A rare political rant today, which you are of course free to ignore. Alternatively please do have your say (politely, constructively) in the comments. My hope is that by keeping politics restricted to these occasional blood-letting rambles, we can hopefully keep the rest of the site and article comments relatively ideology-free.
Last time we faced a general election, the economy was uppermost in voters’ minds. I even wrote a few posts on Monevator about what I thought needed to be cut, slashed and kyboshed – and also where Government might helpfully spend some money.
Of course, over the five years that followed neither my manifesto nor anyone else’s was achieved.
That’s what you get from a Coalition government that takes office after the money has run out, and yet must minister to the needs of a country that’s grown comfortable on 15 years of economic growth and free-flowing public spending. A queer pitch indeed!
But you know what? I think it turned out okay.
Spending was reigned in a bit, taxes were cut a bit – usefully from the bottom with the personal allowance raise, and from the top, with the end of the mean-spirited 50% rate of tax – and getting the national books in order has at least became accepted lip service among all the parties, if not always the reality on the ground.
Oh, and the NHS has not been destroyed. Millions of people do not languish on the dole queues. At the same time, George Osborne is behind his own targets for tackling the deficit.
Muddling through a crisis like this is one way forward.
If I have one major criticism, it’s that there wasn’t boldness on true infrastructural investment, given the incredibly low cost of long-term borrowing.
I have no appetite for permanently higher state spending as a share of GDP from here, nor for Gordon Brown-style “investment” that walks out the door every evening in the form of higher salaries.
And I understand that some are skeptical of the value for money from any major projects.
Nevertheless, the fact is there are some things a country needs, such as roads, rails, airports, bridges, tidal and nuclear power stations (and in the UK simply more houses) where the state can usefully get involved.
In the earlier years of the crisis, I think such investment would have delivered a lot of bangs for the buck. It might have been a wash overall long-term, in terms of return on investment, but it would have meant more jobs during the downturn and making something good out of a bad situation.
Also, rather like buying shares in a bear market, the odds are surely more in your favour if you spend money as the state when demand from the private sector for the same skills and opportunities has evaporated.
Not doing more visible state spending in the UK is not the glaring failure that I think it is in the US – their roads and bridges are literally falling apart – but it’s still been a missed opportunity.
Six of one and half a dozen of the other
So what about the next five years?
I haven’t written much about the economy recently, and I won’t do so now.
In the eyes of all but the ‘house of paper money, mountain of debt’ fundamentalists, we’re clearly out of the emergency ward. Reasonable people can disagree about how much further and how fast spending should be ‘cut’ (or more likely at best held in real terms) or where the axe should fall. Plenty do elsewhere.
But I don’t think voters are so bothered in this election.
All the main parties have signed up to some sort of fiscal restraint (in the loosest sense of the word) and my gut says the existential doubts that led to everything from the Occupy movement to the rise of UKIP has waned.
Also for everyone who fears, say, a return to profligate spending by a Labour government, there’s another who worries about the rise of inequality and the fact that the super-rich have done so much better over the past five years.
Often, as in my case, those worries reside in the same numbskull!
So I don’t think people believe they are voting to save the nation this time. Rather, they are much more likely to vote based on the outlook for their own wallets.
True, we all know there’s a big economic element to that end.
If a Labour government spooked the money markets, the pound fell and interest rates soared, that could have a much bigger impact than getting a few hundred extra quid in free childcare.
Similarly, if a Conservative/UKIP alliance took us out of Europe and started dismantling public services along the way there could be massive upheaval, too.
But I think there are so many often-contradictory permutations that many floating voters aren’t even bothering to evaluate them, and they will instead resort to self-interest to guide their vote.
And it’s floating voters who swing elections.
It’s housing, stupid
I’m the most floaty voter you’ll ever meet – I have voted for four parties to my recollection, in national and local elections – and I’m finding the current choice amongst the most difficult ever.
I had pretty much resolved to go Conservative again this time. I judge we can do with another five years of half-serious attempts at curbing state spending, and Ed Milliband’s talk of price controls and unilaterally raising the minimum wage really bother me.
(I’m a fan of the minimum wage, incidentally, but only when it’s done through the painstakingly established regulatory process that’s been put in place. Not when it’s lifted on a whim by a party chasing cheap votes).
However in the past few days the Conservatives have come out with two policies that I personally find repellent.
Firstly, the proposed changes to inheritance tax to lift £1 million family homes out of the levy altogether.
I know most people hate inheritance tax, and I’m always accused of being a left-wing commie agitator when I say I want it to be raised.
But the point – which my critics never seem to address – is someone somewhere has to be taxed – unless you’re a true zero-State free market radical, which almost nobody is.
All the major parties are really talking about is 2-5% difference in State spending around the 40% share of GDP mark. So however you do it, that’s a lot of tax that needs to be collected from somewhere.
On principle, I think it’s better to more heavily tax dead people and their heirs who did nothing to earn their windfall gains, because you can then reduce the taxes levied on earnings and on the wealth created by entrepreneurs.
As I say, I know most of you don’t agree with me. Even my left-wing friends go red when they think about paying tax on their parent’s semi-detached pile with easy access to good grammar schools.
Oh well, I’ve never written articles for this website to win fans.
But even if you don’t like inheritance tax, you must surely at least question the logic of this particular Conservative move.
Because if you were going to reduce inheritance tax on any particular asset you could choose, the stupidest one to favour in the UK has to be residential housing.
Save now, pay later
It was one thing to turn pensions into inheritance tax planning vehicles for the mass-affluent, which is what has effectively happened in the past 12 months.
I didn’t agree with it, but there you go.
However to take an asset – UK housing – that is in structurally short supply, where high prices cause daily misery for millions, and to make it even more attractive to sit in it, unproductively squatting for future gains – that is downright irresponsible.
What moderately wealthy empty-nesters living in a capacious four-bedroom house are going to downsize now, knowing that all it will do is expose the money they release to inheritance tax?
On the contrary, they will be advised to consider buying even bigger and more expensive homes to try to shield their (children’s) assets.
Mass downsizing alone won’t solve the housing crisis, but it would be a start.
I want capital gains on residential property (deferred until the point of death), so you can see that this policy is the opposite of where I think we should be going.
The only other option is even more building – something in the order of 300-400,000 homes a year for at least the next decade.
We’re barely doing a quarter of that.
Many of those new homes will have to be built in green belts and pretty market towns across the South East.
I wonder how that will go down?
We need to build at least 250,000 more homes annually anyway, even if we put the housing stock we’ve already got to more efficient use.
But this policy just makes things worse.
No way to compete
One thing you need to know about me to understand my perspective is I was not born into a comfortable middle-class home in the South East. The world was not my oyster.
I came to London from the provinces with a suitcase, and my instinct is always going to be to think of other smart young people who want to do the same.
Already the wealthy middle and upper classes are re-capturing the arts and media scene wholesale – a change that has happened in my lifetime – as their children are about the only ones who can afford to do the unpaid entry-level work demanded, or who can think about a lifetime of sub-par earnings in a city where house prices are approaching 10-times the average wage, knowing they’ve an inheritance to look forward to and plenty of help in-between.
Their parents are there to assist them with tuition fees, deposits for flats, and all the rest of it.
The resultant crushing of the meritocracy that emerged in the 1950s and 1960s is bad enough when applied to the arts, but I can now foresee it impacting the sciences, engineering, and even entrepreneurship itself. (I don’t think it’s a coincidence that every new Silicon Roundabout founder I hear has a plummy Home Counties accent).
You might say you don’t give two hoots, because you’re in the haves and the have-nots can look after themselves.
Fair enough, from a personal perspective. Ugly but honest.
However what is the impact going to be nationally if we move to a society whereby wealth and opportunity is channeled down a narrowing funnel of families, and real social mobility is curbed?
I’ll tell you. It means more mediocre but well-educated offspring of parents who’ve made it (or, eventually, whose own parents made it) doing mediocre work in positions they are occupying because some smarter kid from anywhere 50 miles from London never showed up to compete.
A nation increasingly run and ruled by the Nice But Dim types who currently thrive as upscale estate agents in London.
At least until China and India come along to eat our uncompetitive lunch.
Now I’ve got my left-wing ire up, I will turn to the subsidized right-to-buy social housing association policy that’s been revealed this week by the Tories.
Yet ironically my complaint here comes more from the free-marketeer who sits on my other shoulder.
Don’t get me wrong – given my comments above, I clearly think it’s idiotic for the Conservative Party to encourage the sale at a discount of what little social housing we have left.
However I think it’s even worse when you consider low-earners who’ve scrimped and saved to buy one-bedroom flats or starter homes in the private market – or who are perhaps still renting and saving to do so.
They will be left to watch glumly as those who happened to be in housing association property are granted a one-off windfall gain by the State.
It’s another lottery. Not the genetic lottery of inheritances and the Bank of Mum and Dad, but a lottery of happening to be sitting in the right state assets when the ruling party of the day decides to give them away on the cheap.
Nothing really fits me
At this point I’m naturally thinking I might have to cast my vote elsewhere, despite the Conservatives being the party I think is best having their hands on the tiller for the another five years – and despite the fact that they would undoubtedly be the best for my own wallet.
Sadly Labour has veered to the Left, while the Liberal Democrats have some silly anti-capitalist policies in their manifesto, particularly regarding capital gains tax.
(Before somebody pipes in and claims I’m inconsistent in being against reduced capital gains tax allowances but all for inheritance tax, here’s a clue – me and Richard Branson took risks when we allocated our money and we’ve made losses and gains along the way. Your child simply happens to be related to you – they did nothing to get the money, and the only risk they took for their inheritance was their sense of personal achievement being smothered by your generosity).
What about the fringe parties?
I think UKIP has jumped the shark – it did a useful job in making immigration something the chattering classes can cautiously discuss without being socially ostracized, but the party itself is clearly populated by rank-and-file nutters.
Indeed I’d summarize the fringe party offerings as:
- Green party – Climate change is coming! Therefore we need a bloated State-run economy that slams GDP into reverse and reduces carbon emissions by making it so that nobody can afford petrol.
- Plaid Cymru – Wales! Wales! Aren’t we good at the rugby?
- SNP – Wants another once in a generation vote on leaving the Union, six months after the last one.
- UKIP – A sword has been embedded in a stone in an English market square. Whomsoever can draw it forth will be the next king of Albion!
So those aside, I’ve collated below the three main party’s manifesto pledges that I think are most relevant to Monevator readers, from a personal finance and investment perspective.
In other words, I’ve focused on pledges that impact earned income, wealth, and spending on things like rail fares and childcare.
To that end I have not covered benefits, as I’ve assumed few Monevator readers are living in social housing on welfare. (My apologies if that’s you – and I admire your aspiration.)
If you think I’ve missed out anything important from a personal finance perspective, please do let me know below, and if I agree I’ll add it to the list.
- Raise the personal allowance for income tax to £12,500
- Raise the higher-rate / 40p tax rate threshold to £50,000
- Raise the inheritance tax threshold on family homes to £1m by 2017
- Pensions relief hit for high earners. Manifesto says the £1m inheritance tax lift for family homes will be paid for by: “Reducing the tax relief on pension contributions for people earning more than £150,000.”
- Extend the right-to-buy scheme to housing association tenants in England
- No income tax payable by those working 30 hours on the minimum wage
- Double free childcare allowance for three- and four-year olds to 30 hours
- No rise in VAT, national insurance contributions or income tax
- Clamp down on tax evasion and the “aggressive” tax avoidance
- Increase the minimum wage to £6.70 by the autumn and to £8 by the end of the decade
- Continue to apply the state pension triple lock system – so at least a 2.5% rise every year – and introduce a single-tier pension
- 50% rate of income tax for those earning over £150,000
- No increase to the basic or higher rates of income tax, National Insurance or VAT
- Cut tuition fees from £9,000 to £6,000 a year
- Unspecified pension hit for high earners. The manifesto speaks of: “…restricting tax relief on pension contributions for the highest earners and clamping down on tax avoidance.”
- Raise the minimum wage to more than £8 by October 2019
- Protect tax credits for working families so they rise with inflation
- Introduce guaranteed three-year rental tenancies and bring back rent controls
- Freeze rail fares for one year
- Extend free childcare from 15 to 25 hours for working parents of three and four-year-olds
- End marriage tax allowance
- Stop non-doms avoiding tax on overseas earnings
- New National Primary Childcare Service, guaranteeing childcare from 8am to 6pm
- Increase the personal tax-free allowance to at least £12,500 by the end of the next Parliament
- Higher personal income and wealth taxes? (They say they will create “a fair plan” to reduce the deficit by ensuring the rich pay “their fair share”)
- Higher taxes on capital gains tax and dividends? (The manifesto promises: “…reforms to Capital Gains Tax and Dividend Tax relief”)
- “Refocusing” Entrepreneurs’ Relief
- Mansion tax on homes worth more than £2 million
- Hit on pension relief for high earners? Manifesto says: “Establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be simpler and fairer and which would be set more generously than the current 20% basic rate relief.”
- Withdraw eligibility for the Winter Fuel Payment and free TV Licence from pensioners who pay tax at the higher rate
- Make sure rail fares do not rise faster than inflation over the Parliament
- Establish new “rent-to-own” homes, where your monthly rent builds up a deposit in the property
- Build 10 new garden cities. (All the parties say they have plans to build 200,000-300,000 new homes a year. I think it’s mostly hot air and tinkering at best, but this Lib Dem garden city plan is at least something different)
- Another remix of free/extended childcare
Who would you vote for, from a personal finance and investment perspective, and why? Let us know below, but please note I will be deleting any swearing, frothing, or truly swivel-eyed ranting. (I’m allowed a small amount of the latter above. It’s my pub, and I’m the landlord).