When Rachel Reeves delivers her Spring Statement on Wednesday, it is widely expected that the policy changes she will announce will be limited.
Labour has insisted it will only deliver one major fiscal event each year, and that will come in the form of the Autumn Budget. So although some limited tax and spending announcements may be made, the speech is set to focus on an update on the state of the UK economy.
But if the Chancellor were to make some policy changes, what would experts like to see her focus on? The i Paper has summarised some of their ideas below.
Improving workplace pensions
In its general election manifesto, Labour pledged a detailed pensions review, with an interim report on the first part of this – looking at investment – published last year.
The second part of the report is set to look at adequacy, and could cover things such as workplace pensions and auto-enrolment rules.
Under auto-enrolment, people pay a minimum of 5 per cent of qualifying earnings into a pension, with their employer contributing an extra 3 per cent. But this only starts when you hit the age of 22, and only pre-tax employment between £6,240 and £50,270 is included – known as “qualifying earnings”.
There have been calls for years now for successive Governments to widen the scope of auto-enrolment, and pension experts want Reeves to kickstart the process of looking at this, or implementing it.
Lisa Picardo, chief business officer UK at PensionBee, said: “Auto-enrolment has been a huge success in driving increased participation rates and building pension wealth.”
She suggested increasing minimum contributions so that they total 12 per cent rather than 8 per cent.
She added: “With people living longer, pension savings need to stretch further. The current minimum contribution amount of 8 per cent will not be enough for most people to fund a moderate living standard in retirement.
“Raising the level of contributions is key to ensuring savers have enough for later life. The government must set out a clear plan to gradually increase minimum employer contributions, giving businesses time to adapt while boosting long-term retirement outcomes.”
Simplifying ISAs
In the run-up to the Spring Statement, there has been much speculation that Rachel Reeves will make changes to ISAs – savings and investment accounts where the interest earned or gains made are free of tax.
The main speculation has centred on whether she could cut the tax-free allowance on cash ISAs from £20,000.
Though no decision on this is now expected until autumn, financial experts would like to see more comprehensive changes made and hope she can start the process this spring.
“Any reforms to ISAs should focus squarely on genuine simplification, with the central aim of encouraging more people to invest for the long term,” said Tom Selby, director of public policy at AJ Bell.
There are various theories as to how this simplification could look. Rachael Griffin, tax and financial planning expert at Quilter, said the brand has been “confused” owing to multiple different products, including cash ISAs, stocks and shares ISAs, and innovative finance ISAs.
Sarah Coles of Hargreaves Lansdown added: “Dropping the ‘stocks and shares’ language and updating the ISA to call it an investment ISA would be a welcome victory for plain speaking.
“Innovative finance ISAs have never really taken off and could be mothballed.”
Stamp duty cut for shares
When you buy shares – essentially a unit of ownership in a company – you usually pay a tax or duty of 0.5 per cent on the transaction. Some experts have said this should be cut in order to encourage more people to invest, which has been a stated aim of Reeves.
Mr Selby said: “Levying 0.5 per cent stamp duty on UK shares is completely at odds with the Government’s stated aim of encouraging greater levels of retail investing in the UK.
“If Reeves wants to put the country’s money where her mouth is when it comes to backing Britain, she could do away with this obvious disincentive for investors to buy UK companies.
“Doing this would see the Treasury forgo several billions pounds a year in tax revenue, however, and the optics of slashing welfare payments while also cutting taxes for investors may be too difficult for a Labour Government to navigate.”
Improvements to the Lifetime ISA
Lifetime ISAs (LISAs) are designed to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement. Savers get a 25 per cent government boost when they use the funds to buy a home, but they are not allowed to use the money to buy property worth more than £450,000.
The £450,000 level has not changed since the LISA was introduced in April 2017 in which time property prices have increased. Many have said it would be difficult to purchase a home in parts of London for under that price.
The product has also been criticised as, if account holders do not use the money to buy a home under this amount, but withdraw it before retirement, they are hit with a penalty.
This penalty is levied after buyers receive the bonus, so if you save £1,000 and get a £250 bonus, you will have £1,250 total, but will be hit with a penalty of £312.50 on withdrawal. This means a saver who initially deposited £1,000 would get £937.50 back.
Experts have been calling for a change for a long time. Martin Lewis, founder of MoneySavingExpert, has said that as a starting point, the withdrawal penalty should be reduced so that savers only lose what they put in.
The policy has not been touched for several fiscal events, so a change this month still seems unlikely.