Boris Johnson to become UK Prime Minister: what it could mean for your finances

Tom Selby
23 July 2019

Boris Johnson will become Prime Minister of the United Kingdom tomorrow after winning the Conservative leadership contest.

While the former Mayor of London faces one pretty obvious challenge in the short-term, he has also made a number of campaign pledges aimed, unsurprisingly, at core Tory voters.

Tom Selby, senior analyst at AJ Bell, considers how these proposals could affect people’s finances and assesses the likelihood of them actually being introduced.

Increasing the higher-rate income tax threshold to £80,000

“It didn’t take Johnson long to get his imaginary chequebook out during the Tory leadership race as he promised to raise the 40p income tax threshold by over 60%, from £50,000 to £80,000.

“Coincidentally, this is almost exactly the annual salary of Conservative MPs whose votes he needed to get on the final ballot to members.

“This would represent a £9 billion tax boost to 4 million people, according to the IFS, benefitting the top 10% of earners to the tune of almost £2,500 a year.

“Johnson also hinted the National Insurance thresholds could be raised to help pay for the measure. At the same time, he signalled his intention to increase the point at which NI payments kick-in to boost lower earners.

“While specifics were hard to come by in the Johnson campaign, the IFS estimates every £1,000 increase in the NI primary threshold - which currently stands at £8,632 – would cost the Treasury £3 billion.

“Taken together we are talking about a package of reforms costing up to £20 billion at a time when a potentially damaging No Deal Brexit appears to be looming ever larger.

“However, Johnson’s tax and NI plans feel like they’ve been scrawled on the back of a ghostly fag packet. They are certainly unlikely to be introduced overnight, and indeed they might never see the light of day at all if a general election is called.

“That said, it is not beyond the realms of possibility that they would form part of a Brexit No Deal package designed to provide short-term life support to the economy.”

Chances of it actually happening: 7/10

Pension tax relief changes

“Johnson has also promised to ‘fix’ the pension tax crisis currently engulfing the NHS. The issue, caused by the tapering of the annual tax-free allowance for people with total earnings above £150,000, has added significant strain to already overburdened hospitals as senior doctors refuse shifts to avoid crippling tax bills.

“The Department of Health and Social Care yesterday proposed flexibilities in the scheme so GPs and high-earning consultants can opt to pay less into their pension and in turn get lower pensions. This, it argued, would mean they could reduce or even eliminate the risk of being hit by annual allowance charges.

“This complex fudge is unlikely to appease those affected, however, and while Johnson has not said how he will ‘fix’ the problem, scrapping the taper altogether would be the obvious solution.

“This could then be used as a starting point for a broader review of the pension tax regime, with a central aim of simplification and increasing the number of people saving for retirement.

“If Johnson does ditch the taper, however, he would blow a £1 billion hole in the Treasury’s coffers which would need to be plugged.”

Chances of it actually happening: 6/10

Stamp duty overhaul

“Another part of Johnson’s grand economic plan reportedly involves putting rocket boosters under the property market by scrapping stamp duty on homes worth less than £500,000. This would likely be one of a series of emergency Budget plans unveiled if the UK leaves the EU without a deal.

“The proposed stamp duty cut would represent a major giveaway of up to £10,000 for first-time buyers and £15,000 for other property buyers.

“Clearly that’s potentially good news for those looking to buy a home, although stimulating demand in such a manner without building more houses risks simply stoking house price inflation.”

Chances of it actually happening: 8/10

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