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Changing tax to steera different course

The American financier Bernard Baruch was clear in his advice to voters during the 1960 presidential election contest between John Kennedy and Richard Nixon. “Vote for the man who promises least,” he said. “He&#39ll be the least disappointing.”

Unabashed by such scepticism, William Hague is offering the voters in this country “common sense” while Charles Kennedy is offering them “freedom, justice, honesty”. Both are attacking Tony Blair for his Government&#39s approach to tax, savings and investment.

Such is the flotsam and jetsam of a typical general election. This flotsam and jetsam has already disproved the theory propounded by a number of commentators that this particular general election would be dull.

Interestingly, perhaps inevitably, it is the issue of tax which goes to the heart

of IFAs&#39 support for their clients, which has ignited the political debate.

Clearly, whatever the outcome of the election on June 7, there will be direct implications for the UK&#39s life, pensions and investment ind- ustry. Important aspects of the political debate are focusing on issues of direct relevance to IFAs and their clients. Those areas include:

Reforms to the rules governing annuities.

Different ways of saving for retirement.

Reforms to long-term care for the elderly.

Changes to capital gains tax.

Variations in income tax rates.

Different approaches to taxes on savings, dividends and inheritance.

All these topics are meat and drink to the typical IFA and are of vital importance to clients the length and breadth of the country.

Perhaps surprisingly, an examination of the manifestos of the two main Opposition parties shows that there are, in fact, some areas of common ground between them on topics that are central to IFAs&#39 work for their clients.

For example, the Conservative manifesto pledges to abolish the rule which currently forces pensioners to buy an annuity when they reach 75. The Liberal Democrats promise to relax current rules which require people to buy an annuity on or before their 75th birthday. Like all the significant policy changes proposed by all the parties, including Labour, any relaxation of this kind would clearly present business opportunities for the financial services industry.

Both main Opposition parties want to introduce other significant pensions changes. The Conservatives want to enable young people to build up a “funded alternative to the basic pension for the future” – they would consult on how best to offer this option to young people.

The Liberal Democrats, on the other hand, envisage a new Owned Second Pension Account so that a growing proportion of the workforce would be members of a company pension scheme or had such an “account”.

The two parties also tackle the issue of long-term care in their manifestos: The Conservative promise is to consider how people who have made prudent provision in advance for the cost of long term care can be protected from having their assets taken by the state if their actual care costs are more than could reasonably be foreseen.

The Liberal Democrat promise is to pay for all long-term personal care costs.

There, by and large, the similarities end.

While the Conservative manifesto attacks capital gains tax for being “exactly what a tax ought not to be…at a high rate with lots of complicated exemptions”, the Liberal Democrat manifesto talks about “closing loopholes in capital gains tax”.

The Liberal Democrats want to “fund substantial immediate increases in pensions and raise investment in the NHS” by setting a new top tax rate of 50 per cent on income over £100,000 a year.

They would increase the basic state pension (as would the Conservatives) and “reward pensioners who have saved throughout their lives by scrapping the rules which deny help to people with savings above £12,000”. They would fund improvements in education by putting 1p on the basic rate of income tax.

At the same time, their long-term goal is to remove taxation for the lowest-paid so “nobody pays any tax on their earnings up to £6,500”. According to the Liberal Democrats, anyone earning less than £25,000 would pay less tax, even allowing for our 1p for education.

The Conservative approach, on the other hand, is to “carefully target tax cuts to help people at times in their lives when they need it most”.

Specific tax cuts listed by the Conservative manifesto include the abolition of taxes on savings and dividends (except for higher-rate tax payers) and the raising of

personal allowances for pensioners by £2,000.

In addition, the Conservative manifesto holds out the prospect of the introduction of a new married couple&#39s allowance enabling someone who is not using all or part of their personal tax allowance to transfer it to a working spouse if they have children under 11 or receive invalid care allowance in respect of a relative.

Other Conservative priorities include raising the inheritance tax threshold and raising the threshold at which people begin to pay higher rate income tax “because it currently catches people who are not, by any definition, rich”.

Other Liberal Democrat priorities include the introduction of new “safeguards” for people taking out mortgages and a review of the regulation of the life insurance sector “to protect the savings and pensions of millions of people”.

At a macro-economic level, of course, the two parties take opposite views on the vexed issue of UK entry into the euro. The Conservatives promise to keep the pound while the Liberal Democrats say they will enable British euro entry, subject to the decision of the British people in a referendum.

It should be borne in mind that the term main Opposition parties means different things in different parts of the UK.

In Scotland, it includes the Scottish National Party, in Wales it includes Plaid Cymru and in Northern Ireland the composition of the political parties is very distinctive from that in Britain. Nevertheless, the issues of direct relevance to IFAs&#39 business remain the responsibility of the Parliament in Westminster.

So, however jaundiced and sceptical the voters might be perceived to be feeling, an examination of all parties&#39 manifestos confirms that a general election continues to provide a rare opportunity for a lively debate and discussion of new and different ideas.

From the point of view of IFAs, it is encouraging that the stream of ideas gives such potentially significant scope to add value to clients in the years ahead.

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