Weekend reading: Britain gets the Budget it deserves

I remembered you saying some years back that brexit is the greatest act of national self arm since the 100 years war. You were correct then and even more so now.

Its not the sole cause of all our problems but it exacerbate those problems.

Hits the spot as usual-well done
However -“self flagellation and sighing doesn’t butter any parsnips”-sorry about that-too many mixed metaphors!
We do need to start being a lot more positive to get out of this rather large hole we have dug for our selves
Having travelled widely for over the last 20 years since retiring -coming back to this country lifts my spirits every time -how lucky we are to live where we do
Our problems are serious but we have the wherewithal to solve the problems unlike many interesting exciting to visit other countries that still have such a long way to travel to approach anything like our basic benefits
No doubt our current crop of “peacetime” duds that head up our institutions will be winnowed out by the current crisis and I am sure new competent ones will emerge in due course
Recovery has happened many times before-unfortunately usually involving a war -hopefully not this time though an actual war is not very far away as I speak
That’s enough ranting from me!
xxd09

“Britain is an impaired asset. It is run by old managers who triple-lock their incomes and shout at the telly while sat in properties inflated by vast windfall gains and collectively voting to make things worse for their grandchildren.”

There is an inherent trend towards the conservatism and the political right as people get older, for fairly obvious evolutionary reasons (e.g. redistribution seems like a good idea when you’re younger and poorer, not so much when you’re older and richer).

Also, some of this has to do with the size of the boomer cohort. When one age cohort is materially larger than others, its voting power skews politics and policies in its favour.

But Boomers are in decline as they walk off the end of the conveyor belt of life, so it will be interesting to see if that has any impact on the next couple of general elections. Millenials are about as numerous as Gen X, so perhaps these two younger and more left-leaning generations will put Labour in power for a decade or two.

Enjoyed the premium bond article. It made me laugh. I suspect Im not alone is succumbing to irrational thoughts on occaision about the system being rigged!

@BBlimp – w.r.t. the NHS, could you list those developed countries which perform more with less? Can we please exclude those which don’t require the patient to contribute.

And, which you’re at it, can you define doing less with more real terms money since 2019?

Citations for both please.

There is effectively a contract we have with the government, they provide public services we all benefit from and we pay our taxes according to a formula which is meant to be fair. It is a pooling of risk, we don’t individually benefit from all those services all of the time but we do when needed (e.g. times of illness, or when our children need educating).

The Conservatives have managed the trick of taking the relatively functional public services they inherited from the previous regime and making those services worse while at the same time demanding more tax. It doesn’t look as if they are much good at managing their side of the contract.

(I think what @BBlimp has observed is that suffering multiple re-organisations doesn’t make the NHS more efficient, quite the opposite, it sucks out money unproductively. And I am not sure it actually performs less work, but it certainly is falling further behind demand for its services).

@Jonathan B – I think you’re right – with amendments. Yes they have broken functioning public services and demanded more tax – because they have to borrow less. This is down to furlough and lockdowns and all sorts of things both parties would have done.

And this is the problem for supporters of the nhs – people might have been happy to spend bucketloads on a failing health system when the money was being stolen from future generations in form of borrowing… but now it comes out of their wages, their dividends, their capital gains… well let’s hope increasingly people are looking up and wondering if it should be organised better so as to provide outcomes that people in similarly rich countries expect.

The Vox article is right on point! Tik Tok is an evil app. It’s doing the work of Chinas intelligence and its so easy. Its just going to get worse.

Only France, Germany, and US are above the UK in spending. The monolithic, free at the point of entry, unionised staff, GP as gatekeeper model is broken. I don’t expect to see any change in my lifetime. But surely people will look back and wonder why the UK hung on so long to a system that had inferior outcomes to the government underwritten, insurance based, mixed private / public model that other countries ran for years?

https://data.spectator.co.uk/category/nhs

Re NHS – because the privately funded social care system is doing so well isn’t it? You really want to copy that? – (facepalm). It’s also the main reason why NHS is in such a state. Plus a mixed system won’t magically grow qualified staff in 5 minutes either.
By the way – if you have a heart attack and have to wait 12 hours for an ambulance, you are going to be dead whether you are a pauper or a billionaire. Taxes are actually for something!
I also seem to remember some vague thing called Covid which was still a big deal in 2021………

I’ll just add this too

https://www.visualcapitalist.com/cp/healthcare-spending-versus-life-expectancy-by-country/

@Neverland – so if the U.K. remained in the eu we wouldn’t have high inflation or high interest rates ? Despite them being experienced by the US and the eurozone ?

Hard to argue with that.

@Ducknold – when did your workplace stop using them ?

Oh, thank God and congratulations.
“now we have to suck it up.”
That really sounds like you are hitting that final uphill on the change curve! Lets suck it up, find a way to address the shortcomings, solve the problems and move on as a country with everyone moving in the same direction.

Agree totally on the mad path the referendum sent us on and the lack of grown ups at the helm since.

One specific think that has miffed me a bit is the slashing of CGT thresholds. My previous plan had included a chunk of taking TFLS at 55 then recyling it into ISA each year and GIA. Figured that wouldn’t sting too bad and at £12.3k gains PA could probably get a fair cash draw without tax bothering me. At £3k seems even modest rebalances or ISA top ups might end up taxable if the GIA performs remotely near inflation. Guess I should be grateful for the lower rates still on CGT ( though old indexing would no doubt have been better).

On the use it or lose it part of the existing thresholds anyone got the definitive answer on whether it is better to realise gains on £123k bases standing at a 10% gain or 12.3k base standing at a 100% gain. Rebasing the lower gain stuff feels intuitively better because you have more cash accessible immediately without tax penalty but what really matters is what you put it into if you’re not going to draw soon. Welcome thoughts from people who’ve done the logic before. Example obviously just convenient numbers not my real situation.

It’s a shame that the country is so divided – every debate now seems to be binary. You’re for Brexit or against it; for lockdowns or against them; for vaccines or not; you believe in climate change or you don’t. Instead of arguing with the other side you just slag it off. Meanwhile money continues to rule the roost, while other values are sidelined as irrelevant. I’m increasingly exhausted by it all, where being dispirited trumps being inspired at every turn.

Well, if we are going to be this self pitying… Exactly when did we think ignoring energy and food security was civilised? Was it about the same time we decided that money would have value instead of being a token of value? Perhaps it was also then we agreed that growth could be infinite with finite resources.

When did we start talking about the government’s money as if it was not our money? Was that globalisation? When did we decide that it was more important to blame than to fix? When did we give up on education through media? When did we allow ourselves to become so myopic?

The powerful used to have slaves. They revolted. Then they had oil. Now that is revolting.

The Torygraph and Daily Fail were both moaning about the budget which suggests Hunt and Sunak probably got things about right, given the circumstances. The circumstances being a massive deficit left by Brexit and the Mini Budget. Yes of course there are global factors as well but while the British economy is still smaller than it was pre-pandemic, the Eurozone is over 2% bigger and the US is over 4% bigger.

This is Osborne’s Emergency Brexit Budget, about six years late admittedly but there it is. So many Brexiters said after the Referendum there was lying on both sides of the campaign, and they pointed to Osborne’s budget as a prime example, but looking back now it seems quite prescient.

Current polling on Brexit suggests there would be a massive victory for Remain if the Referendum were held again today, the least we should do on that basis is consider rejoining the Single Market, that would also be the quickest way to boost growth.

@seekingfire

There is a point to the conservatives – the preservation of the status quo and the feathering of the nests of their voting base

Obvious point – state pensions went up by inflation, nearly twice earnings

Less noticed – anyone earning over £180,000 is getting a pay rise because of the national insurance cut

@TI – can I suggest you implement a system that auto hides any comment that mentions “Brexit”, whether positive or negative. These comment sections are becoming an awful bore, full of the same old tropes and platitudes, arguing the never-ending argument.

I shall cope with the current economic situation in the same way that I happily cope with everything that life sends in my direction, by being ever adaptive; by changing to suit changing conditions.

@45 Jonathan – All good points that you have made and I don’t disagree with them.

But I would say that £120 billion of interest payments this year or around 4% of GDP is quite something. Put it another way, that’s more than the entire defence and education budget for this year and closing in on the entire NHS budget.

http://economicsuk.com/blog/002500.html

https://obr.uk/forecasts-in-depth/brief-guides-and-explainers/public-finances/

Every year, we borrow more than we spend, we pull forward future wealth into the present leaving less money for future public services and making the situation worse.

Growth is the only way out of this. Of which the budget offered absolutely nothing according to the CBI.

https://www.bbc.co.uk/news/business-63694717

I figure you know all this probably…..

@ An Admirer I don’t think it unreasonable to complain at being retrospectively taxed on capital appreciation above 1/10th of average inflation. Perhaps if CGT was extended to residential property gains vastly in excess of inflation we might hear the pips squeak.

Low rates and underwriting of the property market are functions of governmental policy and the macroeconomic climate, enjoyed by all, while any ‘huge tax breaks’ have been well and truly eroded by successive governments sticking the boot in. Residential landlords are not even allowed to offset finance costs any more – unlike any other business.

Clearly you’ve never been called out to a blocked sink on a Saturday night only to discover the source of the blockage to be beard shavings. The joys of unearned income!

Late to the discussion, but a couple of thoughts.

I was disappointed in the budget, because I could not see any plan to improve productivity, or to deal with the permanently dampening effects of Brexit. It may be correct that the Sunak/Hunt team had first to stabilise the situation and show that ‘adults’ were back in charge. However, pretending that this Government is completely new and has no connection with the Tory Governments of the last 12 years is odd. After all, we have seen many of the same ministers playing musical chairs with the major roles; particularly post the referendum.

Second, the deliberate placing of the major cuts after the next election looks like cynically putting a landmine on the road of the next Government – whoever it turns out to be. So I have doubts about the good faith of this new leadership.

An opportunity was also missed to simplify an income tax anomaly. The current system of losing the personal allowance progressively as your income rises over £100k is bonkers. Where is the logic in having a broadly progressive income tax policy if the rate in one zone jumps from 40% to 60% and back to 40% or 45%? Why did they not bring the 45% starting threshold all the way down to£100k instead of £125k? If that was unacceptable because of lost taxes, increase the rate. The current model is mad, and if they were going to tinker, why not remove the anomaly.

My other point is in defence of the public sector. I have held (moderately) senior roles in both private and public sector organisations and continue to consult for both. Yes, there is a tendency for the public sector to be more cautious and less adventurous. There is a simple reason for that, it is us, the public.

When I was getting my initial training for the public sector role, we were shown horrific videos of public sector leaders in front of the Public Accounts Committee. Watching those poor sods being ritually humiliated and destroyed by politicians (often with a specific agenda about the existence of the organisation, rather than how it worked) was disturbing. It was intended to frighten, and it did. So “don’t do anything that might land you in front of the Public Accounts Committee” was drilled into us. Even if we could see a better way of doing things, it was a fight.

The other mantra, when a new idea was discussed, was “what would it look like on the front page of the Daily Mail”. The gleeful way in which the tabloids trawled for anything they could spin as corruption, waste or incompetence, was sickening. We were trying to find ways to improve the UK economy, but the red-tops didn’t care. The public sector is bad was the start and end of their analysis.

So, it was a fight to do new things. To experiment. We tried, and we sometimes succeeded, because the staff believed in trying to help the economy, but it was tough, and the pressure came from the politicians we elect.

To give a specific example, we were in the business of providing matched-funding grants to businesses trying to innovate. Our financial targets were – we were allowed to underspend by 1% of our budget in any fiscal year, and not allowed to overspend by a single £. These rules were set by ministers with absolutely no understanding of the process of business innovation. That projects lasting often 3-5 years stumble and stutter, suffer delays or may be abandoned. That projects may have a spend profile that differs from the one on the application form submitted two years before the project starts (particularly hard for SMEs with less cash flow to manage things).

As a result, an immense amount of effort went into massaging the figures. Flogging the people we were supposed to be helping to speed up or slow down spending in ways that had nothing to do with our mission or their innovation projects. And when we inevitably failed there was a lot of work for quite senior civil servants massaging their budgets and swapping things from one column to another, just to make the numbers look right. All of it pointless wheel-spinning and a distraction from the job we were supposed to be doing.

Believe me, in my direct experience, shareholders and corporate owners are pussycats compared to ministers, the treasury and the tabloids.

The public sector may be less innovative and more ass-covering than we would like, but we made them that way.

It is irksome for those of us that knew leaving the EU was a stupid thing to do end up having to pay for it, but that is democracy I suppose. On the whole though I think those of us living off accumulated savings and investments have got off quite lightly so far. Reduction in the Capital Gains Annual Exempt Amount is probably the biggest headache for us, but not unexpected ever since that OTS report on CGT showed how investors were milking it.

What to do about the lower AEA is less clear. I have been extracting the income produced in our tax shelters by selling ETFs outside tax shelters and buying them back inside, as well as adding to ISAs each year in a similar way. That was becoming hard to do anyway without paying CGT and it will now become impossible. The question then is what to do about it. Carry on moving investments into tax shelters and paying CGT, or withdraw the income from tax shelters?

A back of the envelope calculation suggests the answer is not clear cut. For example, £20k worth of ETFs, with a £10k capital gain. Selling and buying back in an ISA will cost £1k in CGT at basic rate, plus trade costs. But once in the ISA the ETFs will produce tax free income and no further CGT. If the dividend yield was 2%, that is £400 per year and roughly £40 saved income tax. So of the order of 25 years before the lost CGT is clawed back.

For US investments we have large positions in a US listed ETF (VTI) for which we get a 15% tax credit on dividend payments. This completely offsets the (basic rate) income tax paid on the dividends, so the only saving on transferring to an ISA would be on future CGT. The current price of VTI is about triple our average price as well, so selling only £4.5k of it would fully use up the £3k AEA.

I need to give this some more thought, but it looks as though running down our ISAs is likely to be the most tax efficient way forward.

@old_eyes

I would say less we made them this way but the UK political system made them this way.

The timeframe that politicians have in mind for “wins” only lasts as long as the next election and thus seems destined to create failure through early scrapping or things done only for the “optics”. Plus there is perpetual new broom syndrome where the last inhabitants work in office must be undone to an extent. Behind all the risible claims of we’re doing X to boost the economy etc etc the most effective policy in my view is one of stability. Decide what you want to incentivise, make it fraud proof and stick to it. And in general recognise that business and the economy does best when it isn’t constantly distracted by a changing political playing field. Of course no credible political party would adopt a raison d’etre to to feck up the regional playing field your businesses have played on for over 30 years……oh

@Naeclue

You articulate what I’ve been trying to get straight in my mind. I guess I’m blessed with a more modest unsheltered GIA than you. But if I take PCTFLS as soon as I hit age in order to manage LTA i’m likely to have a decent GIA pot.

If I say I have max gains in my GIA of 100% then to put 20k into ISA each year I’m looking at a max tax penalty of 700/1400 (ignoring the gross up maths for clarity) depending on my marginal rate of tax. In reality I can probably blend that down a bit by liquidating less starry bits of the portfolio.

I could take the view that that up to £700 would take a long time to recoup in dividends or an alternate view that it wouldn’t take long before I get the 3.5% capital growth in the ISA to recoup it. So I think that points to continuing to fund ISA from GIA, particularly if I were to fear that because so many levers have been pulled in personal taxation that the next one might be to align CGT rates with IT. That latter fear might even point one toward defusing/rebasing GIAs while it is “cheap” at 10%.

It’s here and using up the £12.3k allowance for this year that I get a bit stuck. All things being equal am I better to rebase holdings at low gains so I have a greater balance sitting at nil gain or the holdings sitting at higher gains? Suspect if you don’t have the immediate cash draw needs it all might be quite neutral but welcome views on it.

@BBBobbins, there is certainly a risk that both the dividend and capital gains tax rates could rise to income tax rates in future. There are sound reasons for them to be lower, but that could easily get pushed to one side in the politics. +1 for suffering CGT to get investments into tax shelters.

Against that there is the risk that tax shelters themselves get targeted. The question “Why should the rich pay no tax on their ISA/SIPP investment income and gains?” is not one I have much of an answer to.

For those crystallising their pensions the higher taxes makes the option of not taking the PCLS in one go more attractive, but for some that may lead to unwanted LTA issues.

@BBBobbins, it is I think worth remembering that when we die capital gains are wiped out and gain a new starting point. For now that is the rule anyway, although this has been discussed in OTS papers.

In many cases it would be a total nightmare for executers to calculate capital gains when someone dies though, with original asset purchase prices, corporate actions, etc. long gone, So hopefully this rule will be kept.

@BBBobins (#61):
There is currently, at least, this notable exception re ISA’s, from GOV.UK:
“If your spouse or civil partner dies you can inherit their ISA allowance. As well as your normal ISA allowance you can add a tax-free amount up to either: the value they held in their ISA when they died. the value of their ISA when it’s closed.”

@BBBobbins

“I would say less we made them this way but the UK political system made them this way.”

I agree, but reflect on where the UK political system comes from. I think it is disingenuous for us to abdicate all responsibility. However imperfectly, our parliament reflects opinion in the country. It is not a system I would design (FPTP and political appointments in the Lords for example), but we can’t say it is all ‘them’ and not ‘us’. Just as Brexit is with us with all its consequences because a bare majority of voters decided they wanted a simple answer to a complex problem, we have politicians who want simple answers and immediate actions because we think that is decisive and action-oriented.

Yes, I can point the finger at lobbyists and venal parliamentarians, and SPADs, and foreign owned newspapers, but ultimately we give them the power to act this way. I don’t know how you get to a better place from here, but while we support them in their current way of working, they ain’t going to change.

People want simple answers, and they want someone to blame. Politicians merely give them what they want.

Thanks #62 #63. I too am helping out with probate for a family member now and was aware of the ISA carry over but it has also led me to reflect its value is rather more in how much the spouse can spend before their own demise.

I guess there is a tax optimisation extreme world where the widowed party looks to get married to a younger spouse/greater life expectancy and starts a chain whereby ISA capacity is extended indefinitely until a surviving spouse blows it all.

#64 Agreed – if the referendum taught me anything it’s that we aren’t mature enough as a country to make serious decisions and trade offs and “it’s all too boring” or “they are all as bad as each other” are not good enough reasons to avoid engaging with politics, notwithstanding the self serving narcissism of a number of politicians. They’ll willingly pander to the “let’s make it simple for you” audience because frankly it’s a lot easier than having to make nuanced decisions on evidence and explaining them.

@old_eyes – some great posts there. Your experinece of the public sector exactly echoes mine. People in the sector tend to be risk averse because of the fact that they are mindful that they are using taxpayers money. In addition, as you point out, one cannot underestimate the power of the red-tops and how issues will be played back to their audience.

@Neverland
“Obvious point – state pensions went up by inflation, nearly twice earnings.”
That was a manifesto promise. A promise that is only going to be kept when it’s easy to do so isn’t much of a promise in my opinion.

#71

I’ve talked to Vanguard who will do transfer in specie to surviving spouse (presumably if the spouse opened a new VG account pre release of the deceased’s ISA it would also work – not need in my case). Others seem to need to be cashed out but presumably the ISA provider then provides a certificate for the Additional Permitted Subscription (APS) to enable the new subscription to be made for the cash proceeds.

This from Barclays (not promoting them just first thing on a google) explains a bit more https://www.barclays.co.uk/help/content/obtaining-additional-isa-allowances-following-the-death-of-your-spouse-or-civil-partner.pdf

@Al Cam, the spouse already has a Hargreaves Lansdown ISA. I would assume that they would allow one to be opened if not. The HL bereavement pack is top notch by the way and they were very quick in delivering the valuation report. One of the few organisations I have been able to get through to easily on the phone and able to give sensible answers to all my questions. Very impressive, especially compared to everywhere else. Banks, building societies, HMRC, local authorities, utility companies, etc. all an absolute pain.

Much of this is still in progress as we are still in the administration period – I have been filling in the IHT400 forms today! They are a pain as well.

Hi
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Thank you for all the great job you do.