Understanding the impact of Labour’s election win on your finances

by | Jul 8, 2024 | Ripe News

Labour is celebrating a significant electoral victory, closely mirroring their sweeping success in 1997.

The party’s manifesto, which promises substantial but not radical changes for the next five years, is now set to guide their governance.

It’s crucial to closely examine their plans to understand how their proposed policies might affect your personal and business finances in the future.

Our experienced team has been diligently analysing Labour’s proposals to clarify their intentions and potential impacts, helping you to prepare effectively for what lies ahead.

While Labour’s manifesto outlines their vision for the country, it’s important to note that despite their strong majority, fulfilling every promise might not be feasible, and some proposals could evolve.

The economy

Labour has taken over an economy that is struggling, with significant issues in public finances—a fact acknowledged openly in its manifesto.

The new Government has committed to “turning the page on this economic chaos” by setting two primary fiscal objectives:

  • Ensuring the current budget balances so that day-to-day expenses are covered by revenue.
  • Reducing debt as a proportion of the economy by the end of the fifth year Debt must be falling as a share of the economy by the fifth year of the parliament

Achieving these goals will be challenging, particularly as Labour has expressed a determination to avoid a return to austerity measures.

Instead, the party’s economic strategy will focus on balancing investments for the future with the need to restore the health of public finances.

Personal finances

Amid a cost-of-living crisis that is straining many UK residents’ finances and stifling economic growth due to reduced consumer spending, Labour has announced several initiatives to address these issues:

  • They plan to lower energy costs, partly by establishing a publicly owned green energy company, Great British Energy, which will receive an investment of £8.3 billion.
  • They aim to decrease food prices by eliminating business barriers and costs.
  • They propose to expand childcare access to enhance productivity, including launching free breakfast clubs in every primary school.
  • They intend to increase the availability of affordable housing.

Labour also aims to assist with mortgage costs by reducing inflation. However, specific plans in this area remain vague, except for their continued support for an independent Bank of England.

Personal tax allowances

Labour has committed to keeping “taxes on working people” as low as possible. Consequently, they will not raise National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.

However, they have decided to maintain the current freeze on tax rates, set to continue until 2028. This means that, due to inflation, many individuals will effectively face higher taxes as their wages and incomes increase.

Therefore, taxpayers will need to engage in careful tax planning to maximise the use of available allowances and reliefs.

Non-domicile tax rules

Before the election, in the Spring Budget, the then Chancellor Jeremy Hunt declared the abolition of non-dom status in the UK, alongside the gradual removal of the remittance basis, under a transitional process.

At that time, Labour strongly criticised the policy as it reflected their own commitments.

In response, the new Government has announced plans to intensify efforts by introducing a “modern scheme” aimed solely at supporting individuals who are genuinely in the country for a short period.

Labour has stated that the transitional arrangements set to start in April 2025 will be discarded, and they plan to terminate the use of offshore trusts for avoiding Inheritance Tax.

They assert this approach will ensure “that everyone who makes their home here in the UK pays their taxes here.”

Non-doms concerned about the upcoming changes under Labour and their potential impact should remain vigilant and seek professional advice as soon as possible.

Corporate tax

Labour aims to provide stability to businesses after 14 years of frequent changes in Corporation Tax rules, with 26 alterations during that period.

The party has committed to capping the top rate of Corporation Tax at 25 per cent throughout the next Parliament, though they are prepared to adjust this if it impacts the UK’s international competitiveness.

The Full Expensing scheme and Annual Investment Allowance, introduced by the previous Government, will be permanently retained, although future modifications are possible.

To assist businesses unsure about their eligibility for these reliefs, the Government will offer more precise guidance on qualifying criteria to enhance business investment decisions.

In England, Labour plans to overhaul the current business rates system to create a fairer competition environment between high street businesses and online giants.

Details on this policy are still developing, but Labour’s goal is to support entrepreneurs, revitalise high streets, and foster a better investment climate.

While some aspects of Labour’s business taxation proposals remain vague, more information is expected to emerge in the upcoming weeks and months.

Tax compliance

Labour has expressed significant concerns about HM Revenue & Customs’ (HMRC’s) effectiveness in tackling tax avoidance.

They have committed to investing in the tax authority to modernise it. This will include increasing reporting and registration requirements, making substantial investments in technology, and boosting HMRC’s powers.

Labour has explicitly stated its intention for HMRC to intensify its focus on tax avoidance by large businesses and wealthy individuals. This initiative is part of Labour’s broader commitment to eradicate unfairness in the UK’s tax system by closing loopholes and ensuring that “everyone pays their fair share.”

With ongoing discussions about tax regulations, it is expected that further legislation will be introduced and HMRC will adopt a tougher stance, potentially leading to an increase in the number of investigations.

This underscores the growing importance of tax compliance and the need for robust and reliable accountancy services in the coming years.

Where will tax rise?

While Labour has been somewhat reticent about discussing tax increases, it’s clear that taxes will need to rise in certain areas to fund the ambitious initiatives outlined in their manifesto. Here are the primary areas where tax increases are anticipated:

  • Introduction of VAT and business rates on private school fees.
  • Closure of the carried interest tax loophole for performance pay in private equity.
  • Implementation of a 1 per cent increase in Stamp Duty for non-UK residents buying residential properties.
  • Implementation of an additional windfall tax on oil and gas companies.

Additionally, Labour’s plan to enhance HMRC’s powers to tackle tax avoidance could significantly narrow the current tax gap if it proves effective.

Support for SMEs

While Labour’s specific plans for small businesses and sole traders are not detailed, their broader tax and economic policies are designed to support SMEs.

Labour has committed to assisting in several key areas:

  • Late payments: Labour intends to introduce measures to ensure that small businesses and the self-employed receive payments promptly. This initiative aims to significantly improve cash flow and alleviate the financial burdens associated with payment delays.
  • Exporting: The party plans to improve guidance and streamline the process for small businesses interested in exporting. This could help open new international markets for products and services, offering a valuable opportunity for business expansion.
  • British Business Bank reform: Labour proposes reforms to the British Business Bank to enhance support for growth across all regions. This would facilitate easier access to capital for SMEs, supporting their expansion and innovation efforts.

Investment plans

Labour intends to create a £7.3 billion National Wealth Fund aimed at boosting private investment by allocating public funds to several critical projects:

  • £1.8 billion to enhance ports and develop supply chains throughout the UK.
  • £1.5 billion for new gigafactories to position the UK’s automotive industry as a global leader.
  • £2.5 billion to revitalise the steel industry.
  • £1 billion to accelerate carbon capture technology.
  • £500 million to advance the production of green hydrogen.

Additionally, Labour will implement a new 10-year infrastructure strategy to eliminate short-term planning, introducing a new public entity, the National Infrastructure and Service Transformation Authority. This body will consolidate expertise from a variety of existing agencies.

To further aid businesses and investment, Labour plans to overhaul current planning laws to streamline project initiation.

These investments are expected to enhance business productivity and connectivity, either indirectly or directly through the development of supply chains needed for these ambitious projects.

Pay and employment law

Labour is set to initiate its “Plan to Make Work Pay: Delivering a New Deal for Working People” within the next 100 days. This plan includes several significant reforms:

  • Implementing a real living wage that reflects living costs by adjusting the Low Pay Commission’s criteria to include the cost of living along with median wages and economic conditions.
  • Eliminating age-based wage differences within the National Minimum Wage scheme to benefit all adult workers.
  • Empowering the Single Enforcement Body and HMRC with the necessary tools to ensure wage compliance, including establishing penalties for non-compliance.
  • Making flexible working arrangements the standard from the first day of employment.
  • Abolishing zero-hour contracts to provide more job security.
  • Ensuring that employment contracts accurately reflect the actual hours worked over a 12-week reference period, promoting fair employment practices.
  • Ending the practice of fire and rehire.

Additionally, Labour plans to reform workplace pensions to ensure that pension schemes use consolidation and scale to deliver better returns for contributors.

Fiscal events

Labour has expressed its intention to streamline financial events, aiming to hold only one fiscal event per year to enhance financial certainty.

Traditionally, the Government has used both a Budget and a Statement to communicate economic plans, but Labour may consolidate these under their administration.

This consolidation is expected to bring more stability to tax regulations. Additionally, Labour plans to reform the Office for Budget Responsibility (OBR) to ensure that all tax and spending changes are accompanied by an independent OBR forecast.

This change is intended to aid businesses and individuals in planning more effectively each year and staying compliant with new regulations introduced at a more manageable pace.

Looking ahead

Like many, you’re likely still processing the recent election results and what the new Labour Government means for the future.

We don’t expect to see detailed proposals from the new administration for a few weeks. Parliament is approaching its summer break, and Sir Keir Starmer is in the process of assembling his cabinet.

It’s still early days, but we anticipate a Budget in the autumn to implement the Government’s reforms.

We’ll continue to provide updates on new policies and proposals as they are announced. In the meantime, if you have any questions, please feel free to contact us.