A new chancellor means a new focus on personal finance

Two years on from Labour’s landslide general election victory and we now have a new prime minister, Andy Burnham, as well as a new chancellor, John Healey.

Healey inherits a tough brief. He has to balance new priorities such as extra defence spending, giving people ‘breathing space’ and fixing social care with keeping the nation’s finances on track. With Andy Burnham saying he’ll stick to Labour’s manifesto pledge not to raise income tax, National Insurance or VAT, the big question is where the financial pain will fall.

Certainty, simplicity and confidence

On personal finance, the priority must be restoring certainty, simplicity and confidence for savers, investors and people planning for retirement. Recent Budgets have been dominated by speculation over pension tax raids, ISA reform and salary sacrifice. That uncertainty can push people into rushed decisions that may not be right for them long term. It is hard to plan for the future with confidence if people fear the goalposts may move again.

Seven personal finance priorities for the new chancellor:

1. End damaging speculation on pension tax-free cash.

The new chancellor’s number one objective should be to end the circus of Budget speculation, especially over pensions tax-free cash, which has led to billions of pounds of retirement cash being withdrawn based on fear, rather than people’s long-term goals.

The chancellor should make an early, unequivocal commitment not to cut or further restrict pension tax-free cash or other tax reliefs at the earliest possible opportunity. This would be popular, provide much-needed certainty for savers and wouldn’t cost a penny.

2. A chance to reconsider pragmatic alternatives to bringing pensions into IHT.

The new chancellor should urgently revisit plans to bring pensions into IHT, sparing pension savers and their families from the pain that will follow on from this ill-conceived policy.

A full U-turn may be unlikely at this stage, but there it isn’t too late to address some significant issues with the policy and implement a more sensible tax charge which achieves the government’s intended aim of bringing pension assets in line with the wider estate on death.

3. Too late for an ISA reset?

ISAs are successful because they are simple, flexible and tax-free. But the new £12,000 Cash ISA allowance for under 65s means new ‘anti-circumvention’ rules, including a charge on interest paid on cash held in Stocks and Shares ISAs. A new type of ISA to replace Lifetime ISAs is also planned but has not been properly thought through.

Healey has an opportunity to rip up this dodgy agenda and instead go back to Labour’s pre-election commitment to simplify ISAs as part of a drive to boost long-term investing.

4. Reconsider the proposed £2,000 cap on salary sacrifice.

From April 2029, the National Insurance (NI) savings through pensions salary sacrifice will be capped at £2,000 of contributions a year, meaning many working people will see less in their pay packets.

The legislation has already been passed meaning we are on a countdown to implementation. But the change risks weakening a valuable savings incentive at the same time policymakers are worried about inadequate retirement provision.

5. Fix the income tax system and the £100,000 cliff edge.

Britain’s broken income tax system needs repairing. The tapering away of the personal allowance creates an extremely high marginal tax rate for people earning over £100,000 up to the additional rate threshold, damaging work incentives and making the tax system harder to understand. The chancellor should fix this distortion.

Reports also suggest the Andy Burnham is concerned about the impact of the income tax threshold freeze. The policy is one of the big drivers behind the ballooning income tax bill, with the UK’s income tax bill rising a staggering £120 billion since the freeze began.

6. Review auto-enrolment and pensions adequacy.

Auto-enrolment has been a success in getting more people saving. Despite this the second Pension Commission’s recent interim report laid bare the ugly truth that many Brits, especially women, the self-employed and low earners, are unlikely to achieve the retirement outcomes that they may want.

The Treasury now needs to work with DWP to set out a roadmap for improving adequacy, including higher contribution rates. They also need to tackle how to encourage the self-employed to save more for retirement, rather than leaving them on the ‘too-difficult-to-solve' pile.

7. Clarify the future of the triple lock.

The triple lock remains politically sensitive and hugely symbolic as a sign of the government’s support for pensioners.

But the policy of ratchetting up the state pension through the triple lock has serious long-term fiscal implications. The chancellor should be honest about the trade-offs and set out a sustainable policy for the state pension that gives pensioners certainty while recognising pressure on the public finances.