How will a Tory-DUP deal affect your personal finances?

The gamble failed, the Conservatives lost their majority and now Theresa May must make a deal with the Democratic Unionist Party (DUP) if she is to get her party’s Queen’s Speech through the House of Commons and stand any chance of political survival over the next few years.

But whatever happens, we all need to get through it too, which means making our finances as robust as possible.

So what do the Tories – and now also the DUP – have planned for our pockets?

And what is the likely outcome of this unexpected political upheaval on our economy?

Here’s our survival guide.

The Conservative manifesto pledges

Whether or not they have the clout to get their manifesto through Parliament, the Conservatives are now the largest party. So here’s what they promised:

• To scrap the triple lock on the state pension and replace it with a double lock from 2020, meaning no automatic rise if wages and inflation remain stagnant.

This was one of their least popular policies and the DUP is likely to be unhappy with it.

• To raise the threshold for paying for social care from £23,000 to £100,000, but also include the person’s home in their calculation of assets. What’s more, the Conservatives said they would do so for home care as well as residential care.

Quickly dubbed the “dementia tax”, May has now said there would be a cap on care costs. This is also a policy that is in doubt as there is little cross-party support and certainly none from the DUP.

• Parents would have to pay for school lunches again, although there could be free “breakfast clubs”.

• The Conservatives said they would means test for the winter fuel allowance, ending the £300 handout for richer pensioners.

• They pledged that the personal tax allowance would rise to £12,500 by 2020, while the higher-rate threshold would move up to £50,000.

• The manifesto promised to crack down on fraudulent whiplash claims in order to reduce insurance costs, which is uncontroversial.

• The Conservatives pledge to raise the National Living Wage to 60 per cent of earnings by 2020. This is likely to be supported by members of the DUP and potentially beyond.

• They said they would reform the energy markets and make it easier to switch and fix.

The DUP’s manifesto promises

Meanwhile, the Democratic Unionist Party had fewer financial policies – but look certain to clash with the Tories on some key areas.

• Straight up there is a source of conflict between the two parties, as the DUP called for the pensions triple lock to be maintained.

• The party called for a further increase in the national living wage, and so should be ready to support Conservative plans.

• It has pledged to fight any “assault” on “important” universal benefits, while the Conservatives plan to continue with austerity, including means-testing the winter fuel allowance. This could be a source of conflict.

• The DUP supports increases in the personal-tax allowances, meaning this could easily come to pass.

• As for the Conservative’s proposed cap on energy bills, the DUP has pledged action to keep bills low but it did not mention support or opposition for a cap.

How the hung parliament affects your pocket

While we can’t know for certain which financial policies are red lines for either party, or which have the remotest chance of getting through Parliament, the manifestos are not the only issues likely to affect British household budgets.

The very fact of the hung parliament is likely to have a direct impact on the nation’s economy and our individual financial health.

Sean McCann, chartered financial planner at NFU Mutual, says: “We need to wait and see what the Chancellor may do next, as tough decisions will need to be taken almost immediately and a summer Budget may now need to be factored in.

“People want reassurances that their personal finances are safe from this political turmoil. Higher rate taxpayers and the self-employed in particular need to keep an eye on the political landscape as pension-tax relief reform and changes to National Insurance were two notable omissions from the general election campaign.”

Anyone worried about hikes to National Insurance may take heart from the Government’s struggle. Andy Zanelli, senior technical consultant at online investment platform Ascentric, says the Government will have much less room to play with than if it had achieved a majority.

He says: “The unexpected election result could lead to a significant rethink of any changes to tax and National Insurance the Conservatives may have had ready for a Budget later this year. The initially predicted landslide victory could have ‘unshackled’ a Chancellor looking to possibly reinstate many of the measures dropped from the recent Finance Act.

“A rethink of the approach to the looming Brexit negotiations may mean we may see another benign Budget as far as tax planning goes in the autumn. The Chancellor may find they are now ‘hobbled’ by the uncertainty of a slim majority, Brexit and leadership issues.”

They could also be hobbled by the potentially skittish markets. Richard Stone, chief executive of The Share Centre, says the current uncertainty will have a definite impact on investors.

“There’s a lot for investors to take on board as they try to work out what might happen next,” he explains. “In the near term, we will likely see a drop in sterling. This may counteract any potential fall in the FTSE 100 at least given the level of overseas revenues and earnings in those companies.

“Markets may also have a view that Brexit negotiations, due to start on 19 June, may have to be more conciliatory as the Prime Minister would have to work harder to build a consensus in Parliament for those negotiations.

“As we know markets react badly to uncertainty so we expect sterling to fall and markets, particularly the more UK focused FTSE 250, may be nervous until the future direction of the Government and its programme becomes clear and as investors try to understand what this will mean for their portfolios.”

The dangers of action and inaction

Inaction can be as dangerous for investors as the wrong action, of course. Zanelli adds: “In the run up to most elections there can be a hiatus in planning as advisers and their clients wait to see who wins. However, they cannot wait for too long. Clients need to get good quality advice and take action based on what we know today, not wait for the possibilities that tomorrow may bring.”

That’s echoed by McCann, who concludes: “It’s critical that people don’t make any knee-jerk reactions with their finances as the possible unintended consequences could be expensive. In these times of uncertainty, professional advice has never been more important for people making financial decisions.”

We live in interesting times, to say the least. Perhaps most worrying for household budgets and personal investments is that we do not yet know how much more interesting they are going to become.