What could the new Prime Minister have in store for our personal finances?

In less than a month either Boris Johnson or Jeremy Hunt will be chosen by 160,000 Conservative Party members as Prime Minister of the United Kingdom.

Both candidates have made pledges as part of their respective leadership campaigns which voters will expect them to fulfil. They will also be tied to the Conservative manifesto Theresa May was elected on in 2017.

And then there’s Labour, which is busy setting out its policy platform ahead of a general election it hopes will happen sooner rather than later.

So what could all this mean for people's personal finances?

The favourite – Boris Johnson

Boris Johnson set his stall out early with a controversial pledge to hand a £9 billion tax boost to 4 million higher earners by raising the 40p higher-rate tax threshold from £50,000 to £80,000.

The move is expected to benefit the top 10% of earners to the tune of almost £2,500 a year.

Pensioners enjoying high incomes look set to be the big winners as they won’t be affected by Johnson’s plan to raise the National Insurance ceiling to help pay for the measure.

At the other end of the income spectrum, Johnson has signalled his intention to raise the level at which NI payments kick in.

While he hasn’t gone into specifics (shock), the IFS reckons every £1,000 increase in the level would cost about £3 billion a year.

If Johnson follows through on his promises, and that feels like a big if at this stage, we could be talking about a total annual cost of £20 billion – roughly half the amount currently spent on pension tax relief each year. Although it’s worth noting raising the point at which the higher-rate tax threshold kicks in would lower the tax relief available to those affected from 40% to 20%.

Despite this higher-rate pension tax relief would likely come under pressure in this scenario, particularly if a No Deal Brexit places further strain on the UK economy.

However, Johnson is above all else a pragmatist and will be fearful of anything which could alienate core Tory voters.

Johnson is also reportedly considering putting rocket boosters under the property market by scrapping stamp duty on homes worth less than £500,000. The move is said to be part of his emergency Budget plans if the UK leaves the EU without a deal.

This would represent a major giveaway of up to £10,000 for first-time buyers and £15,000 for other property buyers.

While such a move would clearly be welcomed by those looking to buy a home, there is a major risk stimulating demand in the market without an expansion in property supply will simply fuel further house price inflation.”

The underdog – Jeremy Hunt

Johnson’s rival for the top job Jeremy Hunt appeared cool on the idea of lowering income tax for higher-earners, warning the Conservatives ‘must never fall into the trap of tax cuts for the rich’.

Instead he has pledged to axe employee National Insurance for the first £1,000-a-month of earnings, a policy expected to cost north of £10 billion. Currently employee NI is levied at 12% on earnings between £8,632 and £50,000, and 2% on earnings above this level.

Raising the NI primary threshold would increase disposable income for all taxpayers, with both Hunt and Johnson presumably banking on people spending this extra cash in the real economy.

Hunt is also keen to appeal to younger voters and has pledged to tackle the student loans scandal that has seen some paying over 6% interest on their debt. Hunt has suggested he wants to return to the pre-2012 system where loan interest simply reflected RPI inflation, a move which would cost an estimated £1 billion.

Hunt’s big focus looks to be on social care, an issue which successive Governments have pledged to address and subsequently dodged due to the political sensitivity and cost of the plans outlined to-date.

Hunt admitted during the TV debates that cuts to local authority budgets, which sit at the centre of the existing system, went ‘too far’. In 2017/18 local authorities spent £21.3 billion on social care in England, down from £22 billion in 2010/11.

It is not clear yet exactly what the former Health Secretary would do here, although he will be faced with the same challenges policymakers have failed to grip since 2010.

A cap on care costs of £72,000 was supposed to be introduced in 2016, only to be unceremoniously ditched amid concerns over costs and the fact it would favour wealthier homeowners.

A subsequent proposal ahead of the 2017 election - which would have introduced a £100,000 ‘floor’ below which people’s assets would be protected - was mired in confusion over whether or not overall costs would be capped.

It was eventually labelled a ‘manifesto meltdown’ and once again the issue was kicked into the long grass, with a ‘green’ consultation paper outlining alternative ways forward expected at some point this year.”

The alternative – Jeremy Corbyn

Given the state of uncertainty facing the country – not to mention Parliament’s apparent reluctance to countenance a No Deal Brexit – there is every chance we could have a general election either this year or next.

If that happens, the UK faces the prospect of a Labour Government led by the most left-wing leader in a generation, Jeremy Corbyn. Unsurprisingly the Party is already beginning to roll the pitch with a series of eye-catching policy proposals.

One idea reportedly under consideration by Labour would see the capital gains tax exemption people currently enjoy on their main home scrapped.

Wealthier Brits would almost certainly be in Labour’s sights too, with Shadow Chancellor John McDonnell eyeing a ‘wealth tax’ which could look to seize 20% of the assets of the richest 10%. The tax was also mentioned in the 2017 Labour manifesto as a possible option to raise funds for its wide-ranging social care plans.

Labour is almost certain to go in the opposite direction to Boris Johnson when it comes to income tax, having already set out plans to bring the 45p threshold down to £80,000 and introduce a new 50p rate for those earning over £123,000.

If left unchecked this would have the presumably unintended consequence of further skewing pension tax relief in favour of higher-earners. Assuming this isn’t McDonnell et al’s intention then further changes to retirement savings incentives would almost certainly be on the cards, presumably focused squarely on higher and additional-rate taxpayers.

Older savers would also likely receive a boost under Labour, with the Party expected to freeze planned increases in the state pension age beyond 66 and look at ways to develop a ‘flexible’ system which takes account of life expectancy variations.”

These articles are for information purposes only and are not a personal recommendation or advice.