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How Green Party manifesto proposals might affect savers and retirees

19 November 2019

Following publication by the Green Party of its election manifesto, Laura Suter, personal finance analyst at AJ Bell, and Tom Selby, senior analyst at AJ Bell, assess how the proposals could impact on people’s incomes and retirement plans.

Given the possiblity the next Government will be a coalition comprising a number of the minor parties, the views of these parties are therefore probably more important than ever before, they argue.

Personal finance implications

Basic income for everyone

Laura Suter (pictured) comments: “The big headline grabber in the manifesto is a Universal Basic Income for everyone, set at £89 a week and paid regardless of income, employment status or age. This £86.2bn handout will particularly benefit women, who are often the ones in unpaid caring roles, either for children or elderly or ill relatives.

“The Greens clearly want to simplify the tax system, and they say doing so will stop wealthier individuals from using tax breaks to game the system. Their more radical plan is to merge National Insurance, Capital Gains Tax, Inheritance Tax, Dividend Tax and Income Tax into one Consolidated Income Tax. This means anything you make in a year would be subject to the same tax rate, regardless of whether you’ve earned it through income, from investments or through inheritance.

“The Greens say the move will cost £22bn, but there is no detail on what the rate of Consolidated Income Tax would be. If it’s set at the current basic rate of 20%, that would be a massive giveaway for high earners, cutting their tax rate from a maximum of 45%, and handing a big income boost. Conversely, if it’s set at a higher rate, say 40%, that would hit low income families with a whopping tax increase.

“Investors would face higher taxes though, if the capital gains tax allowance and dividend tax allowance were scrapped, meaning that up to £14,000 of investment earnings a year that are currently tax free would now be taxed.

“The move would also overhaul inheritance tax, shifting the tax burden to those receiving gifts rather than the estate of the deceased. Those who are bequeathed money will see it taxed as income, going one step further than Labour’s mooted plans to abolish the tax and bring in a single lifetime gifting allowance of £125,000.

Student fees scrapped, and debt wiped out in £7.8bn a year move

“In a clear attention grabber for younger voters, the Greens also pledge to both scrap tuition fees for undergraduates and write off the debt for graduates who paid £9,000 a year in fees. The move, which would cost £7.8bn a year, will garner appeal among students and parents alike. But we only have to look back at how the disastrous pledge on student fees from the Liberal Democrats in the 2010 coalition turned out, to see how these pledges can get lost in any deals.

“Renters would get a big boost from the introduction of rent controls in pricey areas as well as shifting the burden of council tax to landlords, rather than renters. However, the Green Party would also scrap Help to Buy, which has helped first-time buyers get onto the property ladder, instead funnelling the £1bn annual cost into building council homes.

Two-child families handed up to £39,000 a year

“Lower-income families will get a massive boost, with the Greens raising child benefit to a blanket £70 per week per child for the first two children. For two-child families this would be an almost £5,500** per year handout. They will also re-invent the high-income child benefit tax charge under another name, but at a much lower threshold, with families earning more than £50,000 seeing reduced payouts, compared to the £50,000 per individual threshold at the moment.

“On top of this, families will be given 35 hours of free childcare once their child reaches nine months old. For two-child families in the most expensive areas this could save more than £32,500 a year and will stop parents from being prevented from going back to work because they can’t afford the childcare.

“Other party manifesto pledges will affect people’s finances at the edges, including a frequent flier tax, for those who take more than one flight a year; higher costs for petrol and diesel; reduced costs for staycations; and more levies on plastic products at the supermarket.”

Pensions implications

‘Reduction of tax-free drawdown on pensions to £40k’ (we think this means capping tax-free cash entitlement at £40k)

Tom Selby comments: “It’s never a good sign when you’re left having to guess exactly what a manifesto pledge means. But given drawdown isn’t ‘tax-free’, we think the Green Party are talking about limiting the tax-free cash people are entitled to from age 55 at £40,000.

“A move in this direction would put at risk the fragile savings culture being nurtured in the UK through automatic enrolment.

“The ability to withdraw up to a quarter of your fund tax-free is one of the few benefits of pensions most people genuinely understand, so limiting it would create one less reason to save for retirement.

“Given that a lack of pension provision remains one of the most pressing challenges facing society today, this retrograde step would risk damaging the retirement prospects of an entire generation.

“It would also be unfair on younger people whose ability to build up tax-free cash entitlement will be constrained in a way previous generations weren’t.

“Furthermore, we assume those who have already saved in a pension on the basis that 25% would be tax-free from age 55 would receive some sort of protection under the proposals. Failure to do this would cause untold damage to trust in pensions.

“If that is the case then the Green Party need to spell out how this transition, which would create extra complexity for savers and providers alike, would work from a practical perspective.”

Limit pension tax relief to the basic-rate (20%)

“Limiting tax relief at 20% – the lowest rate currently available – would risk putting people off saving for retirement. In particular, vast swathes of middle England who are currently entitled to 40% relief might be less willing to provide for their future.

“As with tax-free cash, there is also an intergenerational fairness issue here too. While older workers will have had the chance to claim tax relief at their highest marginal rate while saving in a pension, younger workers will be limited to half this amount.

“Given this generation have by-and-large missed out on defined benefit provision too, young people could legitimately feel that, at least when it comes to pensions, the Green Party are kicking them when they’re down.”

Increase the single-tier state pension to £178 a week (and pay this to WASPI women first)

“Increasing the single-tier state pension by roughly £10 a week and pegging the payment to prices makes far more sense than the existing ‘triple lock’, which increases its real value at random intervals depending on the level of average earnings and inflation.

“However, the Party risks courting serious controversy here for two reasons. Firstly, only increasing the state pension in line with inflation would mean scrapping the earnings link as well as the 2.5% de minimis that currently exists.

“Next year, for example, the state pension will rise in line with July’s average earnings figure of 3.9%. If inflation had been used instead, the benefit would only be increasing by 1.7%.

“Secondly, paying the new higher amount to WASPI women first risks creating new unfairness for those who are forced to wait longer.

“Additionally, it is unclear how the Green Party’s proposal would affect those who currently receive less than the full single-tier amount.

“Those who had previously contracted-out of the state pension and paid lower National Insurance, for example, would have their single-tier amount reduced under the existing system. People also need to have a 35-year National Insurance contribution record to be entitled to the full £168.60 a week payment.

“If the £178 pension were made available to all regardless of their NI record or previous history, that would represent a massive giveaway to older people.”

* Based on the current £12,000 CGT allowance and £2,000 dividend allowance

**Compared to the current child benefit of £20.70 for the first child and £13.70 for the second child per week.

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