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Second time around

Only a few weeks ago, I found myself completely bored by the prospect of a general election but now as we contemplate the scenario of a hung Parliament, I am increasingly entranced by what is happening.

Yet at the back of my mind, a little voice tells me that somehow I have lost the right perspective on what is happening. The reality is that what has started to fascinate me, and many watchers, is the political process itself. In other words, in a world where the differences between the major political parties are now relatively narrow, what begins to matter is not policy but intrigue.

That is a terrible admission, not least because the issues facing the country are frightening – a massive fiscal deficit, stubbornly high unemployment and the danger of a new economic collapse if financial markets decide the UK is likely to be heading the same way as Greece in terms of controlling its public spending.

More important, what is also clear is that this election, like no other, raised issues of personal finance to the fore in the minds of million of voters. There will be many IFAs reading this column who will scratch their heads in amazement – surely it was Gordon Brown’s overwhelming unpopularity that cost Labour the election?

Ah yes, but why did Brown (and New Labour) become unpopular? I think we can pinpoint some key reasons. First was the issue of stealth taxes – within two or three years as Chancellor, Brown became clearly identified as someone who repeatedly taxed people pockets indirectly – and directly too.

For example, starting as soon as Labour’s first Budget in July 1997, there was the abolition of advance corporation tax credit. This change meant personal and occupational pension funds could no longer reclaim advance corporation tax, costing them £5bn a year.

Then there was fiscal drag, the failure to increase the higher-rate tax threshold at the same rate as earnings. Back in 1996-97, only 2.1 million people paid higherrate tax. By 2008-09, that rose to more than 3.5 million. The only reason it has fallen back since then, to a figure not far off three million, is that the recession has pushed people’s incomes down and cost hundreds of thousands of people their jobs.

Similarly, stamp duty ended up affecting three quarters of first-time buyers, according to the Council of Mortgage Lenders, compared with around a quarter when Labour came to power. Again, only the housing recession brought down that figure.

Then there was the famous 10p starting rate of tax, which I hesitate to describe as a stealth tax, given that within 30 minutes of it being announced just about every observer pointed out that it left anyone earning under £17,000 financially worse off. Brown then spent a year trying to fend off protests on the issue until a threat of rebellion from his own backbenchers forced him to back off.

On property, Labour increased stamp duty for properties costing over £250,000 to 3 per cent and bumped the duty up to 4 per cent for properties costing over £500,000. The duty is paid on the whole cost of the house and not just the part falling into each band. It was only in March this year that, after years of lobbying for change, Chancellor Alistair Darling saw fit to make the first £250,000 of any purchase free of stamp duty for first-time buyers while raising it to 5 per cent on purchases over £1m.

The problem for New Labour and Gordon Brown was they assumed people were stupid and would either not notice or would be likely to forget what his Government had done. As he has belatedly realised, we aren’t – and our memories lasted far longer than Brown thought.

Why mention all this now? Mainly because unless the politicians begin to understand that, regardless of which party holds office, the British electorate wants to see honesty and transparency in the way their financial affairs are dealt with – as well as a genuine willingness to listen to reason – they risk being turfed out sooner than they think.

In turn, this raises another question – if we want to see genuine change on the personal finance front, isn’t it time that those who are genuine trusted representatives of consumers on so many financial areas, begin to articulate and agitate for the kinds of changes that will benefit their clients?

I am talking here about IFAs coming up with a series of pledges that politicians of every party should be asked to sign up to, which represent improvements in the way our finances are run.

Arguably, we did not do it very well this time round, relying on the sense of disgust with Brown to finish him off. Ironically, that leaves us no better off today than before the election. Any party taking office today effectively has carte blanche to do what it wants with our money.

Still, the one thing we can guarantee is that at some stage in the next 18 months there will be another election. We need to be more organised next time round.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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