Now that the polls are closed, and the counting begins, Laura Suter, director of personal finance at AJ Bell, comments:
“The Labour manifesto was fairly light on policy announcements or tax giveaways, instead laying out broad plans for the future and a few key changes that will impact people’s personal finances. But there has been plenty of rumour, speculation and concern about the potential tax changes that Labour could bring in if they come to power tomorrow. While these aren’t confirmed, if Labour do secure the landslide victory that has been forecast they will have sufficient voting power in Government to bring in new policy.
“Leaving the rumour mill to one side and sticking to firmer footing, there are five big changes that we know have been promised by Labour that will impact many of our finances, from state pension to school fees.”
- The state pension will continue to rise
“Pensioners will continue to get meaningful increases to their income as Labour promised to keep the state pension ‘triple-lock’, which guarantees the benefit rises each year by the highest of average earnings growth, inflation or 2.5%. Based on current forecasts it means the full new state pension is set to hit almost £12,000 next year – not far off the current tax-free Personal Allowance. And it means that retirees could see a state pension worth almost £13,250 by 2030.
“While pensioners will continue to get decent increases to their state pension they may face more tax. That’s because Labour did not promise to shield the state pension from income tax in the same way as the Conservatives have with the so-called ‘triple-lock plus’ pledge. It means that more pensioners could face tax on their retirement income thanks to frozen tax bands.”
How the state pension could grow between now and 2030
| Year | Full new state pension value | CPI inflation | Earnings growth | Triple lock increase applied |
| 2024/25 | £11,502 | |||
| 2025/26 | £11,962 | 2.75% | 4% | Earnings |
| 2026/27 | £12,291 | 2.5% | 2.75% | Earnings |
| 2027/28 | £12,598 | 2% | 1.75% | 2.5% |
| 2028/29 | £12,913 | 2% | 2% | 2.5% |
| 2029/30 | £13,236 | 2% | 2% | 2.5% |
| Notes: Earnings/inflation figures based on Bank of England projections until 2027/28, then set at 2% thereafter. | ||||
- Income tax allowances remain frozen
“While Labour pledged no increases to income tax in its manifesto, it is allowing an increase in by the back door on day one. That’s because it’s not ending the deep freeze on income tax thresholds brought in by the Conservatives. They can claim that people are bearing the brunt of Tory policy, but they have opted not to reverse that policy. Had income tax bands not been frozen the personal allowance would be just over £15,000 this year and the higher-rate threshold would sit at just over £60,000. As it is, people are paying more tax than they otherwise would have thanks to the freeze.
“Government data estimates that since thresholds were frozen in the 2021/22 tax year, 4.4 million more people will be dragged into paying income tax in the current tax year as their earnings have exceeded the frozen personal allowance of £12,570. In the same period, almost 1.9 million more people are expected to be dragged into the 40% tax bracket by this tax year. All this means more tax take for the Exchequer, with the nation expected to pay a whopping £63.2 billion extra in tax on earnings this year than in 2021/22. This highlights the challenge facing Labour: namely that ending the freeze costs a lot of money which they either don’t have or want to spend elsewhere.”
- VAT to increase the price of private school fees
“For many parents one of the biggest dents in their personal finances under Labour will come from increases in private school fees. Labour’s plan to bring in VAT on school fees, as well as ending business rate relief for these schools, is expected to significantly increase the cost of private schooling. It’s expected that schools will absorb some of these cost increases, so there’s no clear rule about how much fees will increase by.
“Some schools are offering the ability to pay upfront for fees, in order to bypass the VAT-related increases. However, it’s expected anti-forestalling rules will be brought in to limit how effective this is. Based on the average day-school fee of £18,064 a year per pupil, a family with two children would see their annual costs rise by just over £7,000 a year if the full 20% cost increase was passed on, or £3,600 if the school absorbed half that increase and passed on a 10% rise in fees.
“While some parents will opt out of private school altogether in favour of the state system, others will absorb the price hike, make cuts to their budget elsewhere, or ask family for help with the higher fees.”
- Boost pay for 18-20 year olds on the Minimum Wage
“Labour has pledged to extend the minimum wage to younger people, giving an income boost to the youngest and lowest paid workers in the UK. The Conservatives have brought in meaty increases to the minimum wage in the past couple of years, taking it from £9.50 an hour two years ago to £11.44 an hour today. It has also extended the full minimum wage to 21-year-olds, where previously the cutoff was 23.
“But Labour wants to go one step further and give those age 18 and above the full wage. Based on current rates, if 18-year-olds were eligible for the full National Minimum Wage it would represent a £2.84 an hour increase to their salary. For a full-time worker that would mean a more than £5,000 a year increase to their salary*.”
*Based on a 35-hour week.
- Will the proposed UK ISA see the light of day?
“Another Conservative policy that Labour will have to tackle is the UK ISA, which promises another £5,000 ISA allowance but ring-fenced for investments in UK companies. Much of the detail has yet to be worked out, with Labour being left to grasp that particular nettle. Labour didn’t make any mention of it in their manifesto and said it has ‘no plans’ to scrap the policy, although it hasn’t explicitly said it will continue with the reform either.
“Labour has also said it supports ISA simplification to encourage greater utilisation of Stocks and Shares ISAs – a goal which would clearly be undermined if a new type of ISA is added to the mix.
“What is more certain is that Labour is keen to boost investment in UK companies – which is the ultimate aim of the UK ISA. In its manifesto it did pledge to carry out a wide-ranging review of the pensions landscape if it wins power, with the aim of improving outcomes and encouraging greater levels of investment in UK market. So, it may decide to focus its efforts on this instead of bringing in yet another ISA.”
