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Lines of attack

Prime minister Gordon Brown has ruled out going to the polls this year. However, the election fever that gripped the nation over the past few weeks has revealed the dividing lines between the major parties on financial services issues. We look at how their policies on protection, mortgages, housing, tax and pensions are shaping up

INHERITANCE TAX

The Conservatives have warmed the hearts of their traditional supporters – and made a direct appeal to the pockets of middle England – by finding an unpopular tax to cut.

By promising to raise the IHT threshold to £1m, the Tories have put some much needed oomph in their bid for power. The LibDems favour a £500,000 ceiling but will toughen up the gift rules. The next few weeks or even days will see if Labour decides to answer.

MORTGAGES

The Conservatives have pledged to abolish stamp duty for first-time buyers on homes costing up to £250,000. They claim that nine out of 10 new homeowners would not pay the levy, saving them up to £2,500. A future Tory Government would also scrap the controversial home information packs.

The LibDems used their party conference in Brighton to attack Gordon Brown over his economic policies in the last 10 years. Shadow Chancellor Vince Cable said he had been warning Brown for the last few years of the future problems being built up by a boom powered by debt-financed consumer spending, reckless lending and over-optimistic assessments of future housing market growth.

Cable also said appointments to the Bank of England should be independently assessed, inflation measures should include housing and there should be more attention paid by financial regulators to reckless lending.

The Labour party claims it will focus on building more houses, reiterating its earlier announcement that it will invest £8bn in new affordable housing for every corner of the country.

It also says it will provide more help for first-time buyers. Housing minister Yvette Cooper says it plans to increase new social housing from 30,000 homes this year to 50,000 in future years.

PROTECTION

Labour indicated at its party conference that it is working on proposals to reform long-term care funding based on a partnership model where the Government matches contributions made by individuals.

At a fringe meeting at the Tory party conference, Shadow health minister Stephen O’Brien said his party is also looking at this model.

The model was set out in an independent report last year by former Natwest chief executive Sir Derek Wanless. He said the Government should guarantee free care up to 66 per cent of a benchmark package and then match individual contributions for the remaining 34 per cent.

This would cost the Government £3.5bn a year more than current long-term care funding although Wanless said the increase would be nearer to £1.7bn if some welfare benefits were transferred.

NON-DOMICILIARIES

The Conservatives’ strike on non-domiciles in the form of a £25,000 a year annual levy to pay for potential election sweeteners has led to a huge numbercrunching row between the two main parties.

The Tories claim 150,000 people would pay the levy, raising £3.5bn. They say it would be a small amount for most individuals to pay and would offer them a security that was previously lacking.

But the Government suggests that only £650m would be raised as many non-doms could not or would not pay the new levy.

Labour commissioned a review into non-dom status in 2003, which never saw the light of day, and the tax position of these individuals has been kept under constant review by the Government.

The Tories have attacked the Government for its response to their policy announcement, as former Treasury economic secretary Ed Balls told Parliament in April that it did not collect data on the untaxed foreign income of non-doms.

Meanwhile, the LibDems say they would remove non-domicile status for anyone who has been a resident in the UK for 10 years or more.

LibDem Shadow Chancellor Vince Cable says the Tory plans are impractical and too optimistic and resemble a “flea bite for the fat cat”.

PENSIONS

Conservative Shadow Work & Pensions Secretary Chris Grayling has pledged to launch a pension lifeboat fund within three months of a Tory Government taking power. The proposed £30m-a-year fund would pay out compensation to the estimated 125,000 victims of collapsed pension schemes.

Grayling says: “I give this commitment to all pensioners who have lost their pensions under Gordon Brown. We will refloat the lifeboat and we will make the first compensation payments to pensioners within three months of taking office.”

Hargreaves Lansdown head of pensions research Tom McPhail says Gordon Brown’s failure to compensate these victims is undermining public confidence in the pension system.

McPhail says: “Everyone from the Parliamentary Ombudsman to the European Commission has accepted that Gordon Brown should do the honourable thing and deliver full compensation for the 120,000 or so final-salary scheme members who have lost their pensions. The former Chancellor has given ground more slowly and reluctantly than a First World War general.”

Grayling also says a future Tory Government would make changes to personal accounts by removing the disincentive to save created by means-testing. He says: “We will not start from scratch and walk away from personal accounts but we will have to modify what is there to make it work. If the Government does not explain itself and make important changes, then when we get into power we will have to do some rapid sorting out.”

The Liberal Democrats propose to immediately restore the earnings link to the basic state pension and introduce a citizens’ pension in the long term.

They also want to establish an independent commission on public-sector pensions to ensure that they are fair and affordable, with any savings reinvested in a higher state pension.

LibDem Shadow Work and Pensions Secretary Danny Alexander says: “Under Gordon Brown, Britain remains a society of massive inequalities of both income and opportunity. Our radical new agenda rejects Gordon Brown’s blueprint for a state of dependency where the spread of mass meanstesting undermines incentives to work, save and even form stable families.

“Our proposals for tax credits will give people an assurance that what is given to them will stay with them. By removing millions from means-testing, we will strengthen incentives to progress in work.”

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