Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
What Have the Conservatives Done for Your Finances?
Annie
17th Jun 2024
As we come up to the General Election, we want to make sure our Magpies are fully informed on the financial manifestos of the major parties. As part of that, it’s important to also know the successes (and failures) of the current Conservative Government when it comes to what they promised at the last election, and what they’ve delivered since they came to power in 2010.
A Pandemic Curveball
Before we go into the changes the Conservative Party promised or made over the past fourteen years, we do need to add a caveat.
The Covid pandemic blindsided the global economy. This was shortly followed by the outbreak of war following the takeover in Ukraine by Russia, and the world economy is now destabilised with the Palestine-Israel conflict. It’s important to keep in mind that some financial decisions made as a result of these major events in recent years meant that the Tories needed to come up with fast and unusual plans, like furlough, to manage them.
However, it should also be considered whether other parties would have acted in a similar way – and how these choices impacted the economy. It would be remiss of us to not also list the financial failures as a result of the pandemic such as furlough fraud and PPE fraud, too. There is also, of course, Brexit – with the missing £350m promised for the NHS as a glaring starting point for reasons why the Conservative party have not upheld expectations of leaving the European economic union.
This article won’t focus on pandemic introductions, like furlough, as these were not part of the Conservative party manifestos during their election and re-election, and would have been measures (or similar to) provided by any standing Government during such a time.
ISA Changes
Since 2010, the ISA has become a prolific financial product with several new types introduced since the Junior ISA in 2011.
The ISA allowance has gone up from £10,200 in 2010 to £20,000 in 2017. But it hasn’t risen since, reducing real-terms savings efficiency for anyone putting their money into ISA products.
The introduction of the Help to Buy ISA in 2015 was supposed to help first-time buyers get on the property ladder, which set the precedent for the 2017 Lifetime ISA. Both, however, come with strict limitations – including a penalty for withdrawing from a LISA unless for a property purchase which falls within very specific parameters. Similarly, the Help to Buy ISA could only be used on a limited number of properties and was required for a purchase with a Help to Buy mortgage.
The Innovative Finance ISA also launched in 2016, allowing more risky investments than a traditional stocks and shares ISA.
While the expansion of the type of ISAs seems like it could benefit savers, takeup on some has been low, precisely because of limitations (such as with the LISA) and also lack of consumer understanding. Decision making is hard when you’re unsure of the rules.
The most recent changes in 2024 mean you can now pay into more than one of the same type of ISA in the same year, which was previously not allowed. (Individuals are still only allowed one Lifetime ISA, however).
Pension Changes
Since the Tories came to Government, there have been many changes when it comes to both private and state pensions.
Lifetime Allowance
The Lifetime Allowance was a Labour Government 2006 measure to limit tax-efficient pension savings particularly for higher earners. The original limit was £1.5million (equivalent to £2.5million today).
In 2016, Tory chancellor George Osborne cut the allowance to £1million, and it has been (modestly) increased since then to a maximum of £1,073,100 in April 2020.
Current Chancellor, Jeremy Hunt, abolished the Lifetime Allowance in April 2024.
New State Pension
Since 2016, a simplified pension system has been part of the Conservative contribution to financial changes for the general public. The new state pension limits how much retirement income can be built up, which impacts higher earners the most.
The New State Pension introduced a higher weekly rate, which made it easier for pensioners to access their money without also relying on other state benefits to top up their income. A cynic might suggest this move reduced the number of benefit claimants in the same way unemployed people forced onto ‘work schemes’ do the same.
State Pension Age
The State Pension age has also risen. It was 60 for women and 65 for men until April 2010. Following The Pensions Act 1995, the age for women was increased from 60 to 65 between April 2010 and April 2020. However, the way this was done meant a lot of women in their 50s have missed out on thousands of pounds, often those who were stay-at-home mothers without full National Insurance contributions as they raised families in the 80s and 90s, and the Government is being challenged by these WASPI women. This group argue that the change in age meant many women who had long-planned a retirement at the age of 60 were suddenly forced to find work for more years, at an ‘unemployable’ age. The argument is not against equalisation, but the way in which it was brought about.
The state pension age is now 66 for men and women, rising again to 67 between 2026-2028.
Tax Changes
Taxes are one of the hottest topics when it comes to a General Election. Here’s what’s changed under Conservative rule.
Personal Allowance
Everyone in the UK is entitled to a Personal Allowance, which is an amount they can earn before paying tax (additional rate earners lose this allowance).
At first, the Tories introduced a big hike in the personal allowance from £6,475 to £10,000 in April 2014, but it should be noted this was actually pushed through by the Liberal Democract side of the coalition government at the time.
The allowance has increased slightly since then, and now stands at £12,570. But it has remained at that figure for six years, meaning a real-terms cut for everyone receiving the Personal Allowance, due to inflation.
Rishi Sunak has claimed the freeze (planned until 2028) has been necessary to pay for the burden of Covid.
Savings Tax
The starting savings rate used to be 10%, until 2014 when it was cut to 0%, with the amount of savings it applied to increased from £2,880 to £5,000.
The Personal Savings Allowance followed in 2015 meant you could save £1,000 before paying tax on interest accrued. This reduces to £500 for higher rate tax payers, and additional rate lose the allowance altogether.
Dividend Tax
The dividend system changed under Conservative chancellor George Osborne in 2015. New rates of taxation were introduced, with the intention of raising £6.8bn over five years.
The aim was to capture company directors who paid themselves through dividends instead of a PAYE salary, saving them a considerable chunk of tax and National Insurance payments.
As a by-product of the introduction of a dividend rate for basic-rate tax payers, shareholders were the collateral damage. They had to suddenly pay tax on dividends which they previously did not have to. As a measure to alleviate this, there was a £5,000 allowance before any tax was required.
This allowance was cut in April 2018 form £5,000 to £2,000. It was then slashed again to £1,000 in 2022 and once again to only £500 in 2024. For those whose investments are held outside of a pension or ISA, this means they’re paying more tax on investments than in 2010.
National Insurance
National Insurance was reduced from a 12% to 10% in January 2024, with a further cut to 8% in April 2024.
For the self-employed, Class 4 contributions were cut in April 2024 from 9% to 6%, and the Class 2 contributions were eliminated entirely.
While this is touted as a great win for people and putting more money back in their pockets, there’s a problem with that claim. Something called fiscal drag. This means that, on the surface, it looks like people will take home more money… but the income tax thresholds have been frozen for years. That means as wages increase to match inflation (or try to), people are taking home less cash overall as they’re dragged into the next tax bracket.
Property Changes
Property is a huge economic factor for any party manifesto in the run-up to an election. A slow property market is indicative of a slow and struggling economy – so measures are taken to boost the housing market.
The Mortgage Guarantee Scheme, like many other attempts to stimulate the housing market, was designed to help first time buyers get on the property ladder, alongside Help to Buy and Lifetime ISAs.
Capital Gains Tax
Capital Gains Tax is the taxation of residential property sales, paid on the difference between the purchase price and sale price. For those selling their primary residence, the Private Residence Relief applies. CGT is for second homes and buy-to-lets.
CGT was cut in April 2024 from 28% to 24% for higher rate tax payers. The 18% rate remains for basic tax rate payers.
Stamp Duty Land Tax
During Covid, the housing market plummeted (understandably so), and to stimulate it some short-term emergency measures were introduced, such as a rise in the purchase price allowed before Stamp Duty Land Tax was required.
The temporary reduction between July 2020 and September 2021 set a precedent, allowing 2022 chancellor Kwasi Karteng to announce a permanent reduction to SDLT. However, following chancellor Jeremy Hunt reversed this permanance, with no guarantee of what the future holds.
The temporary reduction meant properties under £500,000 did not incur a charge, with reduced rates after that. SDLT is now zero up to purchases below £250,000, then 5% up to £925,000, 10% up to £1.5m, and 12% above £1.5m. First-time buyers receive higher allowances, including zero SDLT up to £425,000 and 5% up to £625,000.
However, these rates are only for primary residential properties. Additional properties incur a 3% charge, on top of other SLDT rates. This means landlords face extra charges to dispose of their buy-to-lets, which has led to a stagnation in the property market.
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