Is the hung parliament good news for your finances?


hung parliamentTheresa May’s rash decision to call a snap general election has resulted in a hung parliament. The Conservative party has gone from a slim overall parliamentary majority to a government that can only be sustained by the support of the Democratic Unionist Party.

It means that the DUP will need to be consulted on policy, and that many of the measures in the Conservative manifesto could be scrapped or at least watered down. This is of course not only unfortunate, but also probably career shortening for the PM. But could it mean good news for your personal finances?

The ‘dementia tax’ – and care funding reform

Theresa May’s flagship election policy was the radical reform of how long-term care will be funded. Currently the state will fund a stay in a care home if the value of the individual’s assets, including their home, is less than £23,250.  Different limits apply in Scotland and Wales. However, if care is given at home property values are not taken into account.

The ‘dementia tax’ proposal initially suggested there would be no limit on care bills.  It raised the asset threshold to £100,000 but would include property even when care is provided at home. Mrs May promised that no one would have to sell their home to pay for care. Instead, costs would be recouped from the estate after death if assets amounted to more than £100,000.

The ‘dementia tax’ deterred core Tory voters. In a rapid about-turn before the election, Mrs May promised an overall cap would be considered as part of a consultation, making a mockery of her claim to represent a “strong and stable” party. The proposal looks unlikely to resurface.

Inheritance Tax and probate

Changes in Inheritance Tax are unlikely, and the sliding scale for the rules which began this year to allow home owners to leave an extra £100,000 – rising to £175,000 in 2020/21 – will continue. But plans to raise probate fees from £215 to £20,000 were dropped when the election was announced. The government is unlikely to risk bringing it back.

State pension age and the triple lock

Pension reforms are becoming inevitable as costs spiral. The Conservatives were proposing to end the triple lock which guarantees that the state pension will to rise each year by either 2.5%, the rate of inflation or wage growth – whichever is highest.

Thanks to the triple lock the state pension has grown nearly twice the rate of the average income in recent years. Conservatives wanted to scrap the guarantee from 2020 and raise the state pension by the higher of prices or earnings. But the DUP seems to want to retain it.

There may be similar conflicts over the state pension age, which Conservative policy suggested would rise, and the DUP may be set to leave as it is.

Income Tax

Tax is one area where Conservatives and DUP agree. The Tory manifesto promised to raise the tax-free allowance, the threshold for income tax to £12,500 by 2020. That’s an extra £200 for most earners. It also proposed increasing the higher income tax band to £50,000, meaning as much as £1,000 a year extra for high earners.

Outside parliament

The effect of the hung parliament has already been felt outside the palace of Westminster.

The pound plunged 2% on the uncertainty about who would be leading the country. This may make your holiday money more expensive, but it also caused shares in some of Britain’s biggest companies to rise. Companies that earn profits in foreign currencies benefit when the pound weakens. So the index of biggest firms, the FTSE 100, rose, while smaller and domestic companies fell. Overall diversified funds are probably no worse off, and are at levels considerably higher than a year ago.

Some observers believe that the new government’s compromise policies will lead to a looser fiscal strategy, with more borrowing and more spending. This may inject growth into the economy, leaving the UK better off in the future.

Brexit

Of course, the biggest impact of the new government could be on Brexit. Mrs May seemed prepared for a hard Brexit. The DUP is likely to want to preserve the free border between Northern and Southern Ireland. This means membership of the EU Customs Union, leading to a softer Brexit than the one the PM was pursuing. A less hardline stance on immigration, more integration with the single market and a longer transitional arrangement with EU laws after leaving the bloc may follow,  reflecting city sentiments and potentially benefitting the UK economy.

What should you do?

The rejection of the more extreme measures that had been proposed by the government may mean uncertainty, but it could also bring benefits.

It may be time to look at your own arrangements, and see if they should reflect the new financial outlook. A call to the Continuum team could provide the help you need.

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