IQ Money - Impact of Labour for Savers

IQ Money - Impact of Labour for Savers 

If you have been paying attention to the news and politics lately, you will know that the UK has a new Labour government. We’ve said goodbye to the Conservative party and hello to Labour, led by Sir Keir Starmer. As is to be expected, with this change in government comes a range of new policies and economic strategies that could have a significant impact on personal finances, particularly for savers. 

As Labour rolls out its plans, it's important to understand what these changes mean for your savings, investments and financial future. Below, we’ve taken a look at how Labour’s key proposals - which range from ISA reforms and pension changes, to introducing VAT on school fees - could affect your ability to save and grow your savings in the coming years.

What Does a Labour Government Mean for Your Savings?

There’s been a lot of talk about the new Labour government and the changes the party is likely to bring in. But, what does that mean for your savings?

• New British ISAs - If you have an ISA (Individual Savings Account) the Labour government could impact the way that you save. Labour has shown support for the idea of a new British ISA - a proposal originally brought to everyone’s attention by Jeremy Hunt in the Spring Budget - which is a new type of ISA, one that would offer an additional £5,000 allowance on top of the existing £20,000 limit. A British ISA would be solely for investing in UK companies, with the aim of giving businesses in the UK a boost. Labour has indicated that they are thinking about continuing with this idea or, if not, something similar. If a British ISA does come to fruition, you might consider changing your approach to saving via an ISA, as this type of ISA would give you a higher savings limit.
• Simplified ISA System - As well as introducing a new type of ISA, Labour has signalled a desire to simplify the ISA system, which is often described as being complex. The system in place at the moment includes several types - this includes Cash ISAs, Stocks and Shares ISAs, and Lifetime ISAs - and the sheer number of options available often causes confusion among savers. Simplifying ISAs could make it easier for savers to navigate their options. The balance between introducing new saving options and streamlining the existing system will be key things for the new government to look at.
• VAT on Private School Fees - Not everyone has private school fees to think about, but those that do could find that a Labour government leaves them with less money to save. Labour plans to introduce VAT on private school fees, which could have a significant impact on families who rely on savings to fund private education. By adding VAT to these fees, parents could face increased costs of thousands of pounds per year, reducing their disposable income and their ability to save. For families already making sacrifices to afford private schooling, this change may force them to dip into savings, potentially impacting contributions to ISAs, pensions and other long-term investments. 
• Simplified Pensions - Pensions are another area likely to see significant focus under the new Labour government. The new Pension Schemes Bill, unveiled in the King’s Speech, introduces reforms aimed at improving engagement and value for pension savers. The bill proposes automatic consolidation of small pension pots into one place, helping individuals keep track of their savings. It also proposes a ‘value for money’ test for occupational pension schemes to make sure that members are getting the most out of their savings. These changes aim to make pensions more transparent, efficient and better aligned with savers’ needs. 
• Changes to Pension Tax - Labour has also indicated that they will scrap the reintroduction of the Lifetime Allowance (LTA), meaning that savers won’t face limits on how much they can build up in their pension pot before being taxed. It’s also thought that Labour could reevaluate the rules allowing pensions to be passed on as inheritance tax free, potentially making pensions less tax efficient for inheritance planning.
• Saving for a Home - The party’s Freedom to Buy scheme, aimed at supporting those wanting a low deposit mortgage, is being put in place to help first time buyers access the property market with a smaller deposit. But, for savers, this means they’re still going to need to put aside substantial amounts to afford a deposit, and the scheme is unlikely to reduce the overall cost of purchasing a home. As a result, those saving for their first home aren't likely to find that the new Labour government makes the journey any easier.
• Changes to Income Tax and National Insurance - A lot of savers forget that changes to Income Tax and National Insurance could have a big impact on savings, as they both change how much money you have left at the month as disposable income. Labour has confirmed that it will maintain frozen Income Tax thresholds until 2028. Though Labour has pledged not to increase Income Tax rates or National Insurance contributions, the frozen thresholds mean that more of savers’ income could be taxed at higher rates over time, affecting disposable income and savings potential. With less disposable income, there’s less money to save. But, for now, things are staying the same.
• No Minimum Wage Age Bands - Labour has shared plans to remove minimum wage age bands in the UK, which would ensure that all adults receive the same minimum wage. This could have a notable impact on savers. By providing a pay rise to many younger workers and those previously earning lower minimum wages, this change would increase disposable income for a significant portion of the population. With more money in their pockets, savers are likely to have greater opportunities to contribute to savings, including ISAs and pensions. This could encourage more people to start saving earlier or boost their contributions, improving long term financial security for workers.
• Changes to Stamp Duty - Labour’s plan to reinstate the first time buyer stamp duty exemption limit at £300,000 from April 2025 could also have an impact on savings. For buyers purchasing properties priced above this threshold, they’ll be required to pay stamp duty on the portion above £300,000. This means first time buyers may need to allocate more of their savings to cover the additional costs, reducing what they can save for other financial goals, like rainy days, pensions or emergency funds.

As you can see, there are some big changes coming under the new Labour government, many of which could impact your savings; some negatively, but some positively. It’s likely that some of these changes will give your savings a boost. For example, it’s a lot easier to save when you have more disposable income. But, you might also find that some changes have the opposite effect. This is why it’s important to keep up to date with any financial changes, which is where we come in. At IQ Money, we know that money matters, and we’re here to ensure that you’re always clued up and ‘in the know’ about your savings.