Once again, the predictions of virtually every political pundit and pollster have been proven wrong. What does that mean in terms of tax policies and planning? To begin with, some important facts:
- The Conservatives have won the most seats: 316 at the time of writing and probably 318 when the final two results come in.
- Sinn Fein gained three seats, taking their tally up to seven. The party’s MPs do not sit at Westminster, meaning that in practice the House of Commons has 643 seats, not 650, and that implies 322 seats are needed for a majority. The other winning party in Northern Ireland, the Democratic Unionist Party (DUP), won ten seats, up two from 2015. They are a pro-Brexit party with policies similar to the Conservatives who have in the past supported the Tories and may do so again.
- Add the DUP 10 to 318 and you get 328, enough for a majority, but only four by-elections away from a minority.
- Theresa May, as Prime Minister, has first call on establishing a government and getting a Queen’s Speech passed. If she (or her Conservative replacement) fails, then Jeremy Corbyn will get his chance.
- Parliament is first destined to meet on 13 June.
- The official State Opening of Parliament is 19 June.
There is now very little certainty: we are in the opposite position from the “strong and stable” government that was the mantra at the start of the campaign. Most of the 80% of the Finance Bill that was dropped in April is still likely to return. However, the chances of a summer Budget have probably receded as there will be more time spent sorting out the shape of the government. Some of the changes that were due from April 2017 might now be kicked back a year.
Given the paper thin theoretical majority, any Finance Bill MKII that eventually emerges will probably be anodyne, with nothing added as contentious as a reinstatement of the hike in Class 4 contributions. That new Bill might emerge after the originally planned Autumn Budget, if the government survives long enough. The FTSE100 was up 70 points by 8.30. The rally is a knee-jerk reaction to the weakness of sterling – down to $1,2663 and €1.1316. Longer term consideration may have to await another election.
So with all this in mind, in our opinion the need for informed advice just increased. The current uncertainty over future taxation policy reminds us of the importance of informed, balanced financial advice. Regardless of the complexion of the next Government:
- Taxation (broadly at the levels we are currently experiencing – or higher) will remain a high on the political and economic agenda.
- Clients will continue to be interested in legitimately reducing it.
- Aggressive tax avoidance will continue to be attacked. It will remain possible to save and invest tax effectively in ways that are permitted by the legislation. No party is suggesting that there is any fundamental objection to this basic principle.
- Choices will exist and they are likely to continue to be relatively complex.
- Advice will remain essential and the “alpha” that can be secured from well informed advice will continue to be valued and in high demand.
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