Monthly Archives: May 2017

Election-watch: pensions, pensioners and politics

Politicians worry about pensioners. One major reason why was highlighted in a report from a House of Commons committeee in late 2014 on voter turnout in the 2010 election. The report estimated that 44% of people aged 18-24 voted, overall turnout was 65.1%, but 75% of those aged over 55 voted. On those figures, it is surprising that the Conservatives’ 2017 pension proposals were less generous than previously:

  • The triple lock for basic and new state pension increases would continue to 2020 and then be replaced by a double lock, removing the current 2.5% floor.
  • Winter fuel payments would be means-tested, although how was not detailed. All other pensioner benefits would be maintained “for the duration of this parliament”.
  • On social care in England, the manifesto proposed four reforms:
  1. To raise the upper capital limit for a full contribution to costs to £100,000 (no comment was made about the £14,250 lower limit).
  2. To include the value of the home when means-testing for in-home care.
  3. To allow payments for in-home care to be deferred until death.
  4. To drop the £72,000 Dilnot cap on total personal contributions, “which mostly benefited a small number of wealthier people”. However, four days after the manifesto’s publication, an unspecified cap was back on the agenda.

Labour was more generous in its manifesto plans:

  • The triple lock would be guaranteed “throughout the next Parliament”.
  • Winter fuel payment and free bus passes would be “guaranteed as universal benefits”.
  • Pension Credit would be extended to women caught by state pension age (SPA) changes and “further transitional options” would be explored.
  • A(nother) commission would be established to review SPA rises beyond 66.
  • On social care, there would be an unspecified maximum on personal contribution and an (unspecified) capital limit increase. Options for funding include “wealth taxes, an employer care contribution or a new social care levy.

The Liberal Democrats’ manifesto plans sit between the Conservatives and Labour:

  • The triple lock would remain “for the next parliament”.
  • The Winter Fuel Payment would be withdrawn from higher rate taxpayers, a move worth only about £100 million a year. Bus passes would survive.
  • The party would “finish the job of implementing a cap on the cost of social care”.

In practice, maintaining the pension triple lock will not cost much for the next few years because of higher inflation. As for the other ideas, suffice to say there seems to be a convenient lack of detail…

 

Zero hours contracts – the rights versus flexibility battleground

It’s been called the ‘gig economy’, which sounds almost fun and for hundreds of thousands of workers it’s a way of life. But even before the election, zero hours contracts were a political issue pitting flexibility against workers’ rights. A government-commissioned review into employment practices is expected to state that workers on zero-hours contracts should be entitled to request guaranteed hours.

The right to ask for fixed hours is supported by the Confederation of British Industry (CBI), which represents employers. If this is implemented, it would mirror the rights of all employees to request flexible working, which was introduced in 2014. The CBI said that all employees should receive a written statement that sets out the key terms of their employment and their rights.

Detrimental effects

Of course, zero hour contracts may actually suit some workers if flexibility is what they’re looking for. But they could run into problems when it comes to gaining access to some financial products such as mortgages, credit cards or even mobile phone contracts.

Over 900,000 people are on zero-hours contracts across sectors in the UK such as large retailers, restaurants and hotels. They are subsequently not entitled to guaranteed working hours or sick pay and their employment status is likely to have a detrimental effect on their pension and future financial planning. Often, employees on zero-hours contracts will be juggling several jobs, according to the Office for National Statistics.

For those who believe that zero-hours contracts are exploitative, this proposal is likely to be welcomed. However, it should be stressed that while workers have the right to ask, the employers have no obligation to grant them guaranteed hours.

If your clients employ staff on such contracts, it’s worth keeping them posted on the outcome of this review in mid to late June.

Election-watch: the manifesto truth about income tax

Income tax and national insurance contributions (NICs) – the income tax that dare not speak its name – are major revenue raisers for governments of all hues. Together they will produce £305bn for the Exchequer in 2017/18, 44% of all tax revenue, according to the Office for Budget Responsibility’s March 2017 estimates.

That proportion explains when economists were so critical of the Conservatives’ pledge at the 2015 election to freeze rates for income tax and NICs (and VAT). Locking down the major source of government cash flow is overly-constraining, as Mr Hammond so recently discovered – possibly at the cost of his post-election occupancy of 11 Downing Street.

Conservatives

For the 2017 election, the Conservatives have made no fresh manifesto promises on either tax. With the Taylor review on modern employment practices due to report soon, there is an understandable reluctance to revisit the spring Budget’s class 4 problems. On income tax, the oft-repeated goals of a £12,500 personal allowance and £50,000 higher rate tax threshold “by 2020” (at least for non-Scots) remain, but that is all. Keeping tax “as low as possible” receives several mentions, but who would promise anything different?

Labour

Labour does not, at least for the roughly 95% of income taxpayers with income under £80,000. The unlucky 5% – about 1.5 million – would face a 45% band starting at £80,000 (rather than the current £150,000) and a new 50% top rate beginning at £123,000. That odd number is presumably to avoid hitting the band between £100,000 and £123,000 where the phasing out of the personal allowance increases the effective marginal tax rate by a half.

In its “Funding Britain’s Future” document, separate from the manifesto, Labour says these changes would raise £6.4bn a year, less an unspecified adjustment for “… the inherent difficulty of forecast receipts from new taxes, bands and thresholds”. The manifesto says “…. everyone will be protected from any increase in personal National Insurance contributions”, the use of the word ‘personal’ suggesting that employers may not be so fortunate.

The Liberal Democrats

The Liberal Democrat approach to raising income tax is much simpler. Its manifesto promises “An immediate 1p rise on the basic, higher and additional rates of Income Tax” to raise £6bn for the NHS and social care. The party would also scrap the marriage allowance – an arguably regressive move that would only hit basic rate taxpaying couples. The manifesto’s only reference to NICs is an oblique one about funding health and social care: “In the longer term and as a replacement for the 1p Income Tax rise, [the government would] commission the development of a dedicated health and care tax on the basis of wide consultation, possibly based on a reform of National Insurance contributions”.

It is noteworthy that the manifestos all shy away from addressing the complexities which have accumulated in the UK income tax regime through the efforts of both Labour and Conservative chancellors. Neither do any of the parties risk mentioning the logic of combining income tax and NICs instead of maintaining the current make-believe two tier system. But there is always hope – what is not said in a manifesto is often more significant that what is said.