In a landmark victory, the Labour Party triumphed in the 2024 UK general election, securing a substantial majority. Keir Starmer has assumed the role of UK prime minister, ending 14 years of Conservative rule.
Rachel Reeves, the new chancellor, has committed to “repairing the foundations” of the British economy to stimulate growth.
Continue reading to discover how a Labour government might influence your finances.
National Insurance, Value Added Tax (VAT), and Income Tax set to remain the same
In their 2024 manifesto, Labour promised not to “raise taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
However, millions of people are likely to experience a higher Income Tax burden in the coming five years due to fiscal drag. Labour plans to continue the Conservative policy of freezing the Personal Allowance and the thresholds for higher- and additional-rate Income Tax.
Importantly, the party has not provided any guarantees regarding Stamp Duty, Capital Gains Tax (CGT), and Inheritance Tax, except for ruling out CGT on primary residences. This leaves room for potential reforms or adjustments in these areas during the administration’s first Budget.
Keir Starmer has already announced that the temporary increase in the Stamp Duty threshold for first-time buyers will revert to its previous level of £300,000 in April 2025 (down from the current £425,000).
In their first Budget, Labour is expected to tackle what they perceive as “unfairness” in the tax system. Some measures that Rachel Reeves might introduce include:
- Abolishing non-dom status and replacing it with a modern scheme for individuals genuinely in the country for a short period.
- Ending the use of offshore trusts to avoid Inheritance Tax (IHT).
- Removing the VAT exemption and business rate relief for private schools, with the additional tax revenue aimed at addressing the estimated shortage of 6,000 teachers by funding teacher training programs.
- Labour is eager to boost investment in the UK economy, and Jeremy Hunt’s proposal for a “UK Individual Savings Account (ISA)” could potentially be included in the Budget as well.
Maintaining the State Pension triple lock, and a likely “pensions review”
Labour has committed to keeping the State Pension triple lock in place.
This triple lock guarantees that the State Pension increases annually by the highest of:
- Inflation, measured by the Consumer Prices Index (CPI) from the previous September
- Average wage growth across the UK
- 2.5%
This commitment indicates that the policy is likely to remain in place until at least 2030.
During the election campaign, Labour also confirmed a change in their previous stance, stating that they have no plans to reintroduce the pension Lifetime Allowance (LTA).
The LTA previously capped the amount you could hold in your pensions without incurring an additional tax charge upon accessing the funds. Chancellor Jeremy Hunt removed this additional LTA tax charge in April 2023, and subsequently abolished the LTA altogether in April 2024.
Labour has stated it will not reintroduce the charge to provide certainty for savers, citing the complexity of reinstating the former rules.
Regarding private pensions, the party has been less specific, promising reforms following a review of the current system. Labour might announce this review in the coming weeks, potentially during the first King’s Speech.
Although Labour has not detailed its vision for change, its manifesto emphasizes a new system focused on achieving “better outcomes” for savers and retirees, and enhancing “security in retirement”.
This implies that reforms could be introduced later on, though they are unlikely to occur before the 2025/26 tax year at the earliest, depending on the scope of the review.
Labour has expressed its intention to boost investment from pension funds in UK markets.
The party aims to implement reforms that “will ensure workplace pension schemes benefit from consolidation and scale, delivering better returns for UK savers and greater productive investment for UK PLC”.
Interest rates set to fall, and ambitious housebuilding targets
A piece of favorable news for the new Labour government is the anticipated reduction in interest rates within their initial weeks in office.
With inflation finally hitting the Bank of England (BoE) target of 2%, the BoE is expected to lower interest rates at its next policy meeting in August. This move will likely reduce the cost of personal and business borrowing for those on tracker- or variable-rate deals.
While those with fixed-rate mortgages won’t immediately benefit from a rate cut, this could help secure a cheaper deal when it’s time to take out a new home loan.
To address the property shortage, Labour has committed to building 1.5 million homes over the next five years.
The party plans to enable local authorities to allocate more green belt land for housing. Additional planning policies proposed by the new government include:
- Reintroducing mandatory local housing targets, which were previously scrapped by the Conservatives
- Funding additional council planning officers
- Reviewing green belt boundaries to prioritize brownfield and “grey belt” land for meeting housebuilding targets
- Publishing new design codes to improve the quality of newly built properties
A key pillar of the Labour manifesto is to assist more young people in getting onto the property ladder.
Labour aims to “give young people first dibs” on new housing developments and introduce a permanent Freedom to Buy mortgage guarantee scheme.
This permanent mortgage guarantee scheme is designed to assist prospective homeowners who have difficulty saving for a large deposit. Labour claims their plans will help 80,000 young people get onto the housing ladder over the next five years.
Enhancing employee rights and the minimum wage could affect your business
If you own or manage a business, be aware that Labour has confirmed a “new deal for working people” and plans to introduce legislation within the first 100 days of office. These plans include:
- Banning zero-hours contracts
- Ending “fire and rehire” practices
- Introducing parental leave, sick pay, and unfair dismissal rights from day one of employment
Labour also intends to reform the minimum wage, making it a “genuine living wage” and removing age bands, so every adult receives the same rate. This could increase your salary costs if you employ individuals under 21. However, there has been no clarification on whether “adult” includes those over 16 or over 18.
An Autumn Budget?
The first significant date in the new government’s calendar is the King’s Speech on July 17, which will outline the legislative agenda and reveal the policy priorities for the coming year.
Labour has stated it will not deliver a Budget without forecasts from the Office for Budget Responsibility (OBR). Since it takes around 10 weeks for the OBR to assess the economic impact of policy announcements and produce a report, the earliest possible date for the Budget would be mid-September.
However, with the Labour Party Conference scheduled for September 22-25 and the Conservative Conference from September 29 to October 2, an October or November date is more realistic for the first Budget. Rachel Reeves has confirmed that she will set the date before the summer parliamentary recess.
Labour has committed to holding one major fiscal event per year, providing families and businesses with advance notice of tax and spending policies.
It seems likely that, whatever reforms the party announce in their Autumn Budget, the timetable means that these will come into force at the start of the 2025/26 tax year. This should give you the opportunity to plan ahead of any proposed changes.
Markets have historically reacted positively to a change of government
With the likely result of the election already priced into markets, there was little movement in the FTSE 100 as news of Labour’s victory filtered through. The pound was largely unchanged against the dollar.
However, research by AJ Bell suggests that a change of government can be positive news for markets.
On average, the FTSE All-Share has seen double-digit percentage gains in the first year following an election where one prime minister is replaced. There are also higher average gains when a government changes compared to when it remains the same.
Markets typically dislike uncertainty, so a clear election result could lead to a period of financial stability, potentially sparking renewed investor interest in the UK.
Additionally, if Labour’s pension review results in increased investment in UK companies, it could further enhance the attractiveness of UK equities.
Get in touch
If you have any questions about how the Labour administration could affect your finances, please get in touch.
The content of this article is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
Information is taken from the Labour Party manifesto.
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