What does the general election mean for savers?

What does the general election result mean for savers?

August 2024

What does the general election result mean for savers?

August 2024

Labour's landslide victory in the recent general election has set the stage for a new chapter in British politics after 14 years of Conservative administration. Labour has promised ‘a decade of national renewal’, but what could this new government really mean for the pounds in your pocket? In this blog, we look at what measures Sir Keir Starmer’s government could announce over the coming months and what impact this could have on your plans to save.

Interest rates: what's changed?

Regardless of the election outcome, inflation is falling¹ and interest rates have started to come down, which could present a change for savers. Lower rates will benefit mortgage borrowers with cheaper home loans, but it could lower returns for savers.

If you’re looking to make your money work as hard as possible for you, consider balancing your savings by locking some funds into a fixed rate savings account, while keeping the rest in an easy access account so you can withdraw your money as and when you need it.

Cutting bills: More money to save?

Prime Minister Keir Starmer aims to tackle the cost of living crisis by reducing energy bills. His government’s plans include launching Great British Energy to invest in renewables². Over time, the measures aim to lower energy bills by reducing the UK’s reliance on foreign and fossil fuel energy sources.

These policies will take time to have an impact, but if successful you could find you have more money in your pocket to put towards saving for your future – whether that’s buying a home, retiring or enjoying more of what you love.

Tax, savings and ISAs: What can we expect?

In its election manifesto, Labour committed to no increases to income tax, VAT and National Insurance. Since coming into power, this pledge looks less firm and more will be revealed in October's Budget. Additionally, the future of other taxes is open to review, and this could also impact how you save.

It’s anticipated that the government might adjust Capital Gains Tax (CGT) to raise more money³. This is paid on the profit you make when you sell an asset, such as a property that’s not your main residence or stock market investments not held in an ISA. Current CGT rates for individuals range from 10% to 24%, depending on the asset you sell and your taxable income. If you’re already buying and selling shares on the stock market, a decision to raise or align CGT with income tax rates could reduce the final profits you make when you sell these assets.

Labour also has no plans to backtrack on the Conservatives’ previous decision to freeze income tax thresholds until April 2028. Should your salary rise to £50,271, you could find yourself moving onto the higher 40% income tax rate. If you’re planning to save, being on this higher band will reduce some of your tax-free benefits, including cutting your Personal Savings Allowance from £1,000 to £500 annually.

There could be better news for savers with a pledge from Labour to simplify the ISA system, but it remains to be seen what specific changes it will propose⁴. Together with a potential tinkering of CGT rates, these policies could make tax-free ISA options, such as Stocks and Shares ISAs and Cash ISAs, an even more attractive home for your money.

Pensions shake-up?

Conversations in the corridors of power suggest that we could see changes to pensions too. The Chancellor of the Exchequer, Rachel Reeves, has launched a major review into auto -enrolment and the workplace pensions UK employees contribute to as part of their monthly earnings⁵.

One policy being considered as part of the review is an increase in pension contribution rates from workers. If you have a workplace pension, you’ll already contribute a minimum of 5% of your salary to it each month, which is then topped up by at least a further 3% from your employer. A higher employee contribution rate would help grow your retirement savings more quickly, but these funds will be coming from your salary, and you might have less to save towards near-term goals.

What lies ahead?

As the new government gets its feet under the cabinet table and starts to announce its agenda, the impact on your wallet will become clearer. The Chancellor's first Budget, set to take place on 30 October, will reveal more details.

At Coventry Building Society, we’ll be closely monitoring these developments and keeping you informed.

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1. Source - https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising

2. Source - The King's Speech 2024 - GOV.UK (www.gov.uk)

3. Source - Labour has been quiet on CGT, but what might we expect? - FTAdviser

4. Source - Five changes coming to your finances under Labour | AJ Bell

5. Source - Rachel Reeves may ask workers to increase pension contributions (telegraph.co.uk)

Information correct as at August 2024.

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Labour's landslide victory in the recent general election has set the stage for a new chapter in British politics after 14 years of Conservative administration. Labour has promised ‘a decade of national renewal’, but what could this new government really mean for the pounds in your pocket? In this blog, we look at what measures Keir Starmer’s government could announce over the coming months and what impact this could have on your plans to save.

Interest rates: what's changed?

Regardless of the election outcome, inflation is falling1 and interest rates have started to come down, which could present a change for savers. Lower rates will benefit mortgage borrowers with cheaper home loans, but it could lower returns for savers.

Cutting bills: More money to save?

Prime Minister Keir Starmer aims to tackle the cost of living crisis by reducing energy bills. His government’s plans include launching Great British Energy to invest in renewables2. Over time, the measures aim to lower energy bills by reducing the UK’s reliance on foreign and fossil fuel energy sources.

Tax, savings, and ISAs: What can we expect?

It’s anticipated that the government might adjust Capital Gains Tax (CGT) to raise more money3. This is paid on the profit you make when you sell an asset, such as a property that’s not your main residence or stock market investments not held in an ISA. Current CGT rates for individuals range from 10% to 24%, depending on the asset you sell and your taxable income. If you’re already buying and selling shares on the stock market, a decision to raise or align CGT with income tax rates could reduce the final profits you make when you sell these assets.

There could be better news for savers with a pledge from Labour to simplify the ISA system, but it remains to be seen what specific changes it will propose4. Together with a potential tinkering of CGT rates, these policies could make tax-free ISA options, such as Stocks and Shares ISAs and Cash ISAs, an even more attractive home for your money.