Politics, then the best of the articles I read this week.
After last year’s ill-advised EU Referendum and its even more malodorous result left me impotently railing, I wondered whether I shouldn’t have done more politics on Monevator beforehand. Readers from both sides of the vote asked me the same thing.
The truth is mostly that as a fully paid-up member of the Liberal Elite, I hadn’t ever really believed the British electorate would dislike their own feet in sufficient numbers to start blasting away at them.
A sizeable cadre of constitutional diehards? Sure, and a smattering of undesirables. But a winning majority?
Well, we know how that turned out. A Coalition of Incompatibles voted Leave for a dozen different reasons, and here we are.
Yet metropolitan arrogance wasn’t the only thing that stopped me. While I write about these things from time to time because I’m a blogger and writing is what I do, politics isn’t something I claim any expertise in and this site is meant to be about investing.
So I also didn’t want to waste your time and attention.
The depreciated pound in your pocket
This is also why I haven’t written much about next week’s General Election. Besides, for many people – including most readers of this blog – there isn’t a great deal in it between the major parties, from a financial perspective anyway.
Consider this analysis from the Institute of Financial Studies (via David Weston on Twitter):
(Click to enlarge these promises made to be broken)
Okay, so this seems to ignore any secondary impacts from other policies. (Labour going heavy with the old tax-and-spend routine and thwacking the economy, say, or the Tories turning us into Sterling Singapore). But that aside, the relative proximity of the Conservative and Labour impact lines is clear.
The Liberal Democrats are the outlier, and it would be tempting to say that’s because as the perennial third-party they’ve not put forward real policies. Except they actually have pledged to increase income taxes by 1% across the board. That money is said to be earmarked for the NHS.
- Read the Liberal Democrat manifesto’s key points at the Evening Standard.
As for the two main contenders, unless you’re somewhat income poor or very income rich, it doesn’t seem to matter much which party wins.
Of course, that still leaves 30-40% of people for whom it really does matter – and that’s where all the rhetoric and debate is focused.
Labour’s whacking of the wealthiest stands out, and it’s easy to accuse them of old-fashioned class war. But then when you look at who has done well since the financial crisis, it’s pretty clear it’s the richest, mostly through rising house prices and buoyant stock markets.
Indeed, the more I think about Jeremy Corbyn and his Labour manifesto – which instinctively I don’t like at all – the more I’m left thinking if you’re not going to vote in some old-school redistribution now, in our current circumstances, then when?
- Compare the financial points from the Tory and Labour manifestos at ThisIsMoney.
There’s an awful lot NOT to like about this Labour party, especially its front bench. I’ve spent years bemoaning them to my far more lefty friends. (I’m nearest to a New Labour sort at heart. Or better yet the US Democrats.)
And yet the Tories and Theresa May… give me strength.
May be not
When the election campaign began I was aghast at May’s authoritarian overtones, yet that now represents something of a high point in my feelings about her.
It’s one thing to adopt the mantle of a one-party State tyrant if you’ve actually got the swagger and political vision to pull it off. But May increasingly seems little more than a cipher.
Making the election campaign all about Mrs May has backfired spectacularly. Instead of a clever Machiavellian schemer who, for instance, brought her enemy Boris Johnson into the cabinet to neuter Brexiteer opposition, I’m more inclined these days to see a weak and flip-floppy opportunist.
Her imminent opponents in the Brexit negotiations must be rubbing their hands with glee.
So much for May’s character. But the mendacious immigration target aside, I don’t mind the Conservative manifesto too much, despite claims that when you run it through a computer simulation the UK collapses. Even the so-called Dementia Tax was a fairly progressive piece of legislation in the eyes of someone like me who’d love to whack up inheritance tax.
Squint a bit and – thanks to the lack of detail – you can almost see a Tony Blair-style Labour leader campaigning under this Conservative manifesto.
But then I look at the distribution in the graph above, and again I think about how we’re now nearly ten years into austerity, and I reconsider…
Today I read that even Blairite Alastair Campbell’s son is going to vote for Corybn.
Of course I’m concerned about this flavour of Labour hiking taxes and going on a spending spree. But I watch videos like this harrowing one about a disabled woman who can’t walk risking her life going down the stairs and I wonder where even the taxes I’m paying are going, if not on helping somebody like her?
The UK’s tax take is about average at around 33% of GDP. I’d see it rise by 1-2% if it meant I’m not confronted by videos like this.
On the other hand, I wouldn’t support higher taxes if they’re just going to slosh into public sector inefficiencies and wage hikes, and closed shop ‘that’s not how we do it around here’ stasis.
Which let’s face it, they at least partly would.
Party pooper
You see, I’m no party political animal. I’ve voted Conservative in my time, and I’ve even voted Green in local elections. I’d vote for the Liberal Democrats in this one if only for their stance on Brexit, but it’d be a wasted vote in my constituency.
- For a great explanation (with cool interactive tools) on alternative voting systems, go read this. Especially if you’d prefer not to have to vote tactically, which as things stand you probably should if you don’t want to see a Conservative government.
The Economist has also plumped for the Liberal Democrats, daydreaming about how:
“…the whirlwind unleashed by Brexit is unpredictable. Labour has been on the brink of breaking up since Mr Corbyn took over.
If Mrs May polls badly or messes up Brexit, the Tories may split, too. Many moderate Conservative and Labour MPs could join a new liberal centre party—just as parts of the left and right have recently in France. So consider a vote for the Lib Dems as a down-payment for the future.
Our hope is that they become one element of a party of the radical centre, essential for a thriving, prosperous Britain.”
Um, that isn’t going to happen, The Economist.
What an uninspiring choice. The three main parties are like an unwinnable version of the rock-paper-scissors game. Corbyn’s unpleasant friends in his past versus May’s gruesome friend in the White House versus Tim Farron’s lack of friends among the electorate. Labour’s timely redistribution versus the Tories finally raising the higher rate income tax band versus the Liberal Democrats’ penny on income tax to fund the NHS that most of us cite as a top priority. Corbyn being right about Iraq versus May’s not faffing up in the Home Office versus Farron’s principled approach to the Brexit car crash.
On and on and on. (Oh yeah, THIS is why I don’t do party politics…)
At least a Conservative coronation now looks less likely. That’s perhaps the best reason to vote Labour – and maybe especially if you voted for Brexit. Less than a year after the Referendum and May has already been treating the opposition with contempt, calling elections for her own political ends, refusing to engage with the public, and asserting without evidence that she needed a General Election to give her a mandate to negotiate a Brexit that her own party’s machinations got us into.
It can’t go on this way. If we won’t have a European parliament in the mix anymore – if you want our politicians to be in control of our future – then our own Parliamentary system needs to do better.
From Monevator
Seven reasons why you shouldn’t start your own business – Monevator
From the archive-ator: Environmental collapse is the big threat to long-term wealth – Monevator
News
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1
Triple-lock pension safeguard would cost you £115,000 if you bought it yourself – ThisIsMoney
UK house prices down third month straight for first time since the financial crisis – Guardian
Mortgage lenders say “yes” to more first-time buyers [Search result] – FT
How chocolates and drinks have shrunk since Brexit, with no price drop – Guardian
Dwell’s new mortgage tool offers extra insight into how much you can borrow – ThisIsMoney
Millennials can’t rely on the state pension and will have to work longer, says IMF – ThisIsMoney
Cheer up, Millennials, your pensions could be even worse [Search result] – FT
Population growth is correlated with stock market returns. [Coincidence?] – Econompic Data
Products and services
Why RIT won’t be using Vanguard’s new wrapper platform – Retirement Investing Today
Been given options in a startup? What they could be worth [Calculator] – TLDR Stock Options
The HSBC Global Strategy Fund as an alternative to Vanguard – DIY Investor (UK)
Hargreaves Lansdown now offers a Bitcoin ETN from Swedish firm XBT – Hargreaves Lansdown
Comment and opinion
The hidden dangers of passive investing [Search result. Consume cautiously.] – FT
Even Jack Bogle has been musing about the downsides to indexing’s popularity – MarketWatch
Bogle also has 7 tips for investors – ETF.com
Paul Lewis: Time to scrap the ISA tax haven [Search result] – FT
This Amazon engineer invests via a weird crowdsourced ’80s videogame mashup – MarketWatch
Why investing beginners should consider the stock market – Fire V London
Re-framing the concept of risk – A Wealth of Common Sense
Daily returns are a coin flip. Stop looking at your portfolio! – Retirement Researcher
ETF of cat-named companies delivers 849,741% – but it’s rejected by BlackRock – Bloomberg
Is Diageo still an attractive dividend growth stock? – UK Value Investor
Interview with a small cap value investing alpha-generator [Podcast] – The Felder Report
The combustion engine is a bigger threat to oil prices than electric cars – The Value Perspective
What is a house, and can it make you rich? – The Escape Artist
How to cope with sequences of returns risk in retirement – Of Dollars and Data
Taking portfolio spending into the real world for retirees – Wade Pfau
Retirement is more Sun Tzu than Rubik’s Cube – The Retirement Cafe
Happier – and spendier – at work than retired – SexHealthMoneyDeath
A downside to the stampede into socially responsible investing – Enterprising Investor
Off our beat
A timeline of the Earth’s average temperature [Illustration] – xkcd
Amazon Books is basically Borders – 500ish Words
Sitting next to a high-performer can make you better at your job – Kellogg Insight
The Internet is broken. Evan Williams is trying to save it – New York Times
Medieval city map generator [Tool. Slash toy!] – Oleg Dolya
And finally…
“One company planned to build floating offshore mansions for London’s elite, and yet another had a formula to harness energy by reclaiming sunshine through vegetables. These newly floated stock issuances were called “bubbles” at the time. Eventually the South Sea Company convinced members of Parliament (many of whom had already lined their own pockets with South Sea Company shares) to pass the Bubble Act on June 9, 1720, which prohibited the existence of any joint-stock company not authorized by a Royal Charter.”
– Meb Faber, Global Value
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“Tories finally raising the higher rate income tax band”
You are aware that just c15% of taxpayers pay the higher rate? (and that was before the threshold was raised)
Why exactly should it be a priority to give a tax cut to the top 15%, funded by austerity for the poor?
You could have pointed to the much more enlightened Tory policy of raising the allowance to take the lowest earners out of income tax altogether. Although even that potentially progressive policy has been more than offset by criminal cuts to tax credits for the working poor (a case of giving with one hand, while taking away much more with the other).
Bit annoyed my voting papers haven’t arrived yet, having confirmed overseas postal registration over a month ago – probably not enough time to return before deadline now, if they arrive at all. I wonder how many other expats are similarly affected.
Maybe it’s like policeman getting younger but it is difficult not to think a plague on all their houses. I don’t know. Perhaps she called the election in recognition that the two years she had left weren’t enough and the prospect of an election could have been a factor in how the EU negotiated.
I think Paul Lewis’ article is going to really annoy readers of this blog. Appears to confuse ‘the wealthy’ with ‘those who have chosen to save diligently over many years’. Pretty irresponsible journalism .
The tories are raising the personal allowance which is a tax cut for everyone but especially higher earners. I think a labour victory, with the talk of nationalisation, would crash the stock market.
@ the investor. For what it’s worth I think you massively under-estimate the economic damage a Corbyn government would do. There may be only small differences in the tax plans outlined in the manifestos but look at the track record of Corbyn and MacDonald in opposition. Hard left hatred of business, resentment of and desire to punitively tax anyone who is financially successful, no understanding that wealth creation requires incentives (economics isn’t just about distributing wealth), cosying up to the unions. Ultimately these policies will harm the very people they claim to want to help. They argue about inter-generational fairness when allowing the deficit to balloon will place enormous burdens on future generations (watch what happens when interest rates normalise). I am not suggesting that you believe or want any of these things but the social democratic left who flirt with Corbyn as your piece does are playing with fire.
Two references one that puts the UK tax take in full perspective and an old one from Greg Mankiw that is US – based but sheds light on marginal tax rates and how they disincentivise economic activity.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11548341/UK-tax-burden-a-fifth-higher-than-global-average.html
https://mobile.nytimes.com/2010/10/10/business/economy/10view.html?referer=http://gregmankiw.blogspot.co.uk/2010/10/my-marginal-tax-rate.html?m=1
Yami
Raising the personal allowance isn’t a tax cut for high earners. At 100k, which has been the same since 2010 (despite inflation) you then lose your allowance at the rate of £1 for every £2 over. Or put another way, if the personal allowance was £12500 then at £125k you’ve lost it all.
That gives an effective tax rate of 62% which in my opinion is too much. You can obviously salary sacrifice into pensions etc to avoid it unless over 140k.
Personally I see the 62% tax band as a tax on entrepreneurs – particularly as a start-up you’d almost certainly not have switched to dividends as you’re not making a profit.
It was also a double tax until 2015 since the progression of the personal allowance was reduced at the 40% tax band, thus paying for it twice.
I still feel May used Brexit as an excuse to call an election so she could a) get rid of the 2015 manifesto that was tying her hands on tax and pensions and b) to introduce new unpopular policies. Undo the damage UKIP did in the last election in Con manifesto. Her issue is it seems most people have forgotten Brexit. But even if she ends up where she started (majority wise), she will have a very different hand to play with the new manifesto
@Investor
I think Corbyn is a decent guy but I also think you either can’t remember as you were too young or have forgotten the damage that occurred in the 70s by unions on the rampage. I remember the bin men on strike and the litter bags piling up in the roads plus the blackouts and regularly having just the light of a candle in winter. I also remember British Leyland. It wouldn’t take long to get back to that.
May on the other hand is a robot that is either inept (taxing her silver hair voters , the dynamic that voted brexit, with the dementia tax) or nasty.
@Passive Investor — Yes, as I said in the piece (and you acknowledge) I don’t much like the Labour manifesto, nor the leadership’s position on most things. But I really don’t like the Conservatives behaviour in the wake of the EU Referendum result. If there was ever a time for some sort of unity government of consensus, even if one party had a majority, it is now.
It is quite possible to imagine a Merkel or Blair type the day after Brexit coming out and explaining that it was a very narrow result, there are deep divisions, we need to listen and find a way forward, we need to put Parliament at the heart of the process, and we need to give the supposedly all-powerful people a final say on the most important decision for generations.
Instead we’ve got belittling of the opposition and the Parliament that was supposedly so important to Leavers, smears about the judiciary, a lurch towards right-wing Nationalism (if tempered by a sort of populist yet hard to credit in retrospect reaching beyond the usual Tory constituents), the promise of a hard Brexit, downright irresponsible re-stating of immigration targets that she as Home Secretary did very little to meet, and now this tawdry self-centered election.
I can no longer take seriously claims of strength and stability from a party that presided — or even actively encouraged — this chaos.
It’s also hard to take seriously warnings of an economic shock from a party that’s been so cavalier about ushering in a hard Brexit.
Back to Corbyn, pragmatically speaking I guess he’d have a very slim majority of MPs, a fair proportion (half?) of whom are ideologically opposed to him, although I suppose some more would come around if he’d proved he could win elections. I don’t think he’d have a mandate for the worst of Corbyn-ism, nor perhaps the ability to force it through.
We’d get higher taxes on higher earners, probably some re-nationalisation of the railways that I’m against but everyone else seems all for, and likely a slug of cash turning up in the bank accounts of people who objectively need it more than me. Fully agree decades in this direction would be ruinous, but happily we still (pace May) live in a democracy and can vote him out in five years if he goes too far. (And if he does well, well…)
I’ve got to the point where I actually think I trust Labour — especially the likes of Sir Keir Starmer — to do a more responsible job with Brexit than the Conservatives.
I just don’t trust them on it. In contrast it’s hard to deny Corbyn stands by what he says he believes. Look at all the hectoring over nuclear weapons or whatnot. There are easier outs, and he doesn’t take them. And Brexit is the most important issue in my personal opinion.
@Marked — Haven’t forgotten it. As I say in the piece I’ve spent years arguing with my friends about Corbyn. I’ve also ranted against those who don’t know their history in articles like this:
http://monevator.com/margaret-thatchers-childish-children/
Unfortunately pre-Iraq Tony Blair or even Margaret Thatcher isn’t who is on the ballot box. And these times are different from then, most notably because of the ludicrous Brexit the ‘sensible and supposedly conservative’ Conservative leadership has cannoned us into.
Seriously, the article is all about the very tough choice. People can pick one line I wrote and say “what about this or that” and ignore the other lines if they want, but that’s not what I’m trying to get across. (I mean the first comment by @Modicum is I’m afraid the sort of left-wing righteous umbrage that immediately gets me turning selfish again. So on the grounds the article may annoy everyone, perhaps it’s not a bad one! 😉 )
Moronic article from Paul Lewis. Whatever is going wrong with the FT?
Having slashed pension allowances, and with talk of removing most of their tax advantages altogether, why on earth would you then remove the preferred alternative – ISAs? On his scheme there would be very little incentive for anyone to save.
It is almost as if he wants us all to be living off the state in old age.
As usual I’ll just agree to differ on quite a bit (though not all) of what you say particularly of course Brexit! Like you I can’t understand why nationalisation of the railways is apparently popular. And ffor what its worth Mrs May’s brand of conservatism is the opposite of mine (She is no economic or much of a social liberal).
I did want to pick you up on the “turning selfish again” comment. Probably this was just a throw-away thought but it chimed with an annoying trope of the left which is that they think that to be left-wing is altruistic and to vote Conservative is selfish. This is just wrong and in many different respects.
1) Narrowly and least importantly the poorer person who votes for higher benefits / less tax is being just as selfish (ie making their own interests paramount) as the plutocrat who resents paying more tax.
2) There is nothing un-selfish about voting for tax rises / benefit decreases for everyone just a bit richer than one-self. (Depressingly this seems to be a strong narrative of all elections)
3) Most conservatives care just as much about the poor and health and education for everyone as the left. They just think that the road map to helping / improving these is different.
4) There is nothing wrong or malignly selfish with wanting to strive to provide the best possible opportunities possible for your family. To the extent that this means that you don’t rely on state handouts this is in fact un-selfish.
5) Finally a degree of self -interest amongst wealth creators is a benefit to all (ie to ban it even if that were possible would be destructive others). IN economic jargon there are positive externalities to sel-interested behaviour. I am thinking of Adam Smith here ” It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest”.
If I am getting on my hobby horse a bit it is because this was a major theme from the Labour supporters in last night’s Question Time.
@Passive Investor — Broadly agree. It was pretty much an aside, but for what it’s worth I meant “selfish” in that I’ll definitely be poorer under Corbyn. As I said in the article, I’m more a US Democrat sort really. Left-wing culturally, right-wing economically. (I have an article I mean to write about why corporation tax should be 0%, which is a debate that I literally silenced a bunch of friends with last weekend. Not because they were won over, they were horrified and wondered if I’d hit my head! 😉 ) But I’m a floating voter and consider the options each time. Cometh the hour and all that.
@Faustus — Paul Lewis is probably to the Left of Jeremy Corbyn. I can’t really listen to Radio 4’s MoneyBox without raving at him.
I know John Lee used to mention this, but I wish the treasury would consider tax-friendly incentives for longer-term investing i.e. CGT tapering once you’ve held something for 5 or 10 years.
This seems much more appropriate than further complicating ISAs (the Innovative Finance ISA sounds like a car crash waiting to happen).
This seems one of the simplest ways of encouraging people to fulfil some of John Kay’s recommendations in his government report.
This crossed my mind on reading the Paul Lewis article, which I disagree with, but provides some interesting food for thought, that perhaps some tax breaks should be conditional on contributing ‘patient capital’ rather than all being given with no strings attached.
It has been such a dispiriting campaign.
A few weeks ago I twice had to be in the office at 5AM in case of market disruption caused by an electoral upset in France. Yesterday, the UK election did not even rate a mention in our team meeting.
I am undecided whether it was a result of incompetence or just a recognition that nothing will significantly change, whatever the result.
Proud to be a floating voter too. The biggest surprise to me in this campaign is that Corbyn is much better than I had ever imagined, closely followed by the Conservatives unnecessarily attacking their own support
I would think the conservatives would say they are necessarily attacking their own support. The advantage of a big lead is you can make the tough decisions you otherwise would never risk making. Whether they are the right tough decisions is another matter, but in the last few elections parties have really had to stick with ‘populist’ pledges for fear of the tight margins losing them the election.
Regarding voting systems. We have to vote tactically in the UK because we’re trapped in our First Past the Post constituency system, which leads to grossly distorted national results. Within the constituency there are improvements that can be made on FPtP but the critical problem is making everybody’s votes count at a national level. We need a system that makes more votes count, for example by having larger constituencies with a pool of half a dozen elected MPs per constituency. That would lead to a much fairer system at the national level and largely get rid of the need for us to vote tactically. http://www.electoral-reform.org.uk/make-seats-match-votes
As a lifelong Tory voter, I have listened carefully to May since she became PM and sadly concluded that she has the moral compass of a tub of lard. Her world seems all about what appears good for her career, not what is good for the country. I do not like her turning the Tory party into UKIP for her own devices. I do not like her using phrases like the “will of the people” and “strong and stable” which have nasty and loud echoes in a wretched period of modern history. I do not like her inventing the pure fiction that everyone who voted for Brexit was clearly voting to reduce immigration at all and any cost. I do not like her then telling good folk that to not agree with her self-serving fiction is to be unpatriotic. She will simply not do as our PM; the only reason she is not already out on her ear is the unusually weak opposition. I have never subscribed to the notion that my vote is a waste of time given that I am in a strongly Tory constituency. I will therefore do the usual English thing and vote for some other lucky candidate in the hope, however remote, that some balance to our politics can be eventually provided.
As I said before, I think your view of Theresa May is clouded by your opposition to Brexit. Ironically, if you’re worried about Brexit then a reduced Tory majority or a Labour win would be worse than a coronation. Her Brexit plan is logical and deliverable as it doesn’t cross any of the EU’s red lines and aims for a free trade agreement, whereas the hardline Brexiteers in her party want to just leave and trade on WTO rules.
Labour’s Brexit plan has fundamental errors. On page 26, paragraph 3 in their manifesto they state that they want to retain the benefits of the customs union, while on page 28, bottom paragraph they state that they want to negotiate free trade agreements outside the EU. This is impossible as the UK is unable to negotiate its own trade agreements while it is a member of the customs union, as May has made clear in her Brexit white paper.
On the same page 26, paragraph 3 they also state that they want to retain the benefits of the single market, but they’ve also said that they want to end freedom of movement. Again, this is impossible as the EU has consistently insisted that membership of the single market and the 4 freedoms, which includes freedom of movement, are indivisible. David Cameron tried to renegotiate this just before the referendum but failed and the EU has since repeatedly reiterated its position. In fact, last year Switzerland, which is not a member of the single market, but has access to it, was prevented by the EU from implementing restrictions on free movement of workers, even though its citizens had voted for it in a referendum. That’s why May opted for a free trade agreement, like CETA or the EU’s FTA with South Korea, which have no requirements to allow freedom of movement.
http://www.bbc.co.uk/news/world-europe-38340407
Last but no least, they say they will scrap May’s Brexit plan, which took 10 months to compile, and replace it with a new plan within just 11 days (negotiations with the EU are due to start on 19 June).
At the same time, they propose to borrow heavily, increase corporation tax, increase the minimum wage to £10 and repeal the trade union act when companies are already considering their future in the UK because of Brexit.
As I said before, I’m a lifelong social democrat and would have voted against Brexit had I been allowed to vote (I’m a EU citizen), but if you’re worried about Brexit and the impact it may have on the economy then please don’t vote Labour.
@Anarchy – agree, it is hard to see how raising corporation tax and income taxes is likely to encourage companies and net contributors to stay in the UK. Surely anyone who is afraid Brexit will tank the economy must also be afraid of the impact of these tax increases?
Voting for Corbyn because you don’t like Tory Brexit plan is OK, as long as you believe the his plan is achievable. Personally I agree, he says the right things but are any of them actually acheivable?
I think Brexit + Corbynomics/McDonnellomics would do more damage to this country than it would in any other combination. The last thing we need now is to scare away whatever business we’ll have left after the EU 27 are through with us. Also, as a Londoner who’s been forced into cycling to and from work (through last Friday’s fucking torrential downpour) by constant pointless tube strikes, I can’t countenance comrade Corbyn’s cozying up to the unions. Labour? Not in this life. Sorry.
Leaving aside the Liberal Democrat view, which is much the same as the SNP, we’ll keep making the electorate vote until they produce the right answer
BrExit is happening and the only thing that remains to be seen is the deal we get.
About the only anything both sides of the BrExit argument agree upon, either implicitly, or explicitly, is that EU is a spiteful, vengeful, tyranical, bully of an organisation that means to screw us over. We have two choice either roll over let them use us as a doormat (Labour), or bite back (Conservative).
We have seen what happens when the EU is not confronted, David Cameron said he would support membership even if he won no concessions. Poor poker, he got nothing and consequently lost the referendum and resigned. It follows that unless we can credibility threaten to walk we will not obtain a reasonable settlement. With so much at state only the conservative party is a viable option.
Can’t say I’m happy, but I challenge anyone to argue the contrary case.
No, we don’t all agree on that. I think the EU is a flawed (just like our Parliament is flawed, just like everything touched by humans is flawed) organisation that’s essentially a progressive force for good in the world. So do many other people in the UK, including a large chunk of the near-50% who voted to stay in the EU.
Please save yourself the time replying, I’m not going to debate this with you yet again. Cheers.
I hesitate to mention this and it slightly off topic, but is no one else concerned about how the tax base has narrowed? A very small percentage of the population pay the bulk of the tax.
It’s very easy for the masses to vote for increased taxation when only a small (and separate proportion) pay it.
My point is the state is then very exposed to actions of this small minority who are likely to tire of being treated like an involuntary piggy bank
@everyone — I am not going to start discussing comments talking about stuff like “the Islamification of the West” on this site, hence have deleted a few comments.
Arguably there is a place to discuss this (although to my mind the total absence, of for instance, UK law changes or say Muslims taking control of industry and government or even significant wealth makes the whole concept corrosive nonsense) but it is not here, where I haven’t the time or the stomach for it.
As it’d be me policing it, that’s the end of that from a Monevator perspective. Plenty of other corners of the Web to discuss such things.
Many commentators seem to talk as if we would be electing Jeremy Corbyn as a dictator, who will then promptly transport the country back to the 1970s.
In reality, if Labour were to win the election, we will be governed by a coalition of Jeremy Corbyn, the centrist parliamentary labour party, and possibly some other moderate progressive parties. Contrary to Tory nonsense about a “coalition of chaos”, I would consider a centre-left coalition to be the optimum outcome.
The Labour manifesto has clearly been a product of compromise and contains very little that is particularly radical or out of step with the kind of policies that social democratic parties have implemented in successful developed nations elsewhere. This is handily illustrated by the graphic in the original post.
We currently have a tax-to-GDP ratio that is somewhat below the European average, and considerably below quite a few other Western nations that are doing just fine. And the mainstream economic view is that the UK’s cost of borrowing is still very cheap, and that current levels of debt are not problematic and could be safely somewhat increased.
On the other hand, the idea that the Tories are a safe pair of hands on the economy is now rather out of date. They needless prolonged the country’s recession with 10 years of ideologically motivated pro-cyclical economic policies, and they will now be recorded in history as the party that imposed a massive self-inflicted wound on the British economy, and on our influence in the world, by severing us from the European Union.
It has become clear that the Tories have no intention of trying to mitigate the damage of leaving, and they have adopted wholeheartedly the UKIP line that the referendum was somehow a mandate for hard Brexit. Contrary to what Brexiteers seem to insist, the nature of our post-Brexit relations with the EU appeared nowhere on my ballot paper. For anyone who followed the referendum debate closely it would have been clear that there are many possible options post-Brexit, ranging from a Norway/Switzerland-type compromise arrangment at one end of the spectrum, to super Brexit under WTO rules at the opposite extreme.
Despite the narrow majority that voted in favour of Brexit we are now being denied the opportunity to debate these various options and being told that hard Brexit is a fait accompli.
@The Investor: I’m sorry if it seemed like I was cherry-picking just one small (and not particularly important) part of your post to take umbrage with. I’m afraid it is just a bugbear of mine that with Tory hand-wringing about “ordinary” voters being dragged into the higher tax threshold many don’t seem to realise just how few are actually affected by that rate. Whatever about the merits of tax cuts for higher earners (and at current levels I feel there is no compelling economic rationale) they are offensive coming from a government that imposes austerity on the majority on the grounds that “hard choices” have to be made. So that part of your otherwise very reasonable post just stood out for me. If you disagree I would suggest that you please do so by substantive argument rather than attacking the messenger.
@Martyn
“A very small percentage of the population pay the bulk of the tax.”
There are risks associated with having an overly narrow tax base. But I think that this is to some extent inevitable when you look at the stats on the vast (and growing) inequality of wealth.
“My point is the state is then very exposed to actions of this small minority who are likely to tire of being treated like an involuntary piggy bank.”
This reads like you are anticipating (and might in fact be sympathetic to) an Atlas Shrugged-style rebellion of the high earners.
Given that for large parts of the 20th century the rich in the UK paid far higher marginal income tax rates than they do now I would not be allowing such concerns to dictate the legitimate tax and spending policies now being adopted by our democratically elected governments.
Lots of comments on here taking apart Labours plans for Brexit. Now some may not agree with his plan but Mr Corbyn tends to stick to his guns. Well what about the Conservatives plan on Brexit there are only two points that matter number 8 Ensure free trade with European markets and 12 Deliver a smooth orderly exit from the EU. However Mrs May says if they dont like whats on offer they walk away which means 8 and 12 will not apply or put another way no plan.
I find it absurd that people are still bringing up the problems of the 1970s and the dangers of unions. All the self inflicted damage to Britain’s economy since the 70s has been perpetrated by Tory governments or New Labour wannabees. The deindustrialisation of the North and mass unemployment, the catastrophic deregulation of the City, the rampant growth of debt and credit, the bubble and bailout, the prioritisation of the interests of rentiers over those who have to work for a living etc. All of these are the outcome of policies to favour the wealthy elite at the expense of everyone else in society. Our society is in a real mess because of these policies and we need to move back towards a fairer, more balanced politics before we pass the point of no return.
I am not a Corbyn enthusiast but the Conservatives have proven themselves time and again to be appallingly incompetent at managing the UK economy. A more left wing government is a risk worth taking at this point.
@Richard
I dont think Labour’s Brexit plan is achievable. Starmer doesn’t appear to understand the EU’s rules (e.g. customs union, access to the single market) or, if he thinks he can negotiate a compromise where Cameron failed, EU thinking. I’ve been following the Brexit debate in Europe and the idea that if the UK is nice then the EU will be nice back is naive at best. May was only taken seriously after she made her “confrontational” Lancaster House speech, partly because she was being firm and partly because she accepted their red lines. They view Brexit as existential threat, both financially but more importantly politically, so they won’t (can’t) compromise. I think he’d probably run out of time trying to persuade them otherwise and end up with no deal at all.
“the idea that if the UK is nice then the EU will be nice back is naive at best.”
Indeed. It seems to me that these ideas of just being nice to the EU, giving up parts of our negotiating capital before the negotiations have even started, and approaching the negotiation expressing that we’ll take any deal on offer as no deal is the worst possible outcome, are expounded by two types: 1. As you say, the utterly naive, (imagine negotiating with a plumber about fixing your boiler, stating at the outset that whatever happens, it has to be fixed today and you’ll therefore agree any price – hardly likely to result in a favourable outcome). 2. Those (let’s say, the Clegg’s of this world, who do know the EU and how negotiations there work), whose aim, though obviously impossible for them to state directly, is clearly for any proposed deal to be so bad that the clamour for a second referendum becomes irresistible.
Good grief… just read the Paul Lewis piece in the FT. Stunned! Absolutely astonishing that the FT should print such twaddle. Good to see it gets quite thoroughly savaged in the comments there. Can only hope the author is resorting to some journalistic equivalent of trolling in the hope of getting a bit of attention.
By contrast, I really like the FireVLondon piece; brings to mind a conversation I once had which went something like: “Oh no, the stockmarket’s not for me… too risky!” / “So, what would you do if you suddenly came into several hundred K and wanted to make a decent return off it?” / “I’d buy a business!” / “But you don’t know anything about running a business do you?” / “Well I’d hire someone to manage it for me” … leading into further discussion about what a share actually is, and whether it’s better to own a small piece of a lot of companies than one company outright.
I personally benefit both from the generous ISA regime and from the new tax-free allowances.
I find these perks great both from the point of few of tax efficiency and as a way of avoiding having to fill out complex tax returns. So I’d be one of the losers if they were no longer available.
But the overflowing of anger on here about Paul Lewis’ article does seem to me to be a bit self-interested (this being Monevator and all).
Personally I have a hard time seeing why my passively earned savings/investment income should be taxed at a lower marginal rate than the 9:00-5:00 wage income of someone not fortunate enough to have a nest egg.
In principle all forms of income should be taxed in the same way, unless there is some compelling public policy reason to do otherwise.
All things being equal, it’s certainly in the public interest to encourage savings and investment, but why should that take precedence over incentivising labour?
And the empirical evidence that ISAs and other tax incentives actually change behaviour is rather weak, at least so far as investments are concerned. The evidence suggests that the beneficiaries of these kind of tax perks would probably have made exactly the same investment decisions anyway.
(I don’t know what the evidence says in relation to cash savings, but the burden of proof lies with those advocating special tax treatment.)
My view is that for all savings and investment income (interest/dividends/CGT) there should be a tax-free allowance equivalent to the rate of inflation. Anything above that I would tax at the same marginal rate as wage income.
Well someone had to play devil’s advocate anyway..
@modicum. One good reason for treating income from savings separately would be that you have probably already paid tax once on the income you’ve saved. It probably boils down to whether you think high taxes and a large state are good thing in themselves or whether you think broadly speaking people should be as financially independent as possible. In the latter view there is still a place for taxation and a welfare state but redistribution of wealth and state control are not intrinsically good things.
@Passive Investor – “One good reason for treating income from savings separately would be that you have probably already paid tax once on the income you’ve saved.” Interest, dividends, and capital gains taxes apply only to the *return* on investment, not to the *principal*. If I invest £1 of net income and receive a 5p dividend then I only pay taxes on the 5p of new money. I don’t think your argument is logical. Do you really believe no investment returns should be taxed?
@stefan. Having no tax on investment income wasn’t quite what I said but I do think it is right to have tax protection for investment returns for small and medium investors. The long-term after inflation returns on capital are only a few percent and that is achieved after taking a significant amount of risk (20-30% drawn down on capital every so often). There are positive effects for the whole economy if the tax regime is structured to encourage investment.
Its not a question of a large state. Taxation distorts markets, and is best applied evenly, whatever tax revenue you require. Beyond that governments want to apply social engineering for, to me, good reasons.
1) Progressive taxes to redistribute wealth to counter the problem that with capitalism wealth accrues to the few, both those with higher earning potential and greater capital
2) People value their future selves less than their current selves, and need incentives to save, either in ISAs or pensions, to reduce the burden on the state later on.
3) The welfare state is more efficient at providing support than charity.
4) A more equal society is a safer, better society for all.
@ John B. But would you prioritise equality over prosperity? ie Would a society where the poorest 20% are less well off but there is less inequality be better than one where poorer people were better off but there was greater inequality. I can see why inequality of opportunity is wrong. But prioritising inequality of outcome has serious negative effects – restriction of freedom, making the state too powerful, less wealthy society overall (including the poorest).
Paul Lewis’s argument is daft because he chooses to write it when interest rates are incredibly low. If ISAs paid 5%, a mere £20k would go over the £1k threshold, and everyone should aspire to have rainy day savings at that level
@Passive I believe capitalism is the most efficient way of running an economy, so let it rip, but cream off a fraction of the returns to sort out its problems
It will take a shock the size of Trump’s for the Tories to lose, even if they don’t get their wish of further eviscerating their nominal competition, given the political system is as broken as the prevailing economic ideology. (unsurprising, since that’s directly related)
The largely supine press (funnily enough mainly owned by a handful of billionaires) have succeeded in convincing the electorate that there is no alternative to the never-ending austerity that continues to impoverished it slow-puncture style. This from the country that gifted the world the genius of Keynes and at a time when it is screaming for a massive infrastructural investment and at record low interest rates, which would revive the economy.
The election is a charade (pseudodemocratic Punch & Judy show) to serve as another distraction on the neoliberal conveyor belt, it’ll be business as usual, with the current trends of increasing inequality and unsustainable debt extending into the future. What this means for the likes of the readership here is that we’ll do well out of it as asset prices continue to be artificially pushed up. Tax ‘planning’ avenues will allow us to quietly become FI and save us from the deterioration in living standards, while the devaluation of the £ can also be side-stepped by investing in entities that earn globally. We will feel richer by default in Foodbank Britain.
The problem I have with May is that I find her a type of autocratic headmistress, not particularly good at her job but desperate to hang onto it by various forms of intimidation. It worries me that she has done little since becoming PM other than to effectively try to undermine our democracy. She has sat glowering at the House of Lords, failed to support the Supreme Court judges properly, and fought clearly unwinnable court cases to stop the House of Commons having its due say. Worst of all, she has distorted the referendum result, claiming it represented a view on immigration which is by my reckoning the view of only around 20% of voters. She has then made that false claim the basis of her own negotiating aims, forcing an extreme Brexit on a country which never voted for it. Now, she is trying to use the first-past-the-post system to claim she has a mandate for her “strategy”, which is a mathematical absurdity. I always voted Conservative but in these circumstances I will vote for anyone but May.
@Passive Investor
I don’t buy that it is double-taxation.
A wealth tax on the principal would be double-taxation. There would also be an element of double-taxation if there were no allowance made for inflation (as I advocate above).
But any above inflation return from savings and investments is new income that has not previously been taxed.
Also, how we tax savings and investments need have nothing to do with the size of the state. Any reform could quite easily be revenue neutral. For example, if all income was taxed equally we could have a lower overall marginal rate.
If we are going to have a well designed and efficient tax system we need to separate the question of how and what we tax from the separate question of what the overall tax burden should be.
“There are positive effects for the whole economy if the tax regime is structured to encourage investment.”
That would be a persuasive argument if true. But economists have had a hard time actually proving that the kind of tax changes we are talking about make any real difference to investment behaviour or economic growth.
@Modicum, I agree examples of double taxation would include vat when we buy goods, fuel and alcohol duties etc.
It strikes me that what we need to do is tax the huge amount of property wealth that has been accrued (largely through good fortune) over the past twenty years and gets inherited (and then of course spent) by the children, a lowering of the inheritance tax threshold or some form of CGT tax on property at death should do it. This would be far fairer and more logical than increasing tax on income (which is already too high) or investment. Of course this being Britain, that will never happen and we will continue to see the rich as those who earn £80k rather than those who inherit £1m homes.
Paul Lewis’ article is poorly thought through. He is right in that with a £20K ISA allowance, ISAs have morphed into something that can be fully utilised by only the wealthy, be that based on income or assets outside tax wrappers. Consider a family of 2 adults and 2 children under 18. That is getting on for £50K of capital per year that can be put away, that then never generates any tax on any investment returns, ever. When the children turn 18, it’s £80K per year…. or £1M in about 12 years….
I actually consider the increase in the ISA allowance to be a very bad thing. It has an element of killing the goose that lays the golden egg. I think the increase to £20K has made it much more likely that a lifetime ISA allowance will be with us, it’s just a question of how far down the road it appears. That I consider much more likely than scrapping ISAs altogether. I think this is really what Paul Lewis is trying to say, stop ISAs being used (or abused depending on your viewpoint) by the wealthy…..
I have often thought of ISAs as onshore tax havens. In my case, I’ve even had to check on a couple of occasions that I would retain UK residency for tax purposes, whilst considering employment assignments, simply because the loss of protection on all of the family ISAs investment gains would negate being employed…..
As for the election….
Taxes have to rise and the rise has been far too slow to date. As ever, it’s who pays. It is encouraging to see some signs that wealth may start to be taxed, rather than pushing more and more of the burden onto income….
@James123 – True. £1M of property wealth is about 18.5 years of 100% of post tax income at £80K. Those £1M homes subject to an estate on death are a real ticking timebomb though. The inheritance tax coupled with the Mortgage Market Review is going to generate many forced sellers in the years to come (e.g. family cannot pay the inheritance tax bill to keep the property as they can’t raise mortgage finance). As soon as there aren’t enough buyers able to raise the cash to buy them at £1M, prices will have to fall. The deduction for care services in the home will only accelerate that trend as it increases the equity gap for the descendants to keep the property.
@tom – You can get capital gains tapering if held through an investment company.
My 3 children are now all eligible to vote. They will be voting labour. The main reason is the abolishment of student loans. I am one of the 5% that will be affected by increase in tax, quite badly so, but as I age I begin to question the fairness of our society. I am torn who to vote for.
@BTS – your dilemma reminds me of the Franklin quote (courtesy of the Happy Philosophers latest offering),
‘There are two ways of being happy: We may either diminish our wants or augment our means- either will do- the result is the same. But if you are wise, you will do both at the same time; and if you are very wise you will do both in such a way as to augment the general happiness of society.’
It just seems very unfair that previous uni goers are not Going to get their loans forgiven and refunded all their previous payments. I know, life ain’t fair
Interesting IFS chart that. Seems to me Theresa May has ‘done a Hilary’ by trying to stay in the political centre and totally underestimating the oppo. I believe Thatcher commented that the problem with being in the middle of the road is that you can be run over from both sides. The single biggest constituency in the UK is the people who can’t or won’t be bothered to vote as they think it makes no difference.
And what on earth is the Tory offer? Continuation Brown-ism it seems to me – micromanagement, ever greater regulatory and tax complexity, and borrow-to-spend for all time. The country is simply not as wealthy as we think we are – it’s called the decline of the West, and the sooner someone gets to grips with it the better. Increasing regulation, taxes and State spending are not going to attract capital or make us wealthier. It is interesting that if you consider reducing govt spending, people’s minds turn to benefit cuts for disabled people. But that is a miniscule drop in the entitlements ocean – government, central and local, spend about £157 bn a year on pensions, including the state pension and civil service pensions. Think about that: £157,000,000,000! Each. Year. http://www.ukpublicspending.co.uk/government_expenditure.html
Getting people to save more towards their own (ever longer) retirement is the critical spending issue of our generation, but where is the party proposing to let you keep more of your money (i.e. lower taxes), get the price of borrowing back to a level that rewards saving (i.e. interest rates somewhere near where they would be determined by a market, rather than a committee of bureaucrats), and rolling back what you can expect from the State – there just isn’t one any longer.