How will the coalition government affect your finances?

2 min Read Published: 14 May 2010

 So we now have a coalition government. But while Nick and Dave gazed lovingly at each other for the cameras, elsewhere analysts have been pouring over the coalition agreement and speculating on its impact for our finances. So to save you wading through the mind numbing reports I’ve pulled together a number of views and interpretations, from various sources, and summarised them in neat bullet points – there is no need to thank me:


  • The inheritance tax starting point will not be going up to £1 million any time soon.


  • The Lib Dems’ proposals to raise the personal income tax allowance to £10,000, for the benefit of low and middle-income workers, from April 2011 will likely remain.
  • The parties have both agreed to keep Gordon Brown's 1p National Insurance rise for individuals, though not for businesses.


  • The CGT rate is expected to rise from 18% to 40% - how this will be implemented is unknown. Timing-wise it could be effective from the date of the emergency Budget or retrospectively applied (i.e backdated to 6th April 2010).


  • Home information packs (HIPS) will be abolished.


  • An emergency Budget is expected within 50 days.


  • The Daily Telegraph state that ‘’The earnings link for the basic state pension will be restored in April 2011. The parties promised a “triple guarantee”: that pensions would be raised by the higher of earnings, prices or 2.5pc, as proposed by the Liberal Democrats’’.
  • The date at which the state pension age starts to rise to 66 will be set, although it will not be sooner than 2016 for men and 2020 for women.
  • The rules requiring compulsory annuity purchase at 75 will be scrapped.
  • The coalition also committed to establishing an independent commission to review the long-term affordability of public sector pensions, while protecting accrued rights.
  • There has been no announcement yet on pensions tax relief. The Liberal Democrats had pledged to abolish all higher-rate relief, limiting the tax benefit to the basic rate. Some commentators think this likely.


  • The parties have agreed that reductions could be made to tax credits for higher earners.
  • They also plan to end all existing welfare to work programmes and replace them with a single scheme to help all unemployed people get back into work.
  • The Conservative manifesto promised a tax break for married couples (although the Lib Dems are not required to back this). So may be unlikely.


  • The Government will implement Tory plans to restrict contributions to child trust funds to poorer families.


  • The Lib Dem policy of taxing planes rather than passengers has been adopted as one of the coalition’s green policies, it has been reported.


  • There is speculation that VAT could increase from 17.5 to 20% to fund the income tax cuts. The UK currently enjoys the fourth lowest VAT rate in Europe (see my post Latest report fuels talk of a post-election VAT increase)

So there you have it, a whistle stop tour of how commentators are interpreting the coalition agreement. Obviously I can’t vouch for the accuracy of the reporting or speculation as quite frankly I have no intention of reading the agreement.