 or more.”
Scrapping but not replacing?
Rachael Griffin, tax and financial planning expert at Quilter said: “With substantial costly promises Labour need to raise money somewhere. One source is inheritance tax reliefs and they’ve said they will scrap the residence nil rate band.
“This overly complex allowance is a nice target. However, while convoluted, the rationale behind it was that people wanted to pass their homes onto the next generations.
“Scrapping the allowance and not replacing it with anything else will stem the flow of wealth between the generations. Something people will want to think twice about as the younger generations are set to be worse off than those before them.
“Similar to the Liberal Democrats, Labour have also proposed to scrap the marriage allowance. With the possibility of a coalition government, this policy recommendation could end up being enacted.
“The Conservatives have flagged that this would in fact mean an income tax rise for a number of people who earn less than £80,000.”
Back in time
Nick Burchett, co-fund manager at Cavendish Asset Management, claims the Labour government could set the UK back 50 years.
“If Labour come to power on this agenda, the UK investment landscape will be time warped back to the dark days of the 1970s.
“A £10 minimum wage might sound great as a headline policy, but it would kill the majority of businesses that are left on the high street.
“As for the planned attack on ‘bankers, billionaires and establishment’ – well the top 1% of earners already shoulder 30% of total income tax burden.
“If Labour sets a precedent for taxing this group further, top talent and inward investment into the UK will simply go elsewhere.”
