What does a Labour Government mean for your finances?

Labour has won the UK General Election and formed a majority Government, marking a major change in political leadership after 14 years of Conservative rule.

Keir Starmer has become Prime Minister, while his colleague Rachel Reeves, a former Bank of England economist, has become Chancellor of the Exchequer.

Before the conclusion of the election, Labour set out its political agenda through its manifesto, and spokespeople for the party talked about a variety of potential policies that could affect our personal finances in particular ways.

It remains to be seen what the new Labour Government enacts first, and how quickly it looks to implement those policies. The official state opening of Parliament is due on 17 July, but there is no fixed date for a fresh Government Budget, when most fiscal announcements would be made.

However, it is important to be aware of and plan for potential changes, both before and when they are announced, in order to ensure the best outcome for our long-term financial plans.

Here are the biggest potential policy changes you should be aware of.

Economy

Labour’s election manifesto was highly focused on how its Government would look to concentrate on improving the fortunes of the UK economy. This will be one of its key priorities now the party is in power.

The party has pledged to maintain tight fiscal rules which include debt as a proportion of GDP falling over five years.

This does however put significant constraints on how the new Chancellor can apportion the Government’s budget to invest in areas such as roads, the NHS and other aspects of the economy which it sees as in need of significant extra support.

Taxes

The Labour Party has been relatively restrained in its tax commitments as it looks to quell any suggestion that hikes could be on the horizon. Currently however, we do know a few commitments the party has made.

It has committed to not increasing taxes on working people. This however pertains purely to the headline rates. The party has not agreed to end the freeze on thresholds which causes workers to tip into higher rate bands as their earnings increase – so-called fiscal drag. This is a policy the Conservative Government has already had in place for several years however.

As for other measures, the party has committed to maintaining corporation tax at 25% over the parliament. It has also pledged to increase tax for non-domiciled residents, although without any detail on specific measures.

It has also pledged to end the use of offshore trusts for inheritance tax mitigation purposes, while it has said it would change the treatment of private equity earnings for capital gains tax (CGT) purposes.

Finally, Labour has committed to ending the VAT exemption on private school fees. This would mean a hike of 20% for parents who send children to private school.

The party has said it will look to introduce this for the school year beginning September 2025, but has suggested schemes to avoid the fees, such as bulk paying before the new rate begins, could be clamped down on with backdating of the rate.

Despite much speculation, there has been no news on what Labour’s plans for inheritance tax (IHT) will once in office.

Pensions

Labour has pledged to maintain the state pension triple lock. This is a now-longstanding policy which guarantees the state pension will increase each year, depending on which is higher at the time – inflation, average wage increases or 2.5%.

Elsewhere for pensions, Labour has committed to encouraging major UK-based pension schemes to invest more of their capital in the UK, but this is a continuation of a policy being pursued by the current government.

Finally, Labour has backed down from the suggestion that it would reintroduce the pensions lifetime allowance, despite its recent abolition – giving some certainty to those using pensions to build long-term retirement portfolios.

At Finli we are committed to responding to significant changes in policy that could have adverse effects on client portfolios.

If you would like to discuss in greater detail how some of these potential policy changes might affect your finances, don’t hesitate to get in touch to speak to an adviser.