Election 2015: A financial planner’s worst nightmare

Elections are a financial planner’s worst nightmare. Politicians can disrupt saving plans with fresh policy at the best of times but, in the cauldron of an election battle, the risks of a populist whim are even greater.

And this year’s vote is the most uncertain in decades with chaotic polling showing no indication of the result and myriad possibilities.

Put simply, nobody has any idea who the next Government will be or what its policies will be. It is the most febrile and uncertain political environment in Britain since the Second World War.

Here’s what we do know.

The Conservatives are promising to eliminate the deficit by 2018 through spending cuts alone, whereas deficit reduction so far has been 80% cuts and 20% tax rises.

Labour say it will get rid of the deficit “as soon as possible” – by the end of the parliament at the latest – by making fewer spending cuts and some tax rises.

The respected Institute of Fiscal Studies says the Conservatives would shrink the state back to the size of the 1930s albeit with a much larger economy today. Meanwhile, Labour would pile on hundreds of billions to the national debt. It’s hardly inspiring.

But these two plans are not the whole story. In today’s multi-party politics and knife-edge election campaign there are any number of parliamentary possibilities.

The polls point to all kinds of deals, coalitions and arrangements that would see horse-trading between parties over policy.

Here are the rest of their economic plans.

The Liberal Democrats want to remove the deficit by 2018 but through 60% spending cuts and 40% tax rises mainly on aggressive avoidance schemes and the wealthy.

The Scottish National Party – now a serious player on the British electoral scene and heading for as many as 40 seats – wants to go slower than Labour and end austerity by increasing spending by 1 per cent every year.

UKIP says it will cut the deficit by leaving the EU and cutting the international aid budget – it has perhaps the least formulated plan of any party.

In a hung parliament each of these parties could exert significant influence over the economic policies of the larger parties.

The SNP could slow Labour plans to cut the deficit, the Lib Dems could force the Tories into tax rises or UKIP could demand an EU exit at all costs.

There might be a second Budget this year or there might be gridlock with policy paralysis where nothing gets done – something many IFAs may enjoy!

If any of these fragile partnerships fail to endure we could even end up with a second election this year and a whole new set of leaders and economic policies.

It’s a confusing mess so what do these broad plans mean for IFAs and their clients?

We know some detail. The Tories will ring-fence NHS spending and pensioner benefits while cutting income tax for lower and middle earners.

Chancellor George Osborne has also shown a major interest in financial planning decisions with his pension freedoms and stamp duty reform. Don’t be surprised to see a big policy announcement on the abolition of inheritance tax during the campaign.

Meanwhile, Labour wants a mansion tax – a 1 per cent charge on homes worth more than £2m – and is flirting with radical cuts to pension tax relief.

The Lib Dems want a major crackdown on tax avoidance, higher council tax on expensive homes and cuts to pension tax relief.

But no party has set out detailed policies and even if they did there is no guarantee any of it would ever happen anyway.

For financial planners, it’s the stuff of nightmares.