In a decisive and historic victory, the Labour Party won the 2024 UK general election with a significant majority and Keir Starmer has become the UK prime minister after 14 years of Conservative government.
The new chancellor, Rachel Reeves, has already pledged to “fix the foundations” of the British economy in a bid to drive growth.
Read on to find out what a Labour government could mean for your finances.
National Insurance, Value Added Tax (VAT), and Income Tax set to remain the same
In their 2024 manifesto, Labour said they would not “increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT”.
Despite this, millions of people seem likely to face a higher Income Tax burden over the next five years as a result of fiscal drag. The party are set to continue the Conservatives’ freeze of the Personal Allowance and the thresholds at which higher- and additional-rate Income Tax are charged.
Notably, the party has offered no assurances about Stamp Duty, Capital Gains Tax (CGT) and Inheritance Tax, other than ruling out applying CGT to primary residences. Consequently, there is the potential for reforms or tweaks to these in the administration’s first Budget.
Indeed, Keir Starmer has already indicated that he will let the temporary increase in the Stamp Duty threshold for first-time buyers return to its previous level of £300,000 in April 2025 (it is currently £425,000).
What Labour are likely to do in the first Budget is to address what it calls “unfairness” in the tax system, and these could be some of the measures Rachel Reeves presents:
- Abolishing non-dom status and replacing it with a modern scheme for people genuinely in the country for a short period.
- Ending the use of offshore trusts to avoid IHT.
- Ending private schools’ VAT exemption and business rate relief. They plan to use this additional tax revenue to train more teachers, citing an estimated shortage of 6,000.
With Labour keen to increase investment in the UK economy, Jeremy Hunt’s proposal for a “UK Individual Savings Account (ISA)” could potentially make an appearance in the Budget too.
Maintaining the State Pension triple lock, and a likely “pensions review”
Labour has committed to keeping the State Pension triple lock in place.
The triple lock ensures that the State Pension rises each year by the highest of:
- Inflation, as measured by the Consumer Prices Index (CPI) in the September of the previous year
- Average increase in wages across the UK
- 2.5%.
The commitment means that the policy is likely to stay in place until at least 2030 at least.
During the election campaign, Labour also confirmed that, in a change from their previous stance, they have no plans to reintroduce the pension Lifetime Allowance (LTA).
The LTA capped the amount you could hold in your pensions without paying an additional tax charge when you accessed the funds. Chancellor Jeremy Hunt removed the additional LTA tax charge in April 2023, before abolishing the LTA altogether in April 2024.
Labour has said it will not reintroduce the charge to provide certainty for savers, and because they say it would be too complex to bring back the former rules.
On private pensions, the party has been more vague, promising reform after a review is conducted into the current system. Labour could well announce this review in the next few weeks – perhaps even in the first King’s Speech.
While Labour hasn’t outlined a detailed vision for change, its manifesto said the new system would be centred around delivering “better outcomes” for savers and retirees, as well as bolstering “security in retirement”.
This means there could be reforms further down the line, although these are unlikely to take place before the start of the 2025/26 tax year at the earliest, depending on the scope of the review.
Labour have said that they will act to increase investment from pension funds in UK markets.
The party plans to adopt reforms that “will ensure that workplace pension schemes take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC”.
Interest rates may fall, and ambitious housebuilding targets
One piece of good fortune the new Labour government may benefit from is that we might see a cut in interest rates within their first few weeks of office.
With inflation having finally reached the Bank of England (BoE) target of 2%, the BoE may cut interest rates at its next policy meeting in August. That would reduce the cost of your personal and business borrowing if you’re on a tracker- or variable-rate deal.
While you won’t immediately benefit from any cut if you’re on a fixed-rate mortgage, this could help you secure a cheaper deal when you come to next take out a home loan.
To tackle a property shortage, Labour has pledged to ensure that 1.5 million homes are built over the next five years.
The party wants to allow local authorities to earmark more green belt land for homes, while other planning policies the new government have outlined include:
- Reintroducing mandatory local housing targets scrapped by the Conservatives
- Funding additional council planning officers
- Reviewing green belt boundaries to prioritise brownfield and “grey belt” land to meet housebuilding targets
- Publishing new design codes, to try to raise the quality of the properties built.
One key pillar of the Labour manifesto was to help more young people onto the property ladder.
They say that they want 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 will help prospective homeowners who struggle to save for a large deposit. Labour says their plans would support 80,000 young people to get on the housing ladder over the next five years.
Enhancing employee rights and the minimum wage could affect your business
If you own or run a business, Labour has confirmed a “new deal for working people” and says it will introduce legislation within the first 100 days of office. These plans include:
- Banning zero-hours contracts
- Ending “fire and rehire”
- Introducing parental leave, sick pay, and unfair dismissal rights from day one.
Labour also intends to reform the minimum wage, so it becomes a “genuine living wage”. Additionally, they plan to remove the age bands, so every adult is entitled to the same rate of minimum wage – potentially pushing up your salary costs if you employ under 21-year-olds. Note that there has been no clarification on whether an “adult” includes over-16s or over-18s.
An Autumn Budget?
The first significant date in the new government’s calendar will be the King’s Speech on 17 July. This will set out the next government’s legislative agenda and is when you’ll find out exactly what the new administration’s policy priorities are for the coming year.
Labour has previously said it would not deliver a Budget without forecasts from the Office for Budget Responsibility (OBR). Considering that it takes around 10 weeks for the OBR to assess the economic impact of policy announcements and produce a report, the earliest that the Budget could take place would be mid-September.
However, the Labour Party Conference will take place from 22 to 25 September, with the Conservative conference following between 29 September and 2 October.
Consequently, an October or November date is perhaps more realistic for the party’s first Budget. Rachel Reeves has confirmed she will set the date before the summer parliamentary recess.
Labour has also committed to one major fiscal event a year, giving families and businesses due warning 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.
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.