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General Election: Personal finance

Pensions and tax: what’s in it for voters?

pension pot 2


Lindsey RogersonThe big take-away from the party manifestos is how differently they are approaching the “grey vote”.

Theresa May clearly believes her double-digit lead in all the opinion polls means the Conservative party no longer has to court the older generation quite so assiduously. As a consequence she has come in for some criticism over plans to scrap the “triple lock” on pensions and to means-test the winter fuel allowance.

Labour and the Liberal Democrats favour retaining the triple-lock (see below), as does the SNP.

Many of Mrs May’s proposals will face further opposition north of the border. Even the Scottish Tories have said they would not impose the winter fuel means test, arguing that colder weather means it can offer a different policy.

And unless the SNP decides to abandon free personal care, Scottish pensioners will also be spared all but the last £100,000 of their assets being drained away to pay for social care – unlike their peers living south of the border.

On income tax the SNP government this year resisted raising the starting point for the 40p band in line with England and Wales, maintaining it at £43,000, and is likely to resist further rises proposed by the Tories in England.

Labour plans to lower the starting point for the 45% higher rate band at £123,000 instead of its current £150,000. But as Stephen Hay, head of tax at accountancy firm RSM, points out just 19,000 Scots had incomes high enough to merit paying the highest rate of income tax (in 2013/14), and it is unlikely their ranks will have swelled by much since then.

What we know so far:

Pensions and pensioner benefits

The Tories have broken ranks with the other parties over future rises in the state pension.

The Conservatives have abandoned the so-called triple lock (which sees the basic state pension rise annually, whichever is the higher of average earnings, inflation or 2.5%) and will replace it with a double lock, of inflation or average earnings.

The triple-lock introduced by the Westminster coalition government in 2011 has seen the basic state pension rise from £102.15 a week to £159.55 in 2017.

Labour, the SNP (which will unveil its manifesto on Tuesday) and the Liberal Democrats are all committed to retaining the triple lock though the lifetime of the next  Westminster parliament.

The parties are also split on the age at which people will become eligible for the state pension. Labour and the SNP have said they will scrap planned rises beyond the age of 66, while the Conservative manifesto says only that it will ensure the starting age for the state pension keeps pace with life expectancy.

The SNP is also extending its support to women who have been deprived of the pensions they expected to secure until the state pension age was changed from 60 to 66.

Scottish pensioners are also set to keep their winter fuel allowance, regardless of who is in power at Westminster on 9 June. This is because the Scottish Tories have pledged to keep the winter fuel allowance (worth up to £300 a year). Ruth Davidson said on Friday that because of Scotland’s colder climate she would  not follow her party’s plans for means-testing the allowance in England and Wales.

Labour has promised to retain the allowance while the Liberal Democrats have said it should only be scrapped for pensioners who pay higher rate income tax: just 2% of all UK pensioners.

There is uncertainty though over who would fund the continuation of the winter fuel allowance in Scotland.

In the course of the next parliament responsibility for the allowance will be transferred to the Scottish government and Nicola Sturgeon said today that the SNP  “will fight to protect the winter fuel allowance when it is transferred to Scotland” and extending the eligibility to families with severely disabled children.

However neither they nor the Tories have spelled out who would be funding the £158 million annual cost of paying the winter fuel allowance to Scottish pensioners.

Personal taxes, VAT and National Insurance

The Tory manifesto says the party will raise the personal allowance (the point at which everyone starts paying income tax) by £1,000 to £12,500 by 2020. Additionally the Scottish Tories have said that they will put pressure on the Scottish government to increase the starting point for higher rate income tax to £50,000 – it is currently £43,001 in Scotland and £45,001 in the rest of the UK.

Labour has promised a much more radical overhaul of UK income tax policy which would see the 2% of UK workers who earn more than £80,000 a year pay income tax at a rate of 45% and those earning above £123,000 a year pay 50%.

The independent think tank the Institute of Fiscal Studies says this will add £400 a year to the income tax bill of the 500,000 UK workers who earn between £80,000 and £100,000 a year and around £22,900 to the 50,000 who earn more than £500,000.

At the same time Labour is promising to raise the incomes of the poorest earners by increasing the national living wage from £7.50 to £10 an hour by 2020.

For its part the SNP says on its website that it is committed to lifting the national living wage for young people and those on apprenticeships, though it does not spell out by how much: They currently earn reduced rate of £4.05 (under 18s) and £3.50 (apprentices).

Labour has also promised not to raise National Insurance or VAT while the Tories have only promised not to increase the latter.

Property taxes

In 2015, stamp duty on property transactions was replaced in Scotland with Land and Buildings Transaction Tax.

The Scottish Conservatives want the Holyrood government to reduce the amount of LBTT paid. At present properties sold for more than £145,000 pay 2% on the value above £250,000; 5% between £250,000 and £325,000; 10% between £325,000 and £700,000 and then 12% on anything over £700,000.

The SNP argues that the higher thresholds more accurately reflect house prices in Scotland, while opponents say the tax has caused stagnation at the top of the market.

The Tories want to move the 5% rate to a starting point of £500,000. This would reduce the tax bill of someone buying a £500,000 home by £16,250.

However, this is a devolved issue to the Scottish government and not affected by the Westminster vote. The Scottish Tories will want to land a few blows on the SNP ahead of the next Holyrood election.

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