David Cameron’s government has just told us – via the Queen – what it plans to do over the course of the next parliament. None of what’s been proposed is especially new compared to what we were told before the election, but below we look at some of the most important points covered today.
Europe
Legislation is being put forward to ensure a referendum on EU membership before the end of 2017. Cameron will try to negotiate a better deal with Europe first, and he may even be keen to bring the referendum forward, depending on political expediency, to minimise disruption later on. Cameron clearly wants to remain in Europe, and he’ll do his best to present any deal with the EU as a victory.
However, he’ll have a fight on his hands – eurosceptics are alive to the risks of losing this particular vote (unlike with the Scottish independence referndum, a ‘yes’ vote to Europe probably would kill the prospect of another referendum for at least a generation). As for what it means for investors – markets have a habit of ‘waiting and seeing’ on these things, so don’t expect too much disruption until the day of the vote gets a lot closer.
But in the long run, this could be very important indeed – for a sober view of the case for leaving the EU, you should watch Merryn Somerset Webb’s interview with Roger Bootle of Capital Economics, if you haven’t already.
Tax
As promised before the election, there’s a ban on raising income tax, VAT and National Insurance for the next five years. This is something of a hostage to fortune and really, a luxury that our cash-strapped government can’t afford. As Lord Lawson, an ex-chancellor himself, put it: “This was clearly done for electoral purposes, not for good government”, and George Osborne “has tied his hands to an extent that I wouldn’t have done”.
But we wouldn’t fret if we were Osborne – after all, these aren’t the only taxes in town; far from it. Instead, as sensible investors, we’d be wondering and worrying about what the government will tax instead. We’ll get a better idea of what’ll happen come the next Budget on Wednesday, 8 July, but watch out for cuts to tax relief on pensions and also changes to the capital gains tax regime (for more on this, see my colleague Merryn’s recent piece in MoneyWeek magazine).
Welfare reform
There are a number of changes, including reducing the maximum level of household benefits that can be claimed from £26,000 a year to £23,000, plus a two-year freeze on most working-age benefits, including unemployment benefit, child benefit, and tax credits, from 2016/17 (although if inflation remains at or near current levels, those benefits would likely have been frozen in any case).
However, the government still has to spell out exactly how it’s going to save £12bn a year from the welfare budget. For working parents, there’s a goal of 30 hours free childcare a week for three and four-year-olds by 2017.
Housing
1.3 million housing association tenants who have lived in their homes for three years or more will get the right to buy their properties. Discounts could be worth as much as £102,700 in London and £77,000 elsewhere. The government also wants to see 200,000 new starter homes built (primarily on brownfield land), with these being sold to first-time buyers under 40 at a 20% discount – how they’ll police that we’ll be intrigued to see.
Cities, devolution, and the ‘northern powerhouse’
This is all about expanding the powers given to regions, as long as they agree to have an elected mayor. Greater Manchester is the first area – the ‘northern powerhouse’ – being targeted. We covered the topic in detail in a recent issue of MoneyWeek magazine – while Merryn has written about how a greater focus on the regions could shift the UK’s economic focus from London somewhat.
There’s also the promise of more devolution for Scotland, Wales and Northern Ireland, along with ‘English votes for English laws’ at Westminster.