What would happen to financial services if David Cameron became Prime Minister and George Osborne took over as Chancellor?
The Tories are reluctant to get specific, citing the fact that economic conditions could be very different by the time of the next election but they have not ruled out immediate, unfunded tax cuts.
Shadow Financial Secretary to the Treasury Mark Hoban says: “We are not prepared to pledge tax cuts that we cannot fund. We need to see what is in the books first. At the moment, the public finances are in such a terrible state and we would need to sort that out.”
However, the Tories have proposed a few funded tax cuts. They would bring down the headline corporation tax rate from 28p to 25p, paid for by removing some tax reliefs and reducing capital allowances.
The Government is planning to raise small companies’ tax by 2p to 22p but the Tories have vowed to either stop the rise or reverse it.
This would be paid for by scrapping the annual investment allowance introduced by Gordon Brown. The Tories have brought in Pricewater-houseCoopers to help it simplify corporation tax and Grant Thornton to work out a way of simplifying VAT, PAYE and National Insurance.
They plan to raise the inheritance tax threshold to £1m, which was announced at October’s party conference and received widespread praise. This policy was teamed with plans to abolish stamp duty for first-time buyers, for properties up to £250,000.
This package would be funded by a flat-rate tax on non-doms and has been the catalyst for the Tories’ rise in the polls, according to Cicero Consulting director Iain Anderson. He says: “This reform package essentially knocked Gordon Brown’s plans for an early election and the Conservatives have been ahead ever since.”
The proposed £25,000 annual non-dom tax, which triggered the Government’s own controversial reforms, is expected to raise £3.5bn a year. After the Government watered down its plans, the two policies are now fairly similar.
The Government believes the FSA should be responsible for intervening to save a failing bank but the Tories would put the Bank of England in charge. They would establish a new pre-emptive power, allowing the BoE to take control of a financial institution if it is close to failing.
Hoban says: “The FSA has no assets to bail a bank out with, so this role should be given to the BoE.”
Anderson expects the Conservatives to look at the remit of the FSA more generally and revisit the whole tripartite system.
He says: “They have never been convinced by its remit. I think there is a strong chance they will get it to focus on prudential supervision and, with the FSA’s financial plan ending in 2010, it would seem the perfect opportunity to make that happen.”
The Conservatives also want to enhance the independence of the BoE and plan to stop experts being appointed to the bank’s monetary policy committee by the Chancellor without any external checks.
The bank governor would work a single, non-renewable eight-year term. At present, the governor can serve two five-year terms.
The Tories also have plans for new deposit protection legislation designed to ensure depositors get their money back immediately if a bank gets into trouble and would create a body to independently assess the fiscal rules.
Hoban says: “We believe the former Chancellor has moved the goalposts for meeting the fiscal rules and this reduces their credibility. It would be much more credible if it the rules were monitored by an independent body.”
On the pension front, the Conservatives proposed abolishing compulsory annuitisation at 75 in their 2005 manifesto and it is believed this policy will be in the next manifesto.
The Tories were supportive of Lord Adair Turner’s proposals for personal accounts but they would make changes if they were unhappy with how the scheme was turning out, says Anderson. He says: “I do not see the Tories rowing back on personal accounts but they may want to tweak the choice of funds to give more choice than what is currently planned.”
The Conservatives are very keen to get a money guidance system up and running but want to ensure it will work effectively. The party wants to work with the industry to develop a system that will benefit consumers as well as providers and advisers. They want it to be fully funded by the industry whereas the Government has proposed sharing the cost.
Hoban says: “We are increasingly concerned about the protection gap and people’s long-term savings. In the current economic climate, the need for better financial guidance has become extremely clear. We want to work with the industry to do it properly.”
A number of Shadow Cabinet offices are undertaking reviews which could affect financial services. Shadow Secretary for Business, Enterprise and Regulatory Reform Alan Duncan launched a review into regulation earlier this year. The Arculus review aims to make regulation more efficient and less of a burden for businesses.
Shadow housing minister Grant Shapps is leading a review to find ways to improve the homebuying process for buyers and sellers. The Tories have already vowed to scrap home information packsAnderson says the industry has started taking great interest in the Conservative policies. He says: “The Tories are back. They are really starting to flesh out some of their ideas and they are doing this because they know people are taking them seriously.”