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“What the election will mean for your employee’s finances”

The election is coming and while I am personally averse to anything political on Linkedin, I do read somewhat voraciously on all things politics and economics and with that in mind, I thought I would jot down a few thoughts on what I would like to see, but also what we will probably see, as a result of the forthcoming election.

So what would I like to see? Really I think the biggest change any government could make, is to introduce a smoother glide and tapering to employment tax rates between brackets. The “cliff edges” on child benefit tax thresholds and personal allowance thresholds, create incentives for aggressive tax mitigation planning, particularly on salary sacrifice. While I believe that people should save more, this has unintended consequences that I think all parties should look at mitigating. The tax take and position could be the same, but with a much more gradual phasing of tapering, it would make understanding of our tax regime clearer in my view.

I would also want to remove more of structures that feel very much as though the government is taking tax purely to give it back. The tax credits and allowance structure for those working could be revamped and made less labyrinthine.

In terms of that wider tax, further reducing personal NI to 6% and increasing employers NI to 15% flat, would be ideal but is probably wishful thinking. I say this as an employer with a substantial ERs NIC bill already.

Most importantly, on benefits, I believe that the government may need to bite the bullet and introduce some additional tax incentives for companies to do more for their staff on disability, healthcare, pensions and potentially eldercare. The greatest lever that the government has with employers to push through such changes, is pre-tax breaks on employer funded benefits, as we presently have in place for employer paid health screening or pensions advice. A similar allowance for “wellbeing” or perhaps even Private Medical Insurance, could be a strong move; there are political sentiment issues to overcome with this, however with nearly 50% of private healthcare spend, now financed by the NHS itself and the country not able to grow Doctors and Nurses overnight, something needs to be done now and diversion of the employed to the private sector, either on personal medical care, or for better financed elder care, may be beneficial.

Lastly, I hope that they bring forward legislation to increase employer contributions under Auto Enrolment minimums. The state pension “can”, cannot be kicked down the road forever. We do not have enough tax payers to maintain these rates of payment without extending the state pension age out dramatically in the future and there will not be enough young people paying tax to cover the state pension bills. While the optimist technologist in my hopes for a revolution in fusion energy and robotics, which will replace the need for workers eventually, this is not happening in the next 20 years at scale, so the need for properly funded pensions is greater than ever.

So that is what I would like and is definitely of the wishful thinking, variety! So, what do I think will happen?

Fundamentally, I believe that regardless of who makes it into power, the economic results of this election, will be one of primarily managerial tinkering around the edges, without meaningful change or reform.

UK debt is too high and politicians too aligned with appealing to focus groups and their electoral base to make any far reaching alterations to tax. A likely Labour government will also need to ensure a period of stability to ensure that markets do not become jittery.

This corroborates what we already know from statements that Labour have made, that there will likely be no changes to those already announced; VAT on school fees, no change to income, NI or corporation tax, crack down on non doms and tax avoidance and another (undefined) windfall tax on energy companies. But also, that they will move to a single autumn budget each year and as such, it’s likely that we will not see real meat on the bones until September this year.

This is politics however and one thing should be apparent, that promises made in manifestos and election campaigning, are not worth the paper that they are written on and perhaps there will be a surprise in the offing in the days after a win by either party.

I live in hope, that for once, there will be meaningful change, that benefits workers. Which is what the (most probably) incoming Labour government, is supposed to be all about!

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