Insights into Labour Reforms

State pension triple lock to stay

The Labour Party has committed to keeping the? state pension lock in place.

The triple lock ensures that the state pension rises by the highest of inflation, average earnings growth, or 2.5 per cent each year. The commitment means that the policy is likely to stay in place until 2030 at least.

The full new state pension currently sits at ￡11,542 per year.

But calculations suggest it could reach more than ￡13,000 per year by the end of the decade.

Private school fees will subject to VAT

It is expected that making private?school fees subject?to 20 per cent VAT?will be a central part Labour’s first Budget, which is likely to be in the autumn.

The policy has been a key part of Labour’s offer during the general election campaign. At the moment it’s not clear exactly what impact it will have on school fees, and the exact impact will vary from school to school, as some institutions may choose to absorb some of the extra cost if they are able.

Labour is expected to say that the change will not take effect until 2025 at the earliest, and will not be applied retrospectively.

Mortgage guarantee scheme to be made permanent

Labour has announced it will introduce?a “freedom to buy” pledge on guaranteeing?mortgages.

It has said that first-time buyers could use the state as a guarantor for their mortgages, making permanent a government scheme that was set to expire.

The?mortgage guarantee scheme?was first introduced in 2021 by the Tories.

Unveiled when Rishi Sunak was chancellor, it aimed to help buyers with deposits of just?5 per cent to get on to the property ladder, by using the state as a guarantor for 95 per cent mortgages, meaning more banks would offer them.

Non-dom ‘loophole’ scrapped

One of the Labour Party’s flagship policies was that it would?scrap the non-dom system completely if it came to power.

But the Conservative Party partly got in ahead of this, when Mr Hunt said in his Spring Budget that he would end the non-dom tax status for wealthy foreigners living in the UK from April 2025.

It means they must now pay tax on income and capital gains after four years.

The Labour Party has said it broadly supports these changes, but will go further. Rachel Reeves previously said Labour would immediately close an inheritance tax “loophole” to prevent non-doms from transferring overseas assets to an “excluded property trust” to?shelter them from 40 per cent inheritance tax.

Capital gains tax clarity

Labour’s manifesto lacked clarity on capital gains tax (CGT), raising some concerns that we may see changes.

Current CGT rates are 24 per cent?on residential property gains, and 20 per cent on other assets. It is not clear what any changes, if they are made, would be, but some are concerned it may be increased.

No major impact on stock market expected

General election results can have an impact on the stock market, though experts do not think this will be the case this time round, as the result was in line with what was expected.

Myron Jobson, senior personal finance analyst at interactive investor, said: “When the political party that investors expect to win comes to power, the stock market might not see much movement because the outcome are already embedded in stock prices.

“When the expected party wins, it removes a significant layer of uncertainty, which could lead to market stability rather than volatility. Investors find reassurance in the confirmation of their expectations.”

Mortgage rates should continue to fall, experts say

The Bank of England’s interest rate has a major bearing on mortgage rates, and although the Bank is independent of government, a change of administration can have a major impact on the expected path of interest rates, if its policies rising risk or lowering inflation.

This is because interest rates tend to go up as inflation gets higher.

Economists have previously forecast that interest rates will go down later?this year, and have said that the new Labour government’s plans are unlikely to have an impact on this in the near term.

“We are not anticipating that a Labour government would change the outlook for interest rates and anticipate two or possibly three cuts this year,” said Thomas Pugh of RSM UK.

If this happens, some people on tracker and variable mortgages will see instant reductions in mortgage rates, and fixed-rate mortgages – which follow longer-term predictions of where interest rates will go – are likely to come down too.

Nick Mendes, of John Charcol brokers, has said he?also expects little impact in the short term, with rates on fixed-term mortgages having dipped in recent days, on expectations of an interest rate cut in August or September.

“Markets like stability and this election has been a one-horse race from the start, meaning we haven’t seen the volatility in markets as previously when trying to forecast impending movement fiscal policies impact on the economy. Labour have played it safe and Thursday’s result is unlikely to deter the current downward pricing we have seen in recent days,” he said.

Longer term, however, the party’s policies could have some impact on rates.

Mr Mendes said that if the party were to meet its housebuilding targets – it aims to build 1.5 million homes over the course of the parliament – it could “spur the market and likelihood of further competitive mortgage pricing from lenders, potentially lowering rates faster than expectations”.

However, Mr Pugh said there was a risk to this. He warned that Labour’s spending plans involve cuts to certain government departments and could be “extremely difficult” to stick to.

He said that if the government changed its “fiscal rules” – self-imposed limits on tax and spending –?to allow it to borrow more, the Bank of England might see this as “stimulatory”, which could reduce the number of interest rate cuts in 2025.