In four months the people of this country will head to the ballot boxes to cast their votes in the general election. To say voters will be taking a gamble when they mark their ballot papers this year would be something of an understatement.
These are unprecedented times and cutting through the politician speak to discover which will be the best party to run the UK for the next term is proving to be the most difficult choice for a generation.
Of course, since the last election in 2005 there have been various changes. Tony Blair, the darling of the Labour Party, has been replaced as Prime Minister by Gordon Brown, a distinctly sterner and less charismatic leader.
The Iraq war that drew criticism even as the first troops were deployed has since resulted in a worldwide scandal and an official enquiry into the legality of the invasion.
And, of course, the country – and indeed the world – has been gripped by the worst economic crisis for decades.
Critics claim these three changes alone do not bode well for the governing party’s chances of holding onto power.
With the Conservative Party, led by the Blairesque David Cameron, gnawing at any mistake Labour has made in the past few years like a dog with a bone – and let’s be honest there have been a quite a few – the 2010 election looks set to be a nasty scrap to the political death.
Whoever is in power when the votes are counted and verified will have a huge task on their hands to rebuild the economy and lead us strongly out of recession, as opposed to the paltry 0.1% growth that we’ve just seen for Q4 2009.
So what is each party planning for the financial services sector and the wider economy, and what will it mean for you?
Perhaps surprisingly, at the crux of Labour’s manifesto is an emphasis on the party’s achievements – surprising because many of its initiatives of the past few years have been lambasted for being ineffective. The much-maligned Mortgage Support Scheme is a case in point, with critics quick to point out that only a handful of home owners have benefited from it.
Nevertheless the Labour manifesto leads with its key achievements, citing “extra mortgage protection to help families stay in their homes” and “giving a £145 tax cut to 22 million basic rate taxpayers” among these.
As chancellor Alastair Darling was at pains to point out in his Pre-Budget Report, employment and training for young people is takes precedence, with guaranteed work or training for 18 to 24 year olds who have been unemployed for 12 months.
Initiatives such as increasing Child Benefits and Child Tax Credits, giving an extra £60 payment to pensioners on top of a rise in the state pension and increasing Pension Credit to a minimum of £130 a week are also heralded by the party as successes.
Interestingly, according to itself, Labour’s achievements also include extending the Stamp Duty holiday for properties under £175,000. But the holiday ended on January 1 this year despite calls for it to be continued.
Labour’s manifesto claims it is preparing Britain to seize the opportunities of tomorrow and investing now so we are best placed to take advantage of the upturn.
These investments include supporting businesses so they come through the downturn stronger, which is integral for our future economic success, and working with banks to provide loan guarantees to businesses to help them get the credit they need.
The party claims that to ease pressure on businesses up and down the country it will allow them to defer their tax payments on a timetable that they can afford.
The Homeowner Support Scheme is cited, along with an obligatory jab at the Tories.
“In contrast, at a time of recession David Cameron’s priority is an Inheritance Tax giveaway of £200,000 to the 3,000 richest estates in the country,” Labour claims.
Green issues are ever present, with Labour claiming it will strive harder than ever to accelerate the UK’s transformation into a low-carbon economy, benefiting business and the wider economy.
Industry and business play a big part in Labour’s plans, with the need to “improve the skills of our workforce and adapt them to the specialist demands of a modern economy” cited as a priority.
The Conservatives were handed much of their manifesto on a plate once the recession hit so it’s hardly surprising that it starts with a stark reminder that “under Labour Britain is stuck in the longest and deepest recession on record, and remains the only G20 country still in recession” – just in case you’d forgotten.
“We face the largest budget deficit of any major economy, and national debt soaring to £1.5trillion,” it continues. “We have had the largest bank bailout in the world, and one in five young people can’t find work.”
So now we know where we are, where does the party plan to take us?
The Tory party says it will take three steps to mend the economy, the first of which will be met with a resonating hallelujah from the industry.
“We need to get banks lending again,” the Conservatives state. “For more than a year we have been calling for a National Loan Guarantee Scheme to underwrite bank lending to businesses, to save businesses and protect jobs.
“And we think that instead of paying out significant cash bonuses banks should be rebuilding their balance sheets so they can start lending to businesses again.”
The party’s second step concerns the £178bn national debt. To deal with this the Conservatives claim tough choices in public spending must be made, including a one-year public sector pay freeze except for the lowest paid.
The Conservatives’ third step addresses the employment crisis. In a similar way to Labour, the party plans to introduce a scheme to ’Get Britain Working’ including creating 100,000 apprenticeships and funding 10,000 extra university places – a bit of a coup given the recent news that the government is considering raising university fees.
The Tories also plan to freeze Council Tax for two years, abolish taxes on new jobs for two years, reduce Corporation Tax from 28p to 25p and cut tax on small businesses from 22p to 20p.
But the biggest headline-grabbers in terms of the mortgage and housing market are the plans to raise the Stamp Duty threshold to £250,000 and the Inheritance Tax threshold to £1m.
John Rowland, an analyst at Cicero Consulting, the lobbying firm that specialises in representing financial services firms, says the decision to make nine out of 10 first-time buyers exempt from Stamp Duty by raising the threshold was taken at the 2007 Conservative Party conference.
“Since first-time buyer activity is pretty low at the moment this wouldn’t represent an enormous loss of revenue,” he says.
“Tax changes are generally easy to make and can be implemented quickly but I imagine that defining what counts as a first-time buyer for the purposes of the scheme would cause headaches for Treasury officials. But on balance I still expect this measure to be in the Tory manifesto.”
One of the biggest issues the Conservatives and Labour disagree on is public spending.
The Tories say a public sector pay freeze along with cutting the cost of quangos, capping public sector pensions, stopping Child Trust Funds except for the poorest families and disabled children, and stopping tax credits to higher earners will all be necessary to cut public spending.
The party also says it will review the state pension age and create an Office for Budget Responsibility. But it is the timing of these cuts that is causing arguments. The Conservatives say they would start making spending cuts now but Brown argues this would cause another dip.
And it seems it’s not just the parties disagreeing on this. In the past few days shadow chancellor George Osborne and his party leader have been a little unclear themselves on how to address the deficit.
Rowland says the argument between the parties is more subtle than the political fireworks would lead one to believe.
“As ever, the political rhetoric obscures a more subtle situation,” says Rowland. “A significant retrenchment of government spending which accounts for around 45% of gross domestic product will have a significant effect on growth in the short term – I don’t think anyone disputes that.
“The main plank of the Tory argument is that short-term pain is better than the severe long-term damage that would result if the bottom falls out of the gilts market, interest rates rocket or there is a run on the pound if public debt is not brought under control.
“I think many MPs on the Labour benches accept that cuts are inevitable too,” he adds. “Tax receipts are down, more transfer payments are being made to the unemployed and the cost of servicing debt is up.
“It’s simply a matter of where public spending cuts are made and how much they add up to that divides the parties.”
Rowland says that from an electoral point of view Labour strategists know that even if voters say they recognise the need for spending cuts, privately they will be thinking about what it means for them.
“The Conservative message will make middle income families who consume a lot of public services and may well be employed in the public sector a little nervous,” he says. “This explains why Cameron was on the television recently trying to explain the Tory position. It’s a tough sell even if it is principled.” The Conservatives’ confirmed plan to scrap Home Information Packs has received little press coverage of late, with Labour not bothering to come up with a retort. But one other Tory plan certainly has grabbed headlines – the decision to abolish the Financial Services Authority.
“Scrapping the FSA and creating a conduct of business regulator, at the moment called the Consumer Protection Agency, is a solid commitment from the Tories should they be elected,” says Rowland. “It’s more a question of when and how different the new regulator will be than if it happens.
“On the ’when’ question I don’t expect a big bang implementation with everything changing on day one, but logistical changes can happen pretty quickly even if changes to primary and secondary legislation follow a bit later as the Parliamentary timetable permits.
“On the ’how different’ question I expect the personnel to be much the same but with a new employer – either the CPA or the Bank of England – depending on what their present role is at the FSA,” he adds.
Rowland says it’s worth mentioning that shadow Treasury financial secretary Mark Hoban has suggested that one of the FSA’s most notable initiatives, the Retail Distribution Review, will continue without interference.
“My expectation is that the Mortgage Market Review will also fall into that category as it seems pretty closely aligned with the noises the Tories have made with regard to financial services in general,” says Rowland.
“As for more substantial changes, consumer credit regulation will be moved from the Office of Fair Trading to the CPA, which makes sense and might help create a more coherent regulatory regime.
“We might also speculate with some reason that because the new organisation is focussed on retail customers it will move towards product regulation which we are seeing evidence of already in the MMR,” he adds.
The Liberal Democrats have had more attention than for decades in the run-up to this election as the possibility of a hung Parliament looms large. But the party is by no means willing to be flexible when it comes to what it stands for, with party leader Nick Clegg declaring defiantly “we are not for sale”.
A key part of the Lib Dems manifesto is a plan to radically rebalance the tax system including cutting taxes for those on low and middle incomes. The party says it would pay for these cuts by cutting tax reliefs and closing loopholes that benefit the wealthy.
“We propose to raise the threshold at which people start paying Income Tax to £10,000, cutting the average working-age person’s Income Tax bill by £700 and reducing pensioners’ Income Tax bills by £100,” the party states.
“These plans will mean that almost four million people on low incomes will no longer have to pay any Income Tax.”
Rowland says the proposal is interesting but has problems.
“Cutting reliefs would help neutralise the cost of the tax cut which would take those earning under £10,000 out of Income Tax,” he says.
“But it’s worth noting that political parties often overestimate the cash they can raise from closing loopholes. And cutting reliefs will create losers too, some of whom will be floating voters in marginal seats which is why some Lib Dem MPs reacted pretty badly to the so-called mansion tax when it was announced.”
On the subject of unemployment the Lib Dems say they will address the way Jobcentres operate.
In a challenge to Labour’s plan to get all 18 to 24 year olds who have been unemployed for a year into employment or training the Lib Dems say anyone out of work should be given genuine help to find a job, without having to wait a year. The party also plans to offer young people £55 a week to complete internships or work experience programmes. Like the Tories, the Lib Dems plan to increase the number of apprenticeships and university places.
Of course, the party is quick to point out that the boom and bust culture that led to the recession began under the Tories and was carried on by Labour.
“Brown allowed the economy get out of control by building an economy on both public and private debt, his policies fuelled a housing bubble which has now burst and millions of people are now paying the price for this with their jobs,” the party states.
To balance the country’s books the party says it will identify lower priority spending that can be cut to protect vital front line public services.
Education plays a big part in the Lib Dem manifesto, with the party claiming it would reallocate government spending to ensure that children receive the best possible education regardless of their background.
Unsurprisingly, trade bodies are maintaining a neutral stance in terms of which party they would like in power, but are lobbying widely to ensure the needs of the market are not overlooked.
“A potential threat to the mortgage market is the risk of a hiatus in policy and decision-making as a result of the election, and the uncertainty this brings,” says a spokeswoman for the Council of Mortgage Lenders.
“While regulatory reform is high on the agenda for all political parties the most important issue for the mortgage sector is to ensure that a stable and functioning funding market emerges, and that this is resilient. This should be a high priority for the government whatever its persuasion, both in the run-up to and after the election.”
The CML has produced a document to brief candidates hoping to become MPs on the issues it feels the government needs to take into consideration. The document includes facts and figures about the mortgage market and highlights what does and does not work.
It includes details of the Support for Mortgage Interest scheme which the CML claims only provides modest, short-term help for a small number of customers and is nowhere near ambitious enough to have a significant impact on the levels of repossession, which it has forecast will total 48,000 this year and reach around 53,000 in 2010.
The CML claims the scheme must be made more widely available and should calculate the payment of SMI based on the actual rate charged on the claimant’s mortgage rather than at a standard rate.
On the topic of regulation the CML calls on the governing party after the election to avoid knee-jerk regulatory reactions to global and UK problems in the banking system and in response to mortgage market developments during the recession and to keep the reform of mortgage regulation as simple as possible and not attempt to fix what is not broken.
And on the topic of funding – the lack of which has possibly been the single most significant threat to the market in the past two years – the trade body says those in power need to increase the range of active lenders and funding capacity in the market overall to meet consumer needs and enable a return to normal functioning market.
Other trade bodies are also calling on the powers that be to ensure their sectors are not overlooked.
“We work with all leading political parties and will continue to do so,” says a spokesperson for the Association of British Insurers. “The insurance industry is a big employer, contributes more than £8bn in tax and is one of the few industries in which the UK is seen as a world leader. That party that gains power should recognise this and work with the industry to ensure the UK remains a competitive location for insurers.”
Adam Tyler, chief executive of the National Association for Commercial Finance Brokers, says there is little doubt that after the election we will see new faces in government.
“Criticism of the current administration is not helpful and although the performance of Brown and his colleagues under pressure has hardly been sparkling I’m not convinced that there is a right way to handle a global financial meltdown, nor that any of the other parties would have done a substantially better job,” he says.
“Criticism, with the benefits of 20/20 hindsight and a substantial distance between yourself and the task of sorting the problem out, is unfair, no matter how tempting.”
But Tyler says he is hoping for a more practical approach to regulation with a new administration.
“I appreciate this statement opens a can of worms as many believe a more practical approach means to regulate everyone else but not us,” he says. “But commercial finance is a complex area and devising a centralised rule book is likely to be a nightmare. But the current system relies on being seen to be doing rather than doing.”
Tyler says buy-to-let is the latest area to attract the FSA’s attention and a lot of novice landlords got their fingers burnt by making unwise property investments, fuelled by TV property porn.
“This shouldn’t be a market for novices,” he says. “Putting training wheels on the sector seems an overreaction especially as the problem with amateurs is often the property, not the mortgage.”
Robert Sinclair, director of the Association of Mortgage Intermediaries, says that there are some good policy ideas for the housing and mortgage markets, with detailed promises from the Tories on amending tax policies, Stamp Duty and calling a halt to compulsory annuitisation.
“There’s even talk of plugging the savings gap,” he says. “But dealing with the protection gap seems to have as much political attraction as the much vaunted public spending review. In the wider landscape the Law Commission is undertaking its consultation on a review of insurance contract law but we are still way off this resulting in change. More likely, the European Commission will review the Insurance Mediation Directive in 2010 and we will be reviewing our sales practices again.
“Also on the horizon is the chance that the FSA will review its rules on selling insurance to bring these into line with Retail Distribution Review proposals in the investment world.”
It is clear that whoever gets into power will have a big job on their hands. A 0.1% growth in GDP is hardly cause to break out the champagne. And regardless of the big three party manifestos there are several issues that all would be foolish to ignore.
“On one level regulatory reform is moving along, with liquidity and capital requirements being looked at,” says Rowland. “But US President Barack Obama’s proposals on the treatment of big, integrated banks will be an issue for the incoming government.
“Osborne says he supports Obama’s proposals. The future of UK Financial Investments and the level of concentration of market share – especially in the mortgage sector – will also be a concern. “
It’s clear that from now on all eyes will be on the election and the market will be hoping whatever the outcome on that fateful day it will be good news for the industry.
- Offer mortgage protection to help families stay in their homes
- Give a £145 tax cut to 22 million basic rate taxpayers
- Reduce VAT this year, worth an average of £275 off household bills
- Guarantee work or training for 18 to 24 year olds who have been unemployed for 12 months
- Increase Child Benefit and Child Tax Credit
- Offer an extra £60 payment to pensioners on top of a rise in the state pension
- Increase Pension Credit to a minimum of £130 a week
- Give a winter fuel payment of £400 for over-80s households and £250 to the over-60s
- Allow businesses in difficulty to spread their tax payments on a timetable they can afford
- Offer extra cash to encourage employers to recruit individuals without jobs
- Step up the training and support individuals need to get back to work
- Help savers by increasing the threshold of Individual Savings Accounts to more than £10,000
- Increase statutory redundancy pay to £380 a week
- Continue to support the automotive industry with a car scrappage scheme Liberal Democrats
- Rebalance the tax system, cut taxes for those on low and middle incomes and close tax loopholes that benefit the rich
- Raise the threshold at which individuals start paying Income Tax to £10,000
- Restore the link between annual increases in the state pension and earnings that would mean pensioners share in the proceeds of growth in the economy
- Change the way Jobcentres help individuals find work
- Pay any young person completing an internship or work experience £55 a week for three months
- Increase the number of apprenticeships and places on university and vocational higher education courses
- Consult with businesses to identify regulations for repeal, reduction or simplification, and end the gold-plating of European Directives
- Reform consumer law to improve the ability of people to access and secure goods and services affordably, efficiently and on fair terms
- Identify lower priority spending that can be cut in order to protect front line public services
- Reallocate government spending to ensure that children receive the best possible education regardless of their background
- Give pensioners a fair deal and take radical action to combat rising unemployment
- Promote responsible consumer finance by creating a Consumer Protection Agency and launching a free national financial advice service
- Stop nine out of 10 first-time buyers paying Stamp Duty by raising the threshold to £250,000
- Implement a public sector pay freeze except for the lowest paid
- Cut the cost of quangos
- Cap public sector pensions at £50,000 per year
- Stop Child Trust Funds except for the poorest families and disabled children
- Stop Child Tax Credits for those earning more than £50,000
- Review the state pension age
- Create an Office for Budget Responsibility
- Freeze Council Tax for two years by reducing government spending on consultants and advertising
- Abolish tax on new jobs created by new businesses in the first two years of a Tory government
- Raise the Inheritance Tax threshold to £1m
- Reduce the headline rate of Corporate Tax from 28p to 25p as a step towards lower business taxes in general
- Reduce tax on small businesses from 22p to 20p, to be paid for by removing complicated new investment allowances