Savers heaved sighs of relief as Mr Cameron was returned to Number 10 – if only because the Conservatives’ surprise victory spells more stability than most dared hope for.
Nonetheless, based just on what the Conservatives have promised to date, vast change is on the cards for almost every aspect of our personal finances.
... INCOME TAX
The good news is that the Conservatives have promised legislation which would prevent any increase in income tax, national insurance and VAT within this parliament.
Second, the tax-free personal allowance (currently £10,600) is to rise to £12,500 – but only by 2020.
Third is Mr Cameron’s pledge to raise the threshold at which the higher, 40pc rate of income tax applies from its current £42,385 to £50,000. There’s no deadline for this, however.
Other, previously announced changes – such as the “abolition” of tax returns and the introduction of a new £1,000 savings interest allowance – are expected to come into effect next year.
... INHERITANCE TAX
The big pledge was to push the total tax-free allowance from £650,000 per married couple (£325,000 each) to £1m, by granting an extra allowance applying only to people’s main homes.
The measure wasn’t detailed. One way it could work, would be for a couple to have an extra £350,000 (£175,000 each) allowance exclusively for their home.
So, for instance, a couple with £500,000 shares and a £500,000 home would pay no death duties. But a couple with £1m in shares would be taxed, as now, at 40pc on the value of the shares above £650,000.
... PENSIONS
The “triple lock” which applies to state pensions so they rise by 2.5pc, inflation or earnings – whichever is highest – will remain. So will other pensioner benefits including the free bus pass, TV licences for the over-75s and winter fuel payments.
But the party has laid out some less attractive policies for higher earners and middle earners with generous pension arrangements. Those earning over £150,000 will be told they are “too rich for pensions”, with the introduction of a new policy which will reduce the amount they can put into pensions from £40,000 to just £10,000.
The maximum amount savers can put into their pension pots over their lifetime – known as the “lifetime allowance” – will, as announced, be cut from £1.25m to £1m in April 2016.
Finally, whether pensioners will be able to sell their annuities – as recently promised by the Coalition government – is now unclear. This is because it was a policy championed by former pensions minister Steve Webb, a Liberal Democrat MP, who lost his seat. The consultation on the second-hand annuity market has yet to take place.
... HOUSING
Pledges to improve the affordability of home ownership, particularly for first-time buyers, were key to the Tories’ election campaign.
The party promised to double the number of first-time buyers over the next parliament compared to the last five years, helping one million more people to own their own home.
To achieve this, the Tories said they would extend their Help to Buy mortgage scheme to cover another 120,000 homes, allowing over 200,000 people to buy. The scheme helps buyers with a 5pc deposit to secure a mortgage. It comes in two parts – the mortgage guarantee which will continue until the start of 2017 and the equity loan which will be available until “at least” 2020.
In this year’s Budget, George Osborne, the Chancellor, announced a new Help to Buy Isa to boost first-time buyers’ deposits. The Isa, due to launch in the autumn, will reward savers who put aside up to £12,000 with an additional £3,000 towards their first home.
To address the chronic shortage of properties in some areas, the party pledged to build 200,000 “starter homes” over the next five years, reserved for first-time buyers under 40 and sold at 20pc below the market price. It also promised to deliver an additional 275,000 affordable homes by 2020, as well as 10,000 new rental homes at “below market rates” to help people save for a deposit.
In addition, the party said it would “at least” double the number of custom and self-built homes by 2020, partly by requiring councils to allocate land to local people to build or commission their own home.
Mr Cameron also promised to help low-income earners to own a home by extending Right to Buy, which currently benefits tenants in local authority homes, to tenants of Housing Associations.
For people already on the property ladder, Mr Cameron promised to keep mortgage rates low by “continuing to work through our economic plan”.
... HOUSEHOLD BILLS
Rail fares and fuel duty will be frozen – but there will be no cap on energy bills over the next five years.
In a concession to commuters, the Conservatives will cap “regulated fares” in line with the retail prices index.
Currently rail fares – half of which are regulated – rise each January at 1pc above RPI, using inflation figures from the previous July, with the most recent rise at 3.5pc.
But a “flex” rule means train companies can increase individual fares by as much as 5.5pc, as long as the overall average increase stays at RPI plus 1pc. This freedom will be scrapped, the Conservatives have said.
There is no planned rise for fuel duty, which has been frozen since March 2011. In the March Budget, the Chancellor scrapped a rise in line with RPI planned for this September.
The Government will now pressure energy firms to deliver “smart meters” to all homes by 2020
Thursday’s outcome has also ended speculation about an energy bills price freeze, championed by Labour.
Instead the Conservatives will introduce a one-day switch between energy firms, as recommended in a recent Competition and Markets Authority investigation into the market.
This, the Tories say, will improve competition in the market and drive bills down.
The Coalition has previously pressured energy companies to lower prices, in light of falling wholesale costs, and simplify tariffs.
A Treasury investigation into the “big six” firms and their energy prices, launched in January, prompted the major suppliers to reduce bills by 2.2pc (or £28 a year) on the average dual fuel tariff.
• Green Deal: How to claim £5,600 on home improvements
The Government will now pressure energy firms to deliver “smart meters” to all homes by 2020, the in-home devices that measure energy use. This will end reliance on estimated and inaccurate bills, the Conservatives said.
They are free for customers to install but the cost to the taxpayer is set to top £11bn, or £200 per home.
Meanwhile, the future of the Green Deal energy-efficiency policy is uncertain.
In its current form, the Green Deal “Home Improvement Fund” pays people up to £5,600 towards energy-efficiency measures such as insulation or a new boiler. It works alongside the “Energy Companies Obligation”, a scheme financed by energy firms that provides extra funding for disadvantaged households.
The Tories have promised to insulate at least one million hard-to-treat homes over the next five years. It’s unclear whether there will be any new Green Deal cash, as current funds are exhausted.
But uncertainty remains over...
The FTSE surged on Friday, with the biggest winners being those shares which had been thought of as likely losers under a Labour regime.
So energy stocks such as Centrica (up 8pc) and banks, including Lloyds and Royal Bank of Scotland (both up 6pc), were among the top risers. And in another sign that Tory governments are generally good for savers shares in wealth manager St James’s Place and fund broker Hargreaves Lansdown were also among the best performers on the day.
Housebuilders, especially those with developments in and around London, rose in relief at having escaped Labour’s proposed “mansion tax”.
Longer term, though, markets are likely to be troubled by the landslide success of the Scottish National Party and the prospects of a second Scottish referendum. The promised EU referendum in 2017 is another uncertainty.
“We believe some of the positive sentiment may be short lived,” warned stock broker Killik after Friday’s rapid rally.
Many respected fund managers worry the market is in any case over-priced, thanks to the effects of “quantitative easing” or money-printing. Bruce Stout, manager of the £1.5bn Murray International investment trust, told Telegraph Money recently that “when the realisation comes that central banks have not saved the world, and British shares cannot grow into their valuations, the stock market will correct and it will not be pretty.”
The possibility of future referenda casts a similar, longer-term question mark over the value of the pound, which also shot up on Friday.
David Cameron has explicitly committed to keeping interest rates low – to the benefit of mortgage borrowers but the continued pain of depositors.
But the Conservatives’ pro-business policies should see rates rise as the economy and wages grow. “It is abundantly clear interest rates will rise for the right reason – namely because the recovery is continuing to gain strength,” said fund manager GLG.
