Category Archives: Reform

2015 Election: Financial Policies of the Major Parties

The three main parties and a host of minor ones are now battling for votes as next month’s general election approaches – an election which has been called one of the hardest to predict in many years. They have very different policies on many important issues, so the election results could have a significant impact on many aspects of the UK. Perhaps one of the main ways that the election result could affect everyday life for the average UK household is through their policies on financial matters such as taxation.

Labour, the Conservatives and the Liberal Democrats have always decidedly dominated election results, and are widely considered the three main parties. These three key players in the UK political scene have the following policies on matters of finance:

Labour

Labour’s big plans for the UK economy as a whole involve reducing the UK’s levels of national debt “as soon as possible” and bringing about a situation of budgetary surplus. In order to keep the national debt in check and ultimately bring it down, they would cease new borrowing for government spending. They also plan to lead a campaign against tax avoidance, with UK overseas territories that refuse to cooperate with these efforts threatened with a place on an international blacklist.

Regarding the issues that more directly affect the average household, Labour plans to bring back the 10p bottom tax rate, which would result in an income tax break for 24 million UK citizens. The party would drop the Married Couples’ Tax Allowance in order to fund this. They would also introduce the much-talked-about concept of “mansion tax,” levied on properties worth more than £2 million, raising an estimated £1.2 billion. Furthermore, Labour would bring back the top 50 rate of income tax for those earning more than £150,000 annually, tax bankers’ bonuses and cut every government minister’s pay by 5%.

Conservatives

The Tories hope to get rid of the UK’s deficit by 2018, and by 2019/2020 they hope to follow this with an overall surplus in the budget. Their plan is to bring this about through cuts in spending rather than through new or increased taxes.  NHS spending would not be in line for cuts. Rather, the Conservatives plan to increase health spending.

By 2020, the Tories hope to cut income tax for 30 million UK citizens. The personal allowance would be raised to £12,500 a year, and the 40p top rate of tax would take effect from £50,000 a year rather than the current level of £41,900.

Liberal Democrats

The Lib Dems plan to get rid of the deficit by April 2018 through “strict new fiscal rules.” Like Labour, the Liberal Democrats plan to bring in a “mansion tax,” which would operate in bands much like council tax.  UK banks would be subject to an extra 8% corporation tax rate, raising £1 billion a year to help get rid of the deficit.

The Lib Dems plan to raise the personal allowance to £11,000 in April of next year, and bring it to £12,500 by 2020. They would raise capital gains tax to 35%, from the current rate of 28%.

How the 2014 Budget Affects You and I

The Budget plans of the chancellor George Osborne affect us all.

The biggest change this year seems to be regarding pensions. Pensioners will no longer be required to buy an annuity, but will be able to access their cash lump sum and use it as they wish. Although this change has been criticised as it could mean that some pensioners may become liable. As they may fall into a higher tax threshold, which means they will need to pay tax at this rate. This also means that they may need to pay the income tax earlier, rather than in stages. Pensioners will be able to obtain free financial advice to help make these decisions.  However, this will not affect pensioners who have an existing annuity. On another note, pensioners who enjoy playing bingo will be pleased to hear that the duty on bingo has been reduced to 10%.

From January, the over 65’s age group will have the opportunity to save in a 1 year bond at a rate of approximately 2.8% or a 3 year bond at a rate of 4% if they wish to.

Many savers will be pleased to know that the tax-free limit on Individual Savings accounts has been increased to £15,000 and the 10p tax rate on savings will cease to exist.

To help families the Help to Buy scheme will extend to 2020. From next September the government will also provide 20% of childcare costs tax-free to parents who pay 80% of childcare costs to a registered provider. The chancellor will bring changes to fuel duty, which will benefit families by approximately £15 a year.

There will be an increase by 2% over inflation on tobacco and taxes on alcohol will increase above inflation, with the exception of ordinary cider and Scottish Whisky. However, beer duty will be cut by a penny which will reduce the price of beer.

The personal allowance will increase to £10,500 for everyone in 2015 to 2016. This will be a relief to many taxpayers.

So as the austerity plan continues and taking into account the economic situation, there does seem to be a few changes made, in an attempt to benefit the majority of people and balance out the economic situation in the UK.

Industry Considers Alternatives to PFI

The National Audit Office has voiced its concern over using private finance in public procurement, arguing that such a practice needs to be challenged more. In its published report last month, the National Audit Office warned about the increase in the debt finance cost since the economic crisis, arguing that the Treasury must re-examine the private finance initiative (PFI) and find alternative ways to fund infrastructure and related facilities services.

Although PFI is currently the most popular form of public private partnership, it is important to remember that there are alternatives. Several other funding structures, such as the regulated assets based (RAB) and the tax increment funding (TIF) models, are now being increasingly considered by the industry.

With the RAB model, investment is based on a regulated, income-generating asset through long-term borrowing, which minimizes risks to ensure affordable financing. The key feature of RAB is that the risk factor, which involves the sunk costs associated with capital investment, is transferred to customers.

Currently, the RAB model is used in the UK mostly in the regulated utilities sector and has shown success in projects established in social housing, airports, and energy. However, according to last year’s National Infrastructure Plan, it is clear that the government wishes to extend the use of RAB to other sectors.

Nonetheless, RAB is not suitable for all cases as it can only be used in sectors with a revenue stream. Road infrastructure, for example, would not be able to utilize RAB. This is because in order to generate revenue for roads, the government would have to impose tolls, something that has not yet been successful in the UK.

The TIF, on the other hand, funds current projects through future tax gains. The TIF, for example, was approved by the Scottish government just last month as a means of financing the £84m project to redevelop Edinburgh’s waterfront. Through this TIF project, Edinburgh will be able to find “enabling” infrastructure works, including the building of lock gates, a cruise liner terminal, esplanade, and link road.

 

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