Since the election campaign got under way, Labour and the Tories have been sparring over a range of issues including the economy, taxes, and pensions.
Rishi Sunak grabbed headlines earlier this month with the contentious claim that a Labour government would cost households £2,000 more in tax, a claim since dubbed “misleading”.
Shadow Chancellor Rachel Reeves said the Tory manifesto would increase mortgages by £4,000, a claim that was labelled “very speculative” by Full Fact.
While both parties have vowed not to increase income tax, national insurance or VAT, there are other areas where they diverge sharply on tax.
There will be tax rises over the next parliament whichever party comes to power, because of policies already scheduled for the next Parliament – such as freezing income tax and national insurance thresholds, and increases to fuel duty, stamp duty and business rates. These measures are expected to increase taxes by over £20bn a year by 2028-2029 – about £800 a household.
As neither the Tories or Labour have reneged on these policies, the Resolution Foundation think tank said tax hikes were “hiding in plain sight” in both parties’ manifestos.
Launching his manifesto on Thursday, Sir Keir Starmer attempted to position Labour as the party of wealth creation. However Mr Sunak claimed it would “mean the highest taxes in history… if you think they’ll win, start saving”.
Now both manifestos have been unveiled, they can be put under the microscope. So what do Tory and Labour plans mean for your money?
What the Labour manifesto means for your money
Tax
Since Mr Sunak’s contentious £2,000 claim, there has been much speculation about Labour’s true tax plans. Labour has said it will “not increase taxes on working people” – and as promised, the manifesto confirms there will not be an increase in income tax, national insurance or VAT.
But there is no mention of unfreezing income tax thresholds (set by the Tories until 2028), which could mean millions of workers dragged into higher tax bands due to wage growth, something known as fiscal drag.
The manifesto confirms Labour’s plans to end the VAT exemption and business rates relief for private schools, which will be likely to result in a significant increase in fees – although Sir Keir has suggested schools could absorb some of the costs rather than passing it all on to parents.
The more notable manifesto revelation concerns inheritance tax and capital gains tax. Labour says it will “address unfairness in the tax system” by preventing the use of offshore trusts to dodge inheritance tax.
As for capital gains tax, the party plans to close a loophole for private equity workers that allows them to treat performance-related pay as capital gains and thus pay a lower rate.
The manifesto pledges to raise £7.4bn for public sector spending by clamping down on tax loopholes, tax breaks and tax avoidance.
Some of that will be through abolishing non-dom status and replacing it with a “modern scheme for people genuinely in the country for a short period”.
Earlier this year, the Tories announced plans to abolish the current tax break for non-doms from April 2025. Labour are taking it a step further, saying it will raise £1bn by “closing the loopholes” in the Tories non-dom plan.
Up to £855m a year will be funnelled into HMRC by 2028 to curb tax avoidance and evasion.
Labour also proposes a windfall tax on oil and gas companies to fund the public green energy company, Great British Energy, which they say will help lower bills.
Other tax pledges include capping corporation tax at 25 per cent to give investors “certainty”, and a new business rates system to “level the playing field” between high street shops and online firms.
Pensions
Labour will retain the triple lock on state pensions – so the state pension continues to rise each year in line with the highest of wage growth, inflation or 2.5 per cent.
The manifesto also pledges to reform workplace pensions to “deliver better outcomes” for savers and retirees – though specific details are sparse.
A pensions review will work out steps to “improve pension outcomes”, and how pension funds could be incentivised to boost investment in the UK economy.
The document reads: “Our pensions review will consider what further steps are needed to improve security in retirement, as well as to increase productive investment in the UK economy.”
Labour has abandoned plans to reintroduce the lifetime pension allowance (LTA) which was abolished by the Tories. The LTA was a limit set on the pension pot a person could amass before paying tax – £1,073,100, before being scrapped by Chancellor Jeremy Hunt in 2023.
Waspi women were not mentioned at all in the Labour manifesto, eliciting condemnation from Angela Madden, chair of the Waspi (Women Against State Pension Inequality Campaign), who said: “It is hugely disappointing to see the party row back on their previous commitments to delivering fair and fast compensation in today’s manifesto announcement.
“Despite warm words over many years, those who once claimed to be our biggest champions have now abandoned us at the last minute.”
Housing
The party’s manifesto says Labour is planning to overhaul private rented sector regulations.
The Conservative renters’ reform bill was not passed before Parliament due to the general election being called, and would have introduced a series of protections for tenants, although rules to ban no-fault evictions were watered down.
Labour says it will ban no-fault evictions immediately if it wins the election, as well as “empower renters to challenge unreasonable rent increases, and take steps to decisively raise standards”.
It also plans to introduce energy efficiency requirements for homes.
“We will ensure homes in the private rented sector meet minimum energy efficiency standards by 2030, saving renters hundreds of pounds per year. Nobody will be forced to rip out their boiler as a result of our plans,” the manifesto says.
Ultimately, and similarly to the Tories, Labour pledges to build 1.5 million new homes and will introduce mandatory housing targets for councils and recruit hundreds of new planners to tackle backlogs.
What the Tory manifesto means for your money
Tax
Like Labour, the Conservatives will not raise income tax or VAT.
However, as stated, there are tax rises already baked in. Income tax thresholds will remain frozen until 2028 if the Conservatives return to power, a policy put in place in 2021 in the wake of the pandemic. This is effectively a tax rise due to wage inflation, meaning taxes will increase for many over the course of the next parliament.
The Institute for Fiscal Studies has warned this will bring 4.5 million more people into higher income tax thresholds by 2028.
There are plans for a further cut of 1p by next April and 2p by 2027 – the Tories claim this equates to £1,350 of savings for a worker on an average salary of £35,000. The ultimate goal is to scrap national insurance entirely, although the Tories do not commit to doing this in the next parliament.
Their manifesto also pledges to abolish the main rate of self-employed national insurance contributions entirely, after scrapping Class 2 contributions in April.
Tom Selby, director of public policy at AJ Bell, said: “Working families might understandably feel more than a little aggrieved that, having committed to ending the personal allowance freeze for pensioners, Rishi Sunak and Jeremy Hunt are not making a similar pledge for younger people.
“This works in exactly the opposite direction to the national insurance (NI) reductions announced by the Government, not to mention the hints at further NI cuts to come. The Conservatives are effectively giving with one hand by lowering NI, and taking away with the other through the stealth tax of frozen thresholds.
“Creating a different personal allowance for pensioners will also complicate the tax system and add unfairness between generations.”
Elsewhere, the Tories have pledged to raise the threshold for child benefits payments from £60,000 to £120,000, and assess income on a household rather than individual basis. Under current terms, child benefit is reduced if one member of a household earns more than £60,000, and payments stop altogether at £80,000.
Pensions
Under the triple lock, both the state pension and retirees’ tax-free allowance – currently £12,570 – would increase in line with inflation, average earnings or 2.5 per cent – whichever is highest.
The personal tax free allowance (amount earned before paying income tax) would increase solely for pensioners to match the rate pensions will rise annually, at an estimated cost of £2.4bn a year.
Increases to the state pension similar to those seen in 2023 and 2024 could see it exceed the tax-free personal allowance limit within the next two years, hence the “triple lock plus” pledge to save pensioners paying more tax.
Beyond the triple lock, the Tories say they will not introduce any new taxes on pensions through the “Pensions Tax Guarantee”. As far as Waspi women are concerned, the Tories say they are “carefully considering” the recommendations of £10.5bn in compensation made in the Parliamentary and Health Service Ombudsman report.
Housing
The Conservatives have pledged to unleash a £1bn package of support to help people get on the property ladder under a “new and improved” Help to Buy scheme.
This includes government-backed mortgages to help first-time buyers with a 5 per cent deposit on all home purchases less than £400,000. The scheme would last three years, with developers contributing towards loan costs and no interest on the government loan for the first five years.
The Tories have also promised to permanently abolish stamp duty for first-time buyers on homes up to the value of £425,000.
In a bid to woo landlords, a two-year scheme would allow owners to sell homes to their tenants without paying capital gains tax on profits.
This falls under a pledge to build 1.6 million homes in England and build on brownfield land in the 20 largest cities.
