The hung parliament and your finances

Paul Lewis / 09 June 2017

Saga Magazine’s money expert Paul Lewis examines the possible effect of the hung parliament on over-50s’ finances.

For the second time this century we have a hung parliament. The Conservatives have the most seats but Theresa May’s position is in doubt. She called an election three years before she had to and has sacrificed three years of majority Conservative rule.

Why the DUP Manifesto is important to you

The Conservatives have the most seats and have done a deal to form a minority Government propped up by the ten – up from 8 – MPs from the Northern Ireland party the DUP. Together they will have a wafer thin majority boosted slightly by the fact that the seven Sinn Fein MPs (up from five) will, on present policies, not attend parliament.

Suddenly the DUP’s short Manifesto is the key to understanding what might happen to our personal finances. With a fragile majority any plans could always fall in the House of Commons. Perhaps the best – or worst – we can hope for is another election in the next few months.

Why the effect on the pound matters

One thing is immediately clear though – the uncertainty has been very bad for the pound. People often ask me – I’m going on holiday, should I buy my foreign currency now or when I go? My answer always is buy it when you need it – but not of course at the airport where rates are rubbish. Because no-one can predict currency movements. But if you delayed buying your dollars or euro until this week you may find you get a lot less than you would have got last week. The pound plunged 2% when the exit poll predicted a hung parliament. And it has not recovered significantly since that prediction was borne out.

The fall in the pound is not only due to the uncertainty about who will govern the country. It is also because it is equally unclear who will lead the Brexit negotiations. That could lead to more uncertainty and more volatility.

How to get a deal on holiday money

Paying for care

The controversial plans for paying for care in England are surely in the bin. Even with a small majority the Conservatives would have found getting those plans through very difficult. So expect no change there for now.

Half of all pensioners pay income tax. The Conservatives’ promise to raise the personal allowance to £12,500 by 2020 looks likely to survive. The DUP supports that move. “In Parliament, we will support proposals to further increase the personal allowance” says its Manifesto. But raising the higher rate threshold (outside Scotland) to £50,000 looks less likely. Such a move would give the better off a £1000 cut in income tax on top of the £200 from raising the personal allowance. That would help relatively few people in Northern Ireland.

The rules around paying for care

Income tax and VAT

The Conservatives say they are the low tax party and have no plans to raise income tax rates. However, there was no commitment in the Manifesto to freeze it. The Conservative MP for Croydon South, Chris Philp, who spoke for the Party on finance issues, told me that Brexit meant more uncertainty than usual and Conservatives did not want to make a promise it wasn’t “110% sure” it could keep. That may mean raising tax rates could be on a minority government’s mind. The Liberal Democrats would support such a move. More than a million pensioners work and many are on the National Living Wage. Conservative plans to raise that to £9 by 2020 will be supported by the DUP.

The Conservative Manifesto does say “we will not increase the level of VAT”. But critics have pointed out that leaves open the possibility of extending VAT to things currently exempt – such as printed books and newspapers. The Conservatives have said there are no plans to do so. And such a change is unlikely in the present febrile situation.

Winter Fuel Payment

Conservative plans to means-test the Winter Fuel Payment look doomed. The details were not clear – though the ‘poorest’ would keep it and ‘Bernie Ecclestone’ would not. But the DUP says in its Manifesto:

“Some parties have once again placed universal benefits like the winter fuel allowance in their sights. The DUP will resist any assault on these important universal benefits.”

Retirement benefits: what are you entitled to when you retire?

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The triple lock

The DUP will also prevent the Conservatives ending the so-called ‘triple lock’. That guarantees the state pension will rise by a minimum of 2.5% every year. Conservatives wanted to scrap that guarantee from 2020 and raise the state pension by the higher of prices or earnings. But the DUP is clear that it will “Support the maintenance of the pensions ‘triple lock’”.

Is the triple-lock pension at risk?

Women pensioners

It also will “Support an end to the unfair treatment of women pensioners.” The Conservatives were completely silent on the problems of the million or so women born in the 1950s whose state pension age was raised twice without adequate – or in some cases any – notice. The DUP pledge could be used to bargain for some help to be given to them – a policy that every other party in Parliament supports.  But if this Parliament lasts just a short time that change is unlikely.

Four reasons women are angry about state pension changes

State pension age

The new Government has an urgent task to respond on future rises in State Pension Age. A report published on 23 March suggested it should rise to 67 by 2037-39, seven years earlier than the current plans. The previous Government should have published its response before 7 May but it was delayed by the election. The Conservative Manifesto simply says “We will also ensure that the state pension age reflects increases in life expectancy, while protecting each generation fairly.” The DUP says nothing about state pension age but it “has always advocated for the interests of our older people”. The law says something must be published but with a fragile coalition government it is hard to see what that might be.

Are you affected by increases in the state pension age?

Inheritance tax

One small piece of stability in uncertain times – further changes in Inheritance Tax are unlikely. We can assume that 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 in England from £215 to £20,000 for some estates are doomed. The plan was dropped once the election was announced and it is inconceivable that it will now see the light of day.

How much inheritance tax will I have to pay?

Normally after an election there is an extra Budget. But this time the main question to be answered is: which will come first – a Budget or another election? 

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.