Here we go again: What does the election mean for advisers?

Another year, another election. No doubt it will once again be dubbed the “most important election in our lifetimes”. Breathless coverage, 24 hour news, policies and cock-ups. You love it really.

The polls show Theresa May’s Conservatives comfortably returning to power with an increased majority. Polls can –  and have recently been – very wrong, of course.

Here is what it means for financial advisers and their clients.

Firstly, Brexit. Sterling has responded with a thumping rise against the Dollar of nearly 2% in a day. This is likely expressing hope that a fresh mandate for May would allow her more control and flexibility over Brexit negotiations.

When Article 50 is complete in 2019, she would have time to negotiate a transitional deal without fears of another election in 2020.

She would also be able to stomach more twists and turns in the negotiating process without the impending political reality of 2020 election.

Perhaps most importantly, she is expected to return to power with an increased majority. This means May will have a mandate for her Brexit plan and will be less beholden to backbench MPs.

This gives MPs less real power over the Brexit process and establishes more power in Downing Street. This could allow May to face down those who want to sever all links with the EU.

On financial services, this could mean retaining certain regulatory oversight in Brussels or Paris, for example. This is anathema to some Conservative MPs but they would have reduced influence.

All this is, obviously, assuming the polls are correct and she returns with a larger majority.

Second, the Tory manifesto. May will be able to set the 2015 manifesto alight and write her own policy plans for the next five years.

Due to the short timescale, many expect the Tory manifesto to be a slim volume with fewer hard pledges than the 2015 edition. The 2015 manifesto was written with the expectation of coalition when most of it could be traded away in negotiations with the Lib Dems.

The key areas to watch out for in the new edition will be on the triple lock on state pensions and the development of pension freedoms introduced by George Osborne.

The Tories and Lib Dems vowed to maintain the triple lock – an increase to the state pension in line with earnings, inflation of 2.5% , whichever is highest – throughout this parliament until 2020.

Labour has made the triple lock a key pledge and is almost certain to put it in its manifesto. Will the Tories follow suit?

The UK still has a large budget deficit that requires spending cuts or tax rise to reduce it over the next few years.

It would be relatively easy pickings to link the state pension to earnings rather than a 2.5% minimum. The attraction is the essential high voter turnout pensioners who it directly affects.

Voters over-65 prefer May to Labour leader Jeremy Corbyn by more than 50%. That allows some wiggle room for the Tories to keep their options open in the next parliament without taking on too much political damage.

Yet it would allow a Labour political opening and key election advantage for the key older vote. Watch this space.

On pension freedoms, we should not expect too much detail on how May’s Treasury will develop them going forward but the campaign could provide some clues.

An interesting Centre for Policy Studies paper by Michael Johnson has proposed auto-drawdown at 55 and auto-annuitisation at 80, which is intended to offer a layer of protection. They have been greeted warmly by the Trades Union Congress in an unusual meeting of minds.

While this may not be a winning campaign policy, it would be unusual – and politically illiterate – to have no goodies for pensioner during an election campaign.

Chancellor Philip Hammond may not have gimmicks up his sleeve like the extension of the 4% National Savings & Investments pensioner bond in 2015 but he should have something in store.

Thirdly, big policy changes become more likely. A large Tory majority will allow breathing space for more controversial policies such as an overhaul of pensions tax relief. This has struggled to pass due to opposition on the Tory backbenches. It woudl be back on the table if May romps home with a majority close to 100.

Other tax changes such as closing the differential on national insurance rates for the self-employed – abandoned after an outcry at the last budget – could be easily passed early in the parliament.

We could see bolder moves all round. Perhaps long-term funding for social care could be addressed? The Treasury would not be as hemmed in over personnel choices such as the next Bank of England governor in 2019. The government woudl be more controlling in a way we haven’t seen since after the 2005 election.

Brexit will continue to dominate but a stronger government allows for a far wider spectrum of policy choices. Once again, this is assuming the polls are correct and May wins handily.

And finally, the Labour party. Corbyn’s party is being written off and is 21% behind in some polling published since May called the vote.

But the party could influence the vote with eye-catching pledges during the campaign. Many of Ed Miliband’s ideas such as the living wage, action on non-doms and energy prices came to fruition despite his loss.

Just today Corbyn promised to reverse the inheritance tax cut in 2015 that allows first homes to be bequeathed tax-free up to £1m. On the state pension, higher rates of income tax and savings policies, Labour can set the tone if they catch the right mood.

The same applies to Tim Farron’s Lib Dems who need to catch attention and will no doubt be thinking up media-friendly policy launches.

A Labour victory or coalition would also see key personnel changes. A Tory victory could also see a cabinet reshuffle and fresh focus on other policies. And the Lib Dem fightback could see the return of old stalwarts. All would help shape policy and bring back savings policy experts into parliament.

Steve Webb? Gregg McClymont? Vince Cable? Ed Balls? Who’s coming back? (Probably none)

It is another period of relative political uncertain that could affect stocks, currency markets and savings policy.

0 Comments

Leave a reply

Copyright © 2017 Adviser Lounge. All rights reserved. Intended for UK Financial intermediaries only. Terms and Conditions

Newsletter

Enter your details below to recieve our regular newsletters.

Log in with your credentials

or    

Forgot your details?