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A Conservative victory: now what?

The Conservative Party has won a substantial majority, which gives Boris Johnson a near carte blanche to carry out his manifesto

The Conservative Party’s 2019 manifesto is now the starting point for the Government agenda for the next five years. The majority which the Party now has, with many new MPs, will mean a sea change from that of the hand-to-mouth Government of the past two and a half years.

In theory that majority allows Boris Johnson to flesh out what was a relatively thin manifesto in whatever way he wishes. A repeat of the forced U-turn which marked the first Budget of the previous Government looks nearly impossible: a majority of around 70 allows the Prime Minister to face down not only the remnants of the official opposition, but also pockets of opposition (think ERG) within his own party.

We can now look forward to a Budget in February. Sajid Javid, who has already been confirmed as Chancellor, may now choose to revert to the previous norm of giving the Office for Budget Responsibility (OBR) ten weeks’ notice to prepare an Economic and Financial Outlook. That means a Budget date at the end of the month, possibly 26th. As a reminder, from a financial planning viewpoint, the Conservatives’ main manifesto proposals were:

Personal Taxes

  • No increases in income tax rates and National Insurance Contribution (NIC) rates.
  • NIC threshold to be raised to £9,500 for 2020/21.
  • A review and reform of Entrepreneur’s Relief.

Businesses

  • Corporation tax to remain at 19% rather than reduce to17% as currently legislated for.
  • Increase R&D tax credit rate to 13% and review the definition of R&D.
  • Increase NIC Employment Allowance from £3,000 to £4,000.
  • No increase in VAT rates.
  • Reduce business rates “via a fundamental review of the system”. Initially reduce business rates for retail businesses and extend the discount to grassroots music venues, small cinemas and pubs.
  • Increase the straight line allowance for structures and buildings from 2% to 3%.

Social Care

  • Additional funding of £1bn a year throughout the term of the Parliament.
  • An effort to build a cross-party consensus on social care policy with a guarantee that no one needing care will have to sell their home to pay for it.

Social Security, Housing

  • Continue the roll out of Universal Credit.
  • End the working-age benefit freeze.
  • 3% SDLT surcharge on non-UK resident buyers of residential property.
  • End child benefit payments for children living overseas.
  • Keep the state pension triple lock, the winter fuel payment, the older person’s bus pass and other pensioner benefits.

Private Pensions

  • Within the first 30 days, hold an urgent review of annual allowance taper issues. A pre-election statement from the Conservatives suggested this would only deal with the NHS problem, but it is hard to see how any reform can be restricted to just one part of the public sector.
  • Conduct a comprehensive review to fix the issue of net pay pension schemes for those with earnings between £10,000 and £12,500.
  • Reintroduce Pension Schemes Bill 2019-20, covering collective defined contribution (CDC), action against employer pension debt and pension dashboards.
  • Unlock long-term capital in pension funds to invest in and commercialise scientific discoveries.

Tuition Fees

  • Examine the interest rates on loan repayments with a view to reducing the burden of debt on students.
  • The February Budget is also likely to see changes to inheritance tax (IHT) stemming from the Office of Tax Simplification (OTS) review of earlier this year – there was no comment on IHT in the Conservative manifesto.

Summary

The currency markets, once described as the real official opposition, have pushed sterling up by around 2.5%, with Sterling crossing $1.35 and €1.20.

 

Budget Day has been set for 11th March 2020
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