What caught my eye this week.
I read an interesting article this week about a former US politician who now lives in France.
The gist is that having failed to transform US society to his more liberal tastes – we’d say socialist in the UK – the former Democrat Jim McDermott chose to move to France instead:
Today McDermott calls himself an immigrant. He lives alone. He barely speaks French. But he’s a big fan of the French motto ‘Liberté, égalité, fraternité,’ and says that communal spirit is evident both in his everyday interactions with his neighbors and how the French government treats its people.
When he arrived in France, he needed to fill a few prescriptions but didn’t have a French primary care doctor. The pharmacist looked at his empty pill bottles and refilled them, no questions asked. When McDermott finally got a French physician, he received a brand-new CPAP machine at no cost. A month later, someone came to make sure it was working properly.
“Coming to France is like a drink of cold water,” he says. “Once you’ve had this experience, it’s easy to see all the ways in the U.S. you’re getting screwed — well, not screwed per se, but definitely overcharged.”
It’s a thought-provoking admission, albeit one that recalls a challenge often issued by the far right: “If you don’t like how things are, why don’t you F-off leave then?”
(Well, because many people cannot, realistically, for starters. But let’s put that to one side for now.)
Go your own way
I remember being struck 30-odd years ago by the politics of Neal Stephenson’s novel Snow Crash.
This science-fiction classic is today remembered mostly for what it foresaw – and got wrong, of course – about technology, especially the coming Internet-everywhere era.
But Stephenson’s portrayal of a world where people signed-up to join different ‘affinities’ that most matched their personal politics – with financial and legal consequences, and regardless of geography – was striking, too.
No nationalism. Extreme individualism.
Going through my student-y anarchist phase at the time (in an academic sense) I’m not sure I even recognised this as the dystopian vision I’d now clearly see it as.
I’ve heard that some ultra-libertarian sorts in the US still don’t get the joke, and consider Snow Crash a bit of a Bible.
It’s not hard to see how signing up to a regime of very low taxes, a fine-based legal system, and a policy of extreme neutrality, say, might appeal to those whose appetites were whetted by William Rees-Mogg’s also prophetic The Sovereign Individual.
And to be fair, after the Brexit schism in the UK and looking at polarised party politics in the US, the appeal of only having to deal with, support, and be held accountable by those who share your values is pretty relatable, whichever side you’re on.
Little lies
Let’s say you believe, like I approximately do, that we should have a flat and ultra-simplified tax rate of perhaps 30%, across all income and gains, 0% corporation tax, that the state does too much for the wealthy (and older) middle class but not enough to lift up the young and properly poor, and that the very rich should pay a wealth tax. (Maybe 1% annually on assets over £5m – and they should be publicly lauded and celebrated for it, too).
I’ll never be able to vote for such fiscal policy. Existing parties might even see some of those desires as contradictory. (I don’t think they are, but that’s my point).
Wouldn’t it be nice if I could opt into a group who shared my views?
Well yes, until you think about the realities.
What ‘club’ with the means to actually support them would welcome in the poor and hopeless?
What to do with the unrepresented and destitute outside your front door?
Who pays for the army and the border police?
And so on.
Snow Crash touches on these issues, as well as offering (from ancient memory) satirical solutions. Private security, obviously, and swarms of nano-bots that keep the individual safe from rival factions.
Moving to another country, like the former US politician did, seems more practical in the real world .
Through this lens, our intractable immigration issues might be seen in a more generous light as a vote for Western-style capitalism with a safety net, as much as the global poor wanting to share our material prosperity.
I’ve even half-joked to friends that perhaps countries could opt-into being governed by wealthier neighbours. That the US, say, could operate overseas on a sort of franchise system.
(I suppose some would argue this is what the EU does on its Eastern flank. But that’s a can of worms for another day!)
Landslide
I’m curious: as it’s an election year, what would your perfect national political party offer in terms of tax, spending, and personal finance and investing?
Share your thoughts in the comments below. (But let’s not get into third-rail, off-topic political stuff like the death penalty or defunding the police or whatnot. I’ve tried to stick to the financial stuff, please reciprocate…)
Have a great weekend.
From Monevator
The Slow and Steady passive portfolio update: Q1 2024 – Monevator
Choose your fighter – Monevator [Mogul members]
From the archive-ator: 10 reasons to be cheerful as an investor [From February 2009] – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
House prices fell £2,900 in March according to Halifax – This Is Money
Young workers pausing pension contributions. What will it cost them? – Sky
Ukrainians returning home to get dental treatment – BBC
IR35 tax changes contribute to economic inactivity [Search result] – FT
What happened to the 3.8m people denied furlough at the start of Covid? – Guardian
Forbes just released its 2024 global billionaires list – Forbes
A performance quilt for global markets – Novel Investor
Brexit mini-special
Food price fears as Brexit import charges revealed… – BBC
…with small suppliers warning their profits could disappear – Guardian
The Brexit Plots [Podcast] – Political Currency via Apple Part One [Subscribers Two, Three]
Products and services
British Savings Bonds are now available from NS&I, but the rates aren’t great – Which
Get £185 when you switch your bank to Santander… – Be Clever With Your Cash
…and First Direct has brought back its own £175 offer too – Which
Sign-up to Trading 212 via our affiliate link to claim your free share and cashback. T&Cs apply – Trading 212
Parents can now get 15 hours of childcare from age two in England – This Is Money
Collectibles — an enjoyable way to lose money [Search result] – FT
Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
The Sims: For Rent allows millennials to turn the tables – Slate
Homes for sale with stylish interiors, in pictures – Guardian
Comment and opinion
The story that’s sold – Of Dollars and Data
Lessons from five years of FIRE – Stop Ironing Shirts
50 shades of passive investing – Best Interest
“It’s the money”: the Britons who want children but feel they can’t – Guardian
Would you forgive your partner if they lied about their salary? – Slate
A UK blogger hits millionaire status [Congrats!] – Dad on FIRE
The ins and outs of gold, which just hit an all-time high – Humble Dollar
Better investors make fewer decisions: a Kahneman roundup – Abnormal Returns
Credit card debt but buying a Range Rover? Not even wrong – S.L.I.S.
Going back to work – Humble Dollar
The most important concept in finance – A Wealth of Common Sense
Everything is obvious – Behavioural Investment
Cullen Roche’s top ten peeves [PDF] – Discipline Funds
A deep dive into retirement spending guardrails [Nerdy, US but relevant] – Kitces
More UK market woes mini-special
Britain’s FTSE Small Cap index will disappear by 2028 at current rate – Yahoo Finance
Why buying company shares is out of fashion for UK investors [Search result] – FT
UK investors dump British funds and look to US – This Is Money
Global supply of equities shrinks at fastest pace in decades [Search result] – FT
Naughty corner: Active antics
How alternatives can diversify a portfolio – Morningstar
Cliff Asness: cognitive dissonance – AQR
Should you diversify your portfolio by industry or sector? – UK Dividend Stocks
Kindle book bargains
How to Read Numbers by Tom Chivers – £0.99 on Kindle
The Dip: Knowing When to Quit by Seth Godin – £0.99 on Kindle
The Pathless Life by Paul Millerd – £0.99 on Kindle
The Deficit Myth by Stephanie Kelton – £0.99 on Kindle
Environmental factors
Are rainforests doomed? Not necessarily – Vox
How tiny Singapore is saving an endangered bird – Smithsonian
New giant wind turbine in Southport sunk for £75m surf lagoon project – BBC
Robot overlord roundup
Amazon’s ‘Just Walk Out’ tech relied on hundreds of Indian workers, not AI, report claims – Hindustan Times
AI financial advisors are on the way – Axios
You’ll soon be able to use ChatGPT without an account – The Verge
Off our beat
Britain needs to deploy Warhammer – UnHerd
What it’s like to survive nearly drowning – Longreads
‘Leaving home used to be a rite of passage’ – Guardian
Britain will dislike the Labour government in no time [Search result] – FT
Our tools shape ourselves – Aeon
How to instantly recognise a stroke – Art of Manliness
Everyone in Japan will be called Sato by 2531 – Guardian
And finally…
“A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact.”
– Daniel Kahneman, Thinking, Fast and Slow
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Interesting ideas on income and wealth taxes.
But I tend to think you have to start with the culture. That’s where we have a weird mix. We look to the US for so much of our TV, film, music and so on. Then we have so many ongoing ‘class’ hangups: private schools, not valuing manual workers, etc.
Might need a revolution to get a step closer to the French mindset.
From a financial sense, I would want something like centrist politicians back in vouge. Major, Blair, Brown, prehaps even Vince Cable. I would like to see a wealth tax on the super rich and agree tax should be simpler. (Even if a 30% flat rate would mean currently paying more). I would merge income tax and NI also.
I get why Starmer and Reeves are courting the centre and one nation Tories, although I still remain unclear and uncertain what Labour’s financial policies are, other than ‘not quite Tory’ but not far left.
I would like to see UBI explored more, the lowest earners of society will be the hardest hit with AI changes in the workforce. Again, simplicity for benefits – ie just give it to everyone. (paid for by the small wealth tax on the super rich?)
More public health care funding would be a must, but reform of the NHS is needed. I’ve seen the NHS at its best and worst recently. Best, emergency response and post care recovery when my dad had a severe stroke that left him unable to speak. Worst, seeing my sister go through 18 months of hell (and counting) trying to get a diagnosis for PoTS/long Covid, without many answers, being passed from one dept to another, often receiving conflicting advice and a long wait between appointments. Was good to see Hunt highlight investment in NHS IT infrastructure in the budget, but suspect nowhere near enough. Its still lots of different systems, departments not speaking to one another, being underfunded. I wonder if a token charge of appointments is worth looking at, might reduce the ‘do I need to see a doctor’ in some cases. I suspect we are moving towards a public A&E service and more private chronic care, but hope the NHS is loved, cherished and funded properly – such a unique asset when done well. I would hate to live in an American health care system.
In my own financial planning, I am not taking the state pension into account. It will be a bold move, but at some point reform will be needed, the cost burden on the government, with an ageing population will just be too great.
From a social/voting sense, I sit somewhere between the Lib Dems (remain leaning, socially liberal, pro PR, wishing to see higher taxes, more public funding and strong mix of public and private sector) and the Green Party for environmental reasons, but a party showing bold steps on the environment would get my vote. Wouldn’t mind seeing a Lab/LD/Green coalition with PR (and unretire Caroline Lucas to be Environment Sec). After all, the impacts of our changing planet on businesses, people should trump everything. Oh, and less of the far right led culture wars/Truss style PopCon bs please.
Really enjoyed that Mogul piece this week @TI, having just updated my subscription. Thanks again.
Have a good weekend all!
My take from the core of Thomas Piketty’s oft maligned views is that excessive wealth should not be allowed to accumulate in the hands of individuals (including via corporate bodies). If we accept that wealth tends to corrupt … and that it also brings power, then its increased concentration in a few that we have seen over the past century and especially the last decade will have resulted in the emasculation of our societies’ cultural organisation. The remedy, which I would fully support, is proper progressive taxation. Wealth should be expressed as equivalent income (as informally in Victorian times) with the total taxed on an exponential curve, moving smoothly from lower than existing taxes at the left end of the curve and higher on the right – effectively confiscatory above a suitable level – £10 million perhaps?
I guess there’s little hope if some libertarians don’t see satire in a in a book where the protagonist is called “Hiro Protagonist”. And the Mafia delivers pizza and wear FBI style jackets with “Mafia” on the back.
For me, slower change and more experts not less
I’ll try and stay apolitical even if it does mean overlooking things like,
‘It’s a thought-provoking admission, albeit one that recalls a challenge often issued by the far right: “If you don’t like how things are, why don’t you F-off leave then?”’
(Question to self, what makes ‘far right’ pejorative whereas ‘far left’ no longer seems to figure ?)
Anyway, I think the country hasn’t been well governed for the majority of my lifetime. To some extent I wonder if north sea oil was a distraction which hid a lot of things. Could we not have used that windfall better ?
Our latest travails I think stem from the ungovernable Conservative Party which is really 3(?) antagonistic parties in disguise. This brought us Brexit and the inability to honestly grab the post-Brexit nettle.
A landslide Labour victory will bring in a cadre of inexperienced juveniles so that may be its own curse.
Not sure of what I want from the next government, maybe a coherent and open strategy which they promulgate ina fair non-class concious manner ( but see above re the likely calibre of the input) ?
What I fear is retrospective limits on ISA’s.
However the £20k annual allowance looks unjustifiable as does the £60k pension allowance – talk about helping your mates……
Er, ‘rite of passage’, surely?
International agreed, implemented and fixed (to avoid harmful tax competition and capital flight):
– Single CT rate of 15%, with a permanent full expensing/(100%) first year write down allowance regime for R&D (NB: the OECD BEPS Pillar 2 regime now has a minimum 15% CT rate, as agreed by ~140 countries, including the UK and USA);
– Single Income Tax rate of 30%, to include what’s now CGT and NI (and with no personal allowances); with what’s presently IHT charged instead to beneficiaries (rather than to estates, as now), and charged as income at the 30% rate; and,
– Wealth taxes of 1% p.a. on all assets over $10 mn equivalent per person (to be index linked), and at a confiscatory 100% rate for all assets worth over $2 bn per person (no one needs, or can usefully spend, over $2 bn, surely)
Universal Basic Income.
Wide range of views above – tax hard, spend hard, worship ‘our’ NHS. Should bring us growth – seems to be working in France as opposed to the US, Singapore, the UAE, Latin America- oh the whole planet. Hmmm, taking incentives away doesn’t seem to be working elsewhere, sure it’ll be different here.
Awesome website for green remainers, hard to believe you haven’t been able to monetise.
I did read somewhere that there is a lot of movement within the USA for that reason, ie people moving to states with similar values to their own. It’s a bit harder in Europe for various reasons.
I do think a wealth tax would allow us to reduce income taxes, and be more equitable and conducive to growth, though you do get immediately accused of being some kind of leftwing extremist when you say such things. I doubt a wealth tax would come in anytime soon though, with 64% of people in the UK being homeowners (or at least in a homeowner household) it’s easy for opponents of a wealth tax to argue that such a tax would harm our aspirations etc. Most politicians are afraid of the subject because they’ll immediately be vilified in the Telegraph/Mail/Express/Times/Sun. Meanwhile those who actually own all the land make out like bandits. That’s why the Tories are so pro-homeowner, because (a) homeowners are more likely to vote Tory, and (b) if you give everyone a small patch of land (about 1% of UK land is residential houses) it helps preserve the status quo.
Umm @DH- if you removed personal allowances and taxed at 30%, then my 85 year old blind mother who receives approx £13,000 in pension p.a would be paying nearly £4,000 in tax – would you like to try living on £9100 p.a? Especially when your energy bill alone is approx £2,000.
Is that really what you mean?
Personally I’d just like a Chancellor who doesn’t think a £100,000 salary is a small salary and has even a remote connection and sympathy with the great majority of the UK for whom that amount would be like winning the lottery.
@Wephway #9 >ie people moving to states with similar values to their own.
Wonder what the US will look like after 30 years of that. Rather less United at a guess
@Sarah #10: you make a very fair point, & I’ll not seriously try defending removing all personal allowances. That said, there’s arguably a problem in that the growing need for public services (with the UK’s dependency ratio worsening each year) consistently and significantly exceeds the revenues raised to pay for it. As the hardly notably right wing LSE puts it: “In one respect, the UK tax system already looks top heavy. The top 1% pay 30% of all income tax revenues: a higher share than at any time in past 20 years. In other words, three in every ten pounds that the government receives in income tax is paid by just over 300,000 individuals”. So there’s arguably some meit in trying to broaden the tax base.
Whilst wealth taxes broaden the scope of revenue by type of source; absent looking at personal allowances, there aren’t many obvious ways to raise really significant sums by broadening the scope of those actually paying tax. And it may perhaps be relevant to note that the UK’s personal allowance for Income Tax is far from the least generous. Australia is A$18,200 (about £9,000) and Denmark is 49,700 krone (£5,700) p.a. for examples.
I’m hoping for a realistic centre/centre-left approach. Back to (Brown?) Basics. No pie in the sky schemes to try and internationally agree anything (we couldn’t internationally agree our way out of a paper bag). No witless attempts at things that looks good on paper but have failed every single time they’ve been tried around the world (rent controls, wealth taxes etc).
A pragmatic eye to govern. A recognition that as mad as the Truss/IEA lot were, flipping to the opposite pole (paging the Resolution Foundation) would be equally silly. Patiently explaining to the huge new leftwing cohort of Labour backbenchers that “In theory, theory and practice and the same. In practice they are not”. So yes, communism is a good idea in theory. But no, it hasn’t proved to be a good idea in practice.
Realistically, boomers and the asset rich are in for tougher times. But, ‘the Art of Taxation consists in plucking the goose to obtain the largest possible amount of feathers for the smallest amount of hissing’. If they’re sensible (e.g they could abolish NI, grasp the council tax nettle especially at the top end, prioritise growth over NIMBY’s in planning etc), the press will moan but that’ll be about it. If they veer harder left, a big chunk of the country’s big income taxpayers will up sticks. Yes, 90% of the country don’t realistically have that option. The key is that the 10% who do tend to be the people paying, or about to pay, all of the income tax. & they’re already looking at the exits (Doctor’s to Oz and Canada etc, academics and start up’s to Boston and the rest of the US, the City to Dubai, Singapore and even Paris etc etc).
So a government please that focuses on ‘making things work’. That doesn’t think that the world owes us a living, that we can nobble our own best industries without replacing them etc. A government that gives our golden geese a gentle ‘plucking’ rather than anything ruder..
I think there was some research that most folks tend to shift up and down the economic hierarchy throughout our lives. So, sometimes we are the “Us”, and sometimes we are the “Them”.
“What exactly is your ‘fair share’ of what ‘someone else’ has worked for?” — Thomas Sowell
And a little joke … What did one libertarian say to another? Answer: nothing, because they both died from drinking contaminated water.
@Tyro — Oops, thanks, fixed now!
@all — Enjoying the suggestions thanks and letting them roll in for now. Will no doubt be unable to resist adding another 2p worth tomorrow!
@BBlimp — Um, everyone has shared their own personal views, sometimes with a rationale. You’ve just sniped so there you go.
It was interesting to read the IR35 piece in the FT and think about how it relates to your post and the comments. I switched to contracting in 1998 then used the inevitable down time between contracts to build a product business over the next few years. I’m pretty sure that option would be gone now because none of my customers would have accepted the risk of an HMRC visit.
I’ve long thought that the solution to the problem IR35 was trying to fix would be to level the tax between share holders and normal employees. Although I always took advantage of it paying myself dividends to avoid NI and some income tax always felt unreasonable. Why should I pay less tax than the guy sat in the desk opposite just because my employment was structured slightly differently. I was already earning twice as much as I did in full time employment so you couldn’t really argue I needed the incentive of lower taxes.
On the subject of NI I remember reading that George Osbourne wanted to abolish it but was told it was too difficult. Perhaps he should have pushed harder.
My feeling on capital gains is the same although I do think there is a case for adjusting gains due to inflation. Messy but necessary.
When it comes to voting the only parties I will consider are those who promise proportional representation. I know it won’t solve all problems but it feels like a necessary step in the right direction.
@BBlimp we were asked to share our thoughts and opinions. I’m not an economist or a politician and don’t claim to be right. You answer but don’t debate.
Reading the link from Stop ironing shirts made me realise my thinking isn’t adrift. Sadly I’m a bit older (50) but this month I hit the time for FIRE having overshot the number by about 10% but my notice didn’t go in at the start of the year. Two reasons. Firstly I’m deep in a work project that’s running to December and it would almost destroy a colleague if I left them to it (professional pride can be a killer) and secondly we’ve an election looming. The result is pretty much priced in but what matters more is what Labour will do in the budgets and cautious me thinks it’s prudent to wait for their first budget at the very least before putting the letter in just in case they torpedo things with land taxes, wealth taxes and pension shake ups. What they say they’ll do and what they end up doing when they get to Downing Street are two different things. With 40% that’s locked in pensions to 58 ( I had to increase contributions to avoid a certain tax threshold) which could be locked away for an even longer period and part of planned FIRE income being from property rental (30% assets) and 20% assets being in ISAs I’m more than a touch fearful of what’s coming.
Regarding taxation – longer thinking and planning would be nice. As it is all policies and this includes tax are focussed solely on the Twitter cycle let alone the news cycle. This goose just hopes to keep some feathers. But it’s safest to expect to be plucked bare and be pleasantly surprised if there is enough left for a feather boa.
Happy New Financial Year everybody!
I have already received a few emails telling me that I have a new set of allowances for ISA’s/JISA’s and SIPPs to celebrate.
I will add Snow Crash to my reading wish list, it sounds interesting.
I’ve always looked towards the Scandanavian countries for an example of a fair and well functioning society. Higher taxes of course but high level of public services and health care, and constantly topping the ‘happiness’ polls. And there’s the Norwegian Wealth Fund as an example of how not to fritter away a country’s resources. I’ve never lived over there though and expect someone will follow up with an ‘ah but …..’
And I’ve always thought it perverse that multi £billion companies get away with paying the minimum wage. The employees get state aid (income support or whatever the name is now) which effectively subsidises said billionaires. There’s no such thing as the ‘free market’.
As a family of four we spend around 7/8 weeks a year in mainland Europe. Mostly France.
France has it’s problems I won’t deny but they seem to have a better handle on overall quality of life. Little things like the driving experience on the motorways is a joy. Little or no traffic (we drive to the South), no litter and road works are done in small sections to minimise disruptions. It’s all well worked.
Then there’s other things like overall attention to detail. Roundabouts in villages are beautifully decorated, there’s clear signage everywhere as well as pedestrian road crossings. These sound like small things but they add up to a really nice experience.
I would also agree there’s more community. People shop more local on a whole and there’s still a lot of independent shops. Coupled with local fêtes and celebrations it again makes it all a nice experience.
We have twice had the need to see a GP while in France and we got an appointment instantly and we’re seen within 15 minutes. Granted we paid but overall operations seem much more fluid than the UK.
However you structure things from a tax perspective I feel like overall quality of life is a stronger metric than GDP.
There’s plenty they get wrong in mainland Europe but I do feel like the average person has a better quality of life than here in the UK.
Bonfire on structural and non-structural tax reliefs. These go: Personal allowance (£125bn), Private residence relief (£35bn), Charitable donation (£3bn), CGT exemption (£1.5bn), Dividend Allowance (£0.6bn), Personal Savings Allowance (£0.6bn), Marriage Allowance (£0.6bn), Business Property Relief (£0.8bn), Agricultural Property Relief (£0.4bn), Business Asset Disposal Relief (£1.2bn). Raises £170bn. Use that to abolish employee/employer NIC (cost £170bn).
Abolish tax shelters for saving. Pensions contributions tax relief (£26bn), Registered pension scheme relief (£25bn), ISAs (£5bn), EIS/VC fund (£3bn).
Income tax take is £250bn. Use above savings to reduce this. Slab taxes make no sense but 30% flat rate is too high to start. Some form of continuously varying tax rate (using say a sigmoid function). Start at 10%, trending to 50%. CGT at the same rate as income but with inflation indexation. With all income and gains taxed to some degree, you can abolish IHT and don’t need wealth taxes.
One exception would be an LVT on unimproved land. Abolish SDLT to improve labour mobility, introduce LVT at a rate that’s fiscally neutral (£12bn).
Earnings lock replaces triple-lock on state pensions. Public sector DB pensions replaced with DC. Aim to replace NHS with system modelled on Australia where govt funding of healthcare is around 65% (rather than 80%+ in UK). Patients buy insurance or co-pay for operations such as knee or hip replacements. This saves around £34bn/annum. Reallocate £20bn+ to defence, minimum spend at 3% of GDP. Other £12bn can be used to increase benefits for those that really cannot work or struggle in retirement (Disability/Attendance Allowance etc).
Basically a) everyone pays some tax b) workers are given a tax break while pensioners squeezed until pips squeak c) reduce cost of public sector.
My feeling is that the expansion of university education and growth in the numbers employed by the state are just salves to hide the inability of our economy to add worthwhile productive employment. More of the same will just produce more of the same. Fortunately there is a lot of ruination in a country. Of course an unsatisfactory state of affairs is always someone else’s fault and the dissatisfaction is now amplified by the positive feedback and mob enabling of social media. The strange electoral spasm of the ‘Red wall’ Labour strongholds voting for Boris was a clear enough sign, as was Brexit ( routinely misdiagnosed here). Big vote for Reform ( but no seats) next. More social unrest, childish obstructions and vandalism all justified by frustrated and none too bright single issue activists.
Sigh.
Yeah faff with this allowance or that, add 2p to ciggies and on we go in the same direction.
From a personal investment view ? Hope they don’t do anything retrospective with ISA’s( thanks Brown for creating the blueprint with pension lifetime allowance) and be very mindful of Capital Gains Tax…this can really your ability to rebalanced or change asset allocations outside of tax shelters.
This is one idea presented by a few economists (not many!) – not sure if it will catch on though!
https://en.wikipedia.org/wiki/Land_value_tax
I had read that a lot of Americans were moving to where the tax is lower i.e. from California to Texas. If so, it illustrates the problem with increasing taxes. It’s easy for anyone in the US to change state, but in the UK it’s the rich who will move abroad and they are the ones funding the state through tax.
Where do we sign up for ZXSpectrum48k’s party and how do we work on making the proposals into policy? Right now the only tangible solution has been basically emigrating to a country with better tax laws.
@ZXSpectrum48k, I agree regards CGT being indexed to inflation, at the moment it seems a bit unfair especially in a high inflation environment.
My only issue with CGT is you only pay it when you sell, so for those who never sell it means no tax revenue from them, which is why I think a wealth tax is needed. Unless you’re suggesting wealth passed down to offspring is treated like a sale and thereby subject to CGT, no untaxed gifts allowed, that sort of thing. Maybe CGT could replace IHT in that scenario, that might work. Otherwise I think a wealth tax (eg 1% of everything over £5m like TI suggests) is the best option, and maybe that could replace CGT and IHT.
While I am happy for “Dad on FIRE” that he reached £1m (good job) it’s mindblowing that someone can get “double tax relief” by stuffing a pension to then claim child credit as below the earnings limit at the same time while earning a decent salary. That’s just broken. (And I say that as someone with significantly more wealth and earnings and children).
@all — Thanks again for the really excellent range of comments (and also for the kind words about our membership posts and the signing-up / upgrading 🙂 )
Unfortunately I’ve just spent over an hour wading through a particularly gruesome avalanche of Monevator-directed spam to retrieve any mislabelled comments. It was worth is as there were 3-4 in there — from regular readers too *shrug* — but it has rather sapped my available comment-replying time.
Apols to @Ducknold_Don and @Mr_Optimist and others in particular for over 24 hours spent languishing in spam purgatory. If this spam avalanche with mislabeling carries on indefinitely I’ll possibly have to member-only commenting, which would obviously be detrimental (even if I introduced a free ‘commenting’ member tier, it’d still reduce comments by forcing a sign-up and I think the conversation would suffer).
Just v quickly on politics as someone questioned my use of ‘far right’, that phrase is obviously a hallmark of far right politics since time immemorial. I didn’t call it far left because it’s not far left. The equivalent far left would be something like “have no borders, people can go anywhere they like and the people there have an obligation to integrate them as fellow human beings” or something equally other-wordly and impractical. Or indeed defund the police, which I did mention for balance.
As for the idea that ‘far left’ isn’t a criticism anymore, spend five minutes watching US politics or indeed witness the opprobrium heaped on Corbyn despite his appeal to a decent chunk of non-foaming lunatics that basically made him unelectable — and also despite his (economic) politics not any different from the oft-lauded Scandinavian countries — and I think the notion that ‘far left’ isn’t pretty toxic still is revealed as a little silly/biased. (Not saying you have to like said policies obviously. I don’t).
Re: scrapping allowances in a world where blind 92-year old grandmothers exist, well yes but there are other ways to support the vulnerable. 🙂
You could, for instance, give them a bigger state pension (or some other form of payout when younger) rather than an allowance that takes them out of tax.
In our current convoluted tax system the benefits/cons are probably a wash, but I think a world of a flat rate tax and indeed perhaps no allowances would be so much simpler / more efficient / less financial game-ified that it’d be a better way to approach things.
Yes, I overlooked Universal Basic Income, there probably is a case for it especially if it gets rid of a lot of the welfare/benefits apparatus.
I didn’t stray into a separate IHT versus my 30% flat on everything rate.
I suppose in *my* ideal world IHT would be 80% or whatnot after a certain level, even on recipients!
But when I proposed my set of policies, like I believe many of you too I wasn’t thinking solely of what would benefit / appeal to me.
I know IHT is wildly unpopular, and I wouldn’t want to upset half the country to get my way. (Well… no no, really I wouldn’t 😉 )
So a flat rate of 30% also applying to recipients wouldn’t be too bad. If you scrapped all the IHT dodges, wheezes, exceptions, weird sidebar shelters like trusts let alone pensions etc, then maybe compliance would be a lot higher too.
If everyone just knew it was 30% and had a lifetime to see things that way, maybe they wouldn’t feel so bitter. Especially if, as I suggest, we moved to a culture of celebrating big taxpayers rather than focusing on scorn for the minority of tax evaders that taints the whole.
I suppose people being people you’d still get workarounds re: IHT, especially as I want 0% corporation tax. 0% corporation tax is logical to me because it’s perverse to penalise successful companies and to curb them making more of what we presumably want (illustrated by us giving them our custom) — we should instead capture a share of that wealth generated / have them repay the benefits of the society they prospered in when the money leaves via taxes and dividends to individual owners, and hence is no longer being invested into providing those goods and services by the corporation.
The trouble is you could get crazy stuff like all senior staff getting Teslas on expenses, huge investments in company holiday homes, everyone getting a clothing expense allowance, that sort of thing — alternative ways to take money out of the company (and not even going to shareholders/owners).
From my reading there was a lot of that going on in the 60s and 70s.
So perhaps all the friction saved by having a flat rate tax would have to be spent policing company spending / expensing / renumerating / whatnot! Sure research has been done into this somewhere. 🙂
Cheers!
@Wephway #10
“about 1% of UK land is residential houses” – yes 1.2% per the official land use statistics but the same source shows 4.9% for “residential gardens”, so a combined figure of c.6%; a veritable Titchmarsh to coin a phrase :).
Wealth taxes sound ‘easy’ but the one issue with serious wealth in financial asset form is that it can be legally and structurally separated from the individual and placed in a tax haven and therefore outside the ability of HM Govt to get at it. Yes, HMG might grab some CGT on the way out, and they can tax any income that is distributed and repatriated to an individual, (which might be substantial) but it would be almost impossible to nail it down for ‘wealth tax’. Scottish acres are admittedly harder to move to the Caribbean. Capital controls could prevent more flows out but wouldn’t address what is already not here – anyone got any idea what that number might be? Blind trusts, shell companies etc – the Panama papers suggest it is a fair old whack.
Similar things occur where wealthy people can gift excess wealth to children in time to avoid IHT while still having enough to see them through. The wealthy get more choices than mere mortals.
I think higher taxes on any non employment or benefits related income income would be sensible – at the moment with NI it’s the wrong way round.
My moderately thorough retirement forecast suggest that as a couple who have both worked at a similar income/saving level and have approximately equal pension pots we could potentially get a >£100K joint income from various sources (including ISAs, TFCLS etc) for 30 years and be paying about £15k income tax between us in a bad year. Very nice for us, and way lower than we paid on our salaries, but that’s surely not sustainable as generating that kind of investment income implies that we are ‘the wealthy’ on whose shoulders more should fall.
@TI, Mr Optimistic says don’t worry about it. His use of technology is limited, bless.
@TI – re compulsory membership to sign up – I’m not so sure it would deter commenters – we’re often writing moderately long posts, so showing a degree of commitment.
Maybe it’s also a slippery slope from a free to a paid membership tier.
Finally, it would free up some of your time to do something more productive.
Commenting issues wise considering the level of discussion here I doubt a Free tier would put anyone off, not sure if Cloudflare could help depending on the type of spam seen regardless?
Thread content has surprised me I must admit, I didn’t know we had so many Communists among us regards confiscation of wealth! For me as long as wealth is legally gained it’s no business of the state or any other citizen to define what the “correct” amount is. Anything else is a dark and slippery path.
Would love to see even 10% of the level of bold change in the tax system ZX proposes – the recent drops in NI are at least welcome but don’t go far enough for sure.
I think spreading the tax burden as widely as practicable is attractive, if only because it reminds people who heavily depend on state support that ultimately it is people’s money taken through tax that the state is redistributing.
Zx has my vote
I would like to see a few tweaks.
Death becomes a cgt event
No stamp duty on shares either
I personally think there are better things to do with money than more defence spending.
For all the people who are desperate for a wealth tax, the only reasonable exchange it to kill dividend, interest rate, inheritance and capital gains taxes, and replace them with a very modest wealth tax. Similar to Switzerland.
@Steve B, I don’t think anyone is arguing for Communism, ie state ownership of all assets and the working class takeover.
The government already seizes privately earned money through income tax. The reality is that there is nowhere in the world a pure form of capitalism, and where it has been tried (eg Russia in the 90s) it has been disastrous and led to monopolies, mass poverty, corruption and so on. Even the most capitalist countries have regulations and taxes.
In my view there are already wealth taxes in the form of CGT, IHT, and Council Tax, it’s just they’re horribly deficient and most of the burden falls on the middle class, that is, the rich are very good at avoiding those taxes or paying very little proportionately. I would be supportive of simplifying our tax system by removing those taxes and introducing a modest wealth tax.
Although as I say I don’t think it’s very likely anytime soon!
“What exactly is your ‘fair share’ of what ‘someone else’ has worked for?” — Thomas Sowell
Agree with flat rate equalised across labour and capital (indexed for inflation). Keep personal allowance, up to full time minimum wage rate. What would the rate have to be to make this fiscally neutral: 30-40%
Combine NI and income tax
Agree with abolishing corporation tax (benefits in kind like the teslas, clothing allowance etc are quantified on P11D and incur income tax)
Re: Inheritance – tax it as income for beneficiary, assets are crystallised at point of transfer.
Overall goal would be to simplify tax, maintain total tax revenue (over long term bring down tax burden as % GDP through improved growth and productivity – what’s the reverse of fiscal drag?) while not increasing burden on individuals and families <2 median income.
I know a bunch of wealthy people who have specific plans to leave the country if a wealth tax were imminent. Banning that involves capital controls in sure you wouldn’t like. Same goes for IHT. As much as I agree with TI, there’s always one wheeze you can’t ban.
There’s a lot of support for flat tax. Always justified by simplification, although I don’t think tax banding is remotely complex. What else have you got against progressive tax?
@Mark C
Inter alia, inheritances and capital gains aren’t “worked for” by the beneficiaries. It’s luck and a by-product of market forces. We should be comfortable with society taking a share of that.
@Steve B Centre to centre-left,
social democracy, a well funded public sector with private investment isnt ‘communism’, is it? My model is the Scandinavian style, as a few others have pointed out they would wish to see. I don’t think anyone, least of all me, is suggesting full blown communism, especially on a investment community site. There is and should be a place for the free markets, of course. Private Finance schemes for infrastructure projects and the like that cant be met by the public sector for example. Private companies leading on research (ie the vaccine development). I really believe the solutions to reach net zero will be driven by the private sector, markets and publicly listed companies, rather than government.
I have no idea where any wealth tax threshold would start. As you say, it’s subjective and probably the reason why it probably in reality isn’t workable. But I would look at an extra 1% tax on ‘super rich’ (ie billions rather than millions.) How much do people actually need when the 0s start getting into 8 and 9 figures plus? (With the disclaimer again I’m certainly not an economist!)
I invest to eventually get financial independence and because I believe I have more say as a (admittedly very minor) shareholder. I am appalled by the solidarty/peoples front of judea types, who often mean well but don’t live in the real world and work with dubious rational. But if I can help others less fortunate then myself (with now six figure net assets, and house with less than 50% LTV) along the way, be that via taxation or directly, then great. Fine by me. I did a bit of work for a local charity a while back, who work with local food banks etc. Demand for their services is unfortunately rapidly rising. That can’t be right.
My eyebrows were raised by @TI’s phrase “…having failed to transform US society to his more liberal tastes – we’d say socialist in the UK…) In my experience to be referred to disparagingly as “liberal” in the States merely requires you to believe women and people with skin darker than your own have rights; while “socialist” is used to slur those who in Europe are thought of as centrists. Many Americans thought of Major and Blair (and for that matter Heath and Macmillan from times before) as dangerously socialist.
Very different from usage of the same words in the UK, except possibly by the Moggite right.
I like the idea of income tax being regularised at 30% for all forms of income, instead of selectively penalising salaried employment through NI. It would be impossible to introduce without a threshold though, you would otherwise have to simultaneously increase state pensions and the minimum wage by around 50% which isn’t realistically likely. However I do like the idea of those with much lower incomes making a small tax contribution to establish the principle that public services aren’t an unqualified “right”, they are part of a two way contract.
I can’t see a wealth tax being realistic either. There isn’t the database to support it, and it is difficult to see how there could be given wealth typically includes illiquid assets whose value is hard to assess, and might include very volatile assets where assessment would depend on the exact point of valuation. It is reasonable for the wealthy to pay more tax – they will have benefitted more from state services albeit indirectly – and that can realistically only be done by progressive rates.
Anyway, fun to discuss but with negligible chance of any future government actually improving the tax system.
@Daz “I personally think there are better things to do with money than more defence spending”
That was the 1930’s consensus. Some might add that you’ve enjoyed the benefit’s that come with democracy, and are able to complain about now, as a result of past proportionate defence spending,
@jonathan B et al
I like the flat rate of tax idea (and equal,or more equal, across sources). To square the 30% tax on everything we can give a UBI style allowance to all over 21’s (or over 25) of 30%x Tax free allowance (about £72.50 a week). This nicely matches single person UC. And would mean people with only the basic state pension would not be worse off.
Personally being more right wing than most here I’m more a fan of UBS (universal basic services) – think utility (gas, elec, water, broadband) allowance prepaid, school and BASIC medical pre-paid (perhaps not a £5-£10 per visit fee). More controversially we could consider food vouchers and free school meals instead of child benefit and money cash benefits.
Housing benefit needs a rethink too – perhaps long-term non workers should be in cheaper areas. Low paid Workers should perhaps have priority for medical apportionments and accommodation too.
A property tax of 0.5-1% pa in place of stamp duty would also encourage some to move to cheaper areas, and some to downsize. The real bonus would be to tame house prices.
Hopefully Reform are reading…
I had no clue what to propose that wouldn’t be largely self centred other than some form of simplification seems to be in order. The perversion of the incentive to salary sacrifice to avoid child benefit penalties and the associated tax return paperwork is a fantastic example of where well-intended tax bolt on regulations can end up.
What ZXSpectrum said seems like a pretty good starting point for simplification and I’d add in a years compulsory national service.
As I wrote this, it almost seemed like provocation / trolling (especially when thinking about the reaction of my wife and her school mum friends at the announcement so it is very firmly tongue in cheek) but my gut thoughts were that I would also like to see national service for all genders and make it applicable to all under 50s to get the transition up to speed quickly…. 🙂
@Boltt, in a kind of way I can understand how a self-proclaimed right winger might want a return to the ways of the past … but running utility companies to provide a good and inexpensive service for the benefit of consumers, rather than a poor and expensive service for the benefit of shareholders, does seem more of a left wing vision.
From my point of view though, I am completely in favour of a system (whether or not badged “Universal Basic Services”) which provided a good basis for everyone’s lives without regard to their means. And free school meals would be good too for a number of reasons.
Think I’d settle for some basic honestly as to how absolutely hosed we all are and the fact that there isn’t enough money to go around to fund public services in the way people want. Doesn’t matter what you do to taxation. The current model cannot survive long term. And it isn’t with NHS being slowly privatised, defence capabilities falling apart, less serious crimes being decriminalised effectively due to lack of police, local courts increasingly poorer education for children etc etc. More and more cash is just sucked up into State Pension and UC benefits high single digit annual uplifts.
That’s where a increasing majority of taxation revenues are now going, as the population ages over next two decades and unless we have continued mass immigration (which we are going to have to some extent as that’s the only lever we now have to encourage growth) or somehow hit the unicorn of tech / green etc economic growth this issue will accelerate until it eventually falls over one way or the other. The bond market or the shrinking taxation base decides to revolt.
Had a laughable leaflet through from the Greens the other day offering to increase funding for everything without any comment as to how to pay for it. Some joker from the conservatives waffling on in the telegraph about massively funding education spending through economic growth without anything to back that up. At least the reform party this morning set out a plan to cut nhs waiting lists to zero and actually said how they’d pay for it, by stopping the charge to net zero. I’m not by any means giving any credence to their policies or agreeing with them but at least I heard someone back up their spending plan for once. Labours only plan is to say nothing and get voted on the basis that they aren’t conservative. They are offering nothing at the moment to stop the rot either.
Regardless of what we want it feels relatively likely to me there will be a serious lurch towards taxing wealth over the next decade. Which won’t achieve much except acting as a battle ground by politicians to get elected and avoid the elephant in the corner that we can’t afford it all.
Mildly terrifying how many “Lefties” are in favour of flat rate taxes – notoriously these are well known to distribute more tax burden onto the poor than the middle or rich. It’s not an accident the existing tax system is progressive or those that are more able to pay, do so. I think it’s important to recognise that if one has an interest in protecting the “deserving poor”.
Arguments that basic universal income or state pensions would be taxed (at a flat rate!) are perverse – the state is then deciding how much to tax of the money it is already directly distributing. That doesn’t strike me as simplification.
I appreciate it may be perceived as easier to reason but even easier to reason – particularly for the numerically challenged – is directly giving people money – most notably via cash allowances (personal, ISA, pension etc). I suspect a lot more of the general public could correctly tell you how much of e.g. £8000 they’d take home with the existing personal allowance than what they’d pay on the same sum at 30% flat rate. I’m not talking about the readership here but those who are a couple of standard deviations down the IQ and/or earnings curve.
Everyone loves to think about “solving” the problem of taxation by basically reducing the amount they’d personally pay one way or the other, so someone else can pay more. Whether that’s “the wealthy” (however defined, “not me” clearly) or the “undeserving poor” (get a job etc).
Perhaps it’d be more productive to at least consider places where we – as individuals – personally get tax breaks and could reasonably pay more – for the greater good and benefit of society (e.g. hooning pension reliefs yet still getting full state pension etc). And it’s that last part – benefit of society – which is where the real rub is IMHO (Boris’s mates, NHS black hole, Labour union backhanders etc) not how much we pay. Some things cost more than just money. Redesigning a tax system is pointless when the money’s still handled by the crooked (MM et al) – perhaps having a good incentive to pay is most important of all?
So, what is it actually like to live in a country with a single low rate tax, salary only, with no capital gains or dividend taxes? Well, I don’t need to tell you! Bliss!
Filling in the annual return in Hong Kong takes a couple of minutes. Contrast this with returning to the UK, practically a foreign country after 42 years spent filling in tax forms in 7 countries, and being confronted with the nightmare of an HMRC self assessment form!
So much for the good side! There is usually a downer. Hong Kong has played a blinder conning the world into believing it is a low tax haven. The early colonial government devised a crafty system of huge income from highly manipulated land sales aided and abetted by property developers who played along by rationing development to keep prices and rents ridiculously high. The government owns all land and leases it out. Remarkably few people seem to see this as a form of high tax.
At least, it is simple!
TP2
The problem with a wealth tax is the public will want to exclude all the wealth they have. So that means their homes, their pensions, the value of their small business etc. This excludes 80% of the wealth. Meaning a 1% tax will need to be a 5% tax on what’s left: financial assets.
So then they try to impose a 5% tax on someone like myself who has 80%+ financial assets. I look at the NHS guy who inherited a mansion and has a massive DB pension and see he is paying precisely zero. So I simply pick up my ball and f**k off somewhere else. Result is you get no wealth tax from me and also lose the seven figure sum I pay in income tax.
Unless wealth taxes hit everyone, you won’t get real buy-in from those that will pay it. The public, though, has no stomach for that. They have no stomach for most truths.
@ZXSpectrum48k — Your example is a pertinent one and I’m sure you’re right that a wealth tax would be incredibly difficult to implement ‘fairly’.
The reason I’d potentially support one — if implemented with a bunch of other reforms, not just slapped on top of the status quo — isn’t out of envy or spite, as some might think, or even just because I feel the wealthy should do more of their ‘fair share’, whatever that means. (Obviously I could be hit myself by some people’s version of a wealth tax…)
It’s because we can clearly see a tendency to polarised outcomes in this current stage of capitalism we find ourselves in, with a very attenuated gain to those at the right-hand side of the net worth graph.
As many have noted here and elsewhere over the past few years, this problem only looks like getting worse with the globalisation of services labour and (potentially) AI.
I don’t want to live in some neo-feudal system so I think it’d better for nearly everyone — including most of the very wealthy — if that tendency had some sort of dampening function put on it.
@all — I certainly wouldn’t outright confiscate all earned/entrepreneurially gained wealth above an arbitrary threshold, as one poster suggested above! I’m very happy for people to get very rich by providing society with whatever it wants/needs by their labour and smart decisions.
(True, I’d possibly confiscate a lot of it off their heirs who did neither of that but were just lucky, above some six-figure threshold, if that were feasible. I’m always told it’s not so who knows).
Perhaps in the property/land obsessed UK, an annual property tax that’s more aligned to property valuations is more practical, although of course you’d then have issues like me in my 2.5-bed flat in zone three London being asked to pay the same ‘property wealth tax’ as someone in a castle in Inverness.
Many people probably couldn’t. I guess it might rebalance house prices over time, nationally, at least.
As for flat rate taxes, I like them because they are radically simple, provided they are ruthlessly implemented as such.
My hope would be that refocussing much of the effort of the hundreds of thousands of people and millions of hours that’s spent mitigating taxes via our current thousands of pages of tax code, we might get a boost to GDP and make a lot of lives better and more productive.
Both for the obvious explicit reasons, but also perhaps by improving the marginal deployment of capital and labour etc.
I also have a hunch that you might collect more taxes off the wealthy if it was all simple, transparent, and they knew the next £100K was going to be a £30K tax bill and £300K on the £1m after that.
Is someone paying £300K on a £1m income really being treated ‘unfairly’ compared to someone paying £6,000 on a £20K income, because they both say the same rate?
I don’t think it’s obviously the case, no. The £1m earner is still paying £270,000 more than the £20K earner.
It’s very hard to argue the £1m earner is getting 50x more benefit from living in the UK, using its services, its free markets etc, its nuclear deterrent, etc, than the person earning £20K.
To my mind the big problem is we have loads of people earning £20K and that the gap with those earning £1m (or even £100K) is so vast — not how we tax. As I said in my piece I’d want to see more done for the poorer elements of society, versus pension triple locks etc.
I 100% supported to the minimum wage from the moment it was introduced and would hike it higher. Companies in my proposed UK aren’t paying corporation tax. While appreciating pay itself is a tax-reducing expense so not a straight beneficiary of 0% corporation tax, the result would anyway be they could pay their staff more, and many of them would benefit from the resultant higher spending versus richer people just saving more of their excess income.
I’m not sure whether the ‘lefty’ comment was aimed at me re: a flat rate tax, but it’s worth appreciating it’s only on Monevator (and even more so on comments on other sites) that I’m ever called a lefty!
In real life most of my friends think I’m (economically/fiscally) right-wing, if anything.
(I think I’m v slightly left of centre on financial matters, more so socially).
People like @BBlimp think I’m a lefty because I was pro the EU and anti-Brexit. I suppose because the benighted decision to leave is/was obviously championed from a respectable financial/intellectual position by more right-leaning pundits and newspapers. (But let’s remember the left tradition in the shape of Corbyn, many unions etc, thought the EU a capitalist apparatus…)
Anyway given that there was never any *economic* argument for leaving and that this has now been proven, with knobs-on, by the post-EU reality, those who championed Brexit genuinely expecting some kind of financial ‘Brexit dividend’ can call me the tooth fairy if they want to, especially those who still haven’t conceded their faulty thinking.
Cheers all for the great debate! 🙂
Minimum wage anecdote:
My 23 year old granddaughter visited at our Easter party and sadly stated she was now on minimum wage.
She has been worked in the NHS for 4 years and inflationary pressure on min wage has exceeded her wage inflation – rightly, she was unimpressed.
Min wage causes unemployment, especially in the minority/low skill groups – see Thomas Sowell & The Bell Curve. It also damages aspiration if work and education doesn’t give a decent head start over min wage.
It’s behaviours we need to manage – Normalising paying tax (no or very low TFA), avoiding cliff edges (child benefit, 20/40% tax, loss of TFA etc), encouraging paying CGT by not writing it off at death etc
But ultimately as a country we need to realise what we can afford as a country – we are less rich than we think. Endless free stuff with little give back isn’t a long term strategy.
More positively, the weather is getting warmer.
@Boltt — Different reasonable people have reached different conclusions on minimum wage, and it seems to affect some groups differently. For example:
https://assets.publishing.service.gov.uk/media/5a8207f340f0b6230269a765/The_impact_of_the_NMW_on_employment_-_a_meta-analysis.pdf
There was a lot of coverage recently about how effective the minimum wage policy has been in the UK.
UK unemployment is currently very low by historic standards.
Personally, given the benefits for those poorer workers who enjoy a higher salary and the existence of a safety net *if* there is any greater unemployment (I don’t see it, at least not in the UK) then I’m happy to take my chances with it, and to hike it too.
Agree with the gist of your other comments, especially re: the weather! 😉
I think you have to have a degree of progressiveness in the tax system, because there is a minimum amount of money you need in order to be able to survive in terms of hierarchy of needs. So not a huge fan of flat rate tax.
I am in favour of a bigger Personal Allowance, at least £15k if not £20k – e.g. same ballpark as the national minimum wage.
But I’d remove most of this tax credit/universal credit stuff for working people to simplify things. Maybe even child benefit also. Just let people keep more of what they earn.
And this goes hand in hand with having a decent minimum wage so the government is not subsidising exploitative employers.
How to pay for it all? And what constitutes taxable wealth if you exclude your primary home, and assets in ISA or pension wrappers? Good question.
You basically have to go after the top 1-2% even more, whether you consider them “rich” or just the upper section of the middle classes.
ISA and pension allowances are pretty generous already, I’d probably freeze them for several years. I was actually surprised when Hunt increased the annual pension contribution limit to £60k, something that would only benefit the top few % of earners.
If I was Rachel Reeves I’d align CGT with income tax rates for the recipient, with no indexation. Raise the Personal Allowance as mentioned above, but keep all other thresholds and rates the same.
Double or triple council tax on second and subsequent homes as a national rather than county council level policy.
Some kind of mansion tax maybe? Or at least additional rate council tax band on property over, say, £1.5- 2 million.
If keeping IHT, then look into the use of trusts to avoid it, so it isn’t just the regular middle class paying it.
Above all end Defined Benefit pensions for the public sector, to be replaced with Defined Contribution pensions where the employee makes up at least half of contributions.
This will in time help keep a lid on council tax, which is increasingly spent not on services but on pension liabilities.
I’d noticed and bought two of your kindle reads on kobo. Not yet finished reading “The Deficit Myth” by Stephanie Kelton, but anyone interested in Modern Monetary Theory (whether you believe in it or not) should have a look since it is well written and nicely explained.
Relevant to the discussion, is that the underlying concept of MMT (if I am not misrepresenting it) is that the budget for a government able to issue its own currency (like the UK, US, etc.) is not like a household or business budget – provided deficits do not cause inflation, they are not a problem.
Spoiler alert:
My favourite anecdote so far stems from Kelton’s time as an adviser to US Congress. During a meeting she asked “if we had a magic wand that would remove the (US) national debt, would you wave it?”. The general consensus was that, of course, getting rid of the national debt was a priority.
She then asked, “if we had a magic wand that was able to remove all US treasuries, would you wave it?”. There was a lot less consensus on this question since, after all, treasuries (and gilts) are useful.
As she points out in her book (and which is probably obvious to most of us here), both actions lead to the exactly same outcome.
@TI Regarding Brexit and the trade unions, whilst the TUC was opposed two of the biggest beasts in their world actively supported it, specifically ASLEF and the RMT.
They took what had always been Corbyn’s view, that the EU is a hotbed of neoliberalism, privatisation and austerity (yeah, I know).
What a very interesting and lively debate – thanks @TI at al. My observation is that by acting in the public interest through the provision of (mostly) impartial, (always) high-quality and (definitely) distinctive output which informs, educates and entertains, that Monevator should petition for a chunk of the BBC licence fee, as clearly far more worthy
More seriously, one thing that does seem clear is that the major threat to my eponymous strategy is not so much sequence of returns, bear markets or my own stupidity (albeit all with a part to play!), but politicians. Very hard to implement long term plans for lifetime strategies when short term political whim can so fundamentally move the goal posts.
I live in Spain where there is a wealth tax. I still remember the first meeting I had with a local tax lawyer. He didn’t seem to understand my reference to the wealth tax and I thought it was my poor (at the time) Spanish. Then suddenly he said something like “Ah you mean the wealth tax! Oh, no one pays that”, while glancing at his colleague who clearly agreed with him.
They have a lot less (broadly applied) tax allowances here, but do have progressive rates. The annual self assessment is about the same level of hassle/complication as the UK one (I lived in London for ten years where I had to do self assessment each year). A big difference is in the quality of help/online information. Here it’s very poor and vague. The UK government’s website, citizens advice bureau, and the UK gov’s tax website itself used in the process are all very helpful. There’s nothing of that standard here. Also the Spanish tax office communication and other processes are consistently bad.
Interesting to hear someone say HK is much better in some ways that UK when it comes to tax system and filing process. I can’t speak to HK but it does remind me of comments from people I knew who moved from UK to Bermuda. It seems to me there is a very small number of places that seem better than UK in terms of tax (quantum / process / level of simplicity), often designed that way to attract high quality expat professionals. However I suspect the vast majority of countries are worse than UK in just about every way, when it comes to tax.
I agree @AlanS, there is a serious disconnect in the rantings of the tabloid press. “Government debt” is a very bad thing; government bonds are an important part of the institutional investment economy (e.g. pension funds) and good, similarly it is good for the ordinary citizen to be able to put savings in Premium Bonds. They are of course exactly the same thing, just accounted for differently depending on who you are.
I am not sure why the disconnect happens, it could be simple ignorance but in fairness it is not particularly intuitive to think that the savings you put in Premium Bonds becomes a liability (“debt”) for the government since they have an obligation to pay the money back when cashed in.
For those of you advocating the scrapping of the NHS DB pension scheme – in cash terms, it recently recorded a net cash requirement of minus £4.32 billion against the estimate of minus £3.45 billion. This meant that the scheme (yet again) had surplus cash due to income exceeding pension benefit payments. The £4.32 billion will be returned to the Treasury during 2023-24. (Source: NHS Pension Scheme Annual Report and Accounts 2022-23).
@GT
Positive Cash flows in (from young staff) v cash flows out from pensioners does not mean the scheme is affordable, or doing well.
March 2022 the estimated liabilities for the scheme were. £840b (yes billion).
March 2023 £460B – change of assumptions (ie interest rate) caused a positive £380B movement.
Never mind the single year cash flow difference, look at the size of that Liability.
In terms of increasing the tax base I recall a certain Mrs Thatcher having a go with something that became dubbed ‘the poll tax’. Didn’t end well.
@GT, Boltt (#63,64): thoughts:
– Is UK GAAP used by private sector appropriate for public sector DB schemes? Gov. has right to tax and to create money (so is neither limited by scheme returns, as with private sector DC, nor by ability of employer to top up shortfalls in scheme from profits/operating cash flows).
– Continuing surpluses of contributions over payments (£4.32 bn p.a. now) are real numbers. The £840 bn and £460 bn figures are a creation of the choice of accounting, as illustrated by the £380 bn one year swing.
– If and when public sector DB schemes move from surpluses to shortfalls then the issue will be whether the annual shortfall is then affordable as a GDP % as the Gov. can tap resources of the whole economy.
@DH
A pensions liability is real thing – current cash flow is irrelevant.
I thought MMT had been debunked, although the book was interesting. The US with the world reserve currency may be a special case tbc.
The recent Funeral/burial companies who went bust also ran positive cash flow since day 1 – but no funding for future liabilities.
Accounting/valuation basis is important but the almost halving of the liability is just a function of the long term view on discount rate. Just as long bonds halved in value so has the current view on pensions liability. Just because it moved a lot doesn’t mean it’s wrong/dodgy.
Finally, what’s affording a % gdp now may not be in the future, so in my opinion is not good yardstick
Future liabilities are indeed real (but uncertain, unlike current); but the use of private sector accounting in State run and backed schemes is invalid, as are apples to oranges comparisons of the liabilities of companies and households with those States with sovereignty over fiscal and monetary policies (including rights of taxation, setting interest rates and issuing legal tender for settling debts).
@DH
Does the basis of
“sovereignty over fiscal and monetary policies (including rights of taxation, setting interest rates and issuing legal tender for settling debts).”
Imply that there is no limit to what our country can afford – so unlimited spending, benefits, pensions, wages, etc?
To me it doesn’t make sense – lack of will investors for bonds, rampant inflation, default means at some point traditional financial prudence must be restored. Otherwise no country with its own currency would ever get into trouble (ignoring currency union obviously).
I’m not an economics expert, but MMT is no longer considered a valid rationale.
It’s a statement of fact (about the nature of State power and sovereignty), not intended to imply unlimited means, nor to express or endorse any theory, MMT or otherwise. Keynesians would say that as a State we can chose to do only what we can actually do, i.e. economics wants are limited by the physical production of the economy (not by imagined constraints, like balancing budgets). The physical production is real, the money bit is what we make up (as a convenient unit of account). Any non financial business has to treat money as though it is actually real because it has no control over either its manufacture (when the Gov. creates money through public spending & buying assets via QE, or when banks create money through fractional reserve lending) or its destruction (when the Gov. removes money from economy by taxation). Gov. is constrained by production (supply) potential of economy, not private sector budgeting & accounting concepts. Countries get into difficulty when they try to more than the productive potential of the country permits. A State can run a deficit in perpetuity so long as the economy grows at a faster rate than the debt. The economy is always the limiting factor, not GAAP measures of future liabilities.
@ Delta Hedge
“…the use of private sector accounting in State run and backed schemes is invalid,…”
Hmm. I think you’ll find HMT have thought about the applicability of GAAP to the public sector. All usage/adaptations/interpretations have been scrutinised by the FRAB too. See the FREM, in particular chapters 2, 8 and 12; and more particularly 8.1.1 – 8.1.2, and 12.3. You’ll find the FREM here: https://assets.publishing.service.gov.uk/media/657b03c8095987000d95e120/MASTER_FINAL_2023-24_FReM___1_.pdf
Government’s ability to tax and print money simply means the going concern principle is satisfied to an extent that private sector can only dream about.
@Curlew: Newly Qualified accountant goes in for his first job interview.
First question he’s asked, “What’s 2 plus 2”.
“4” he instantly replies.
“Wrong, try again” says the chair of the interview panel.
After a momentary hesitation, “between 3 and 5” says the NQ accountant.
“Closer, one last try” replies the chair.
In a moment of enlightenment, “any number you want it to be” responds the interviewee.
“Correct” replies the chair.
Economics is an attempt to model how an economy actually works.
Accounting is presenting some numbers on a page to tell a story.
That story may (or may not) be useful depending on who’s telling the story, why they’re telling it, and who’s the audience.
The decision to use GAAP for the public sector is completely political. When the Gov. needs to spend it doesn’t ever first check it has the money ‘to hand’ because the Gov. itself is the source of the money.
When there’s too much money (velocity of money usually, rather than quantity) the Gov. (via its central bank) raises the price of money by increasing rates and/or it destroys money by taking it right out of circulation via taxation.
GAAP is just an austerian device to make it appear there’s not enough money. The Gov. can never run out of money.
The problem is the opposite.
Too much or too little money relative to supply factors (labour and materials) resulting in inflation or deflation, reflation or disinflation.
For obvious reasons deflation and disinflation are easy to cure and reverse (just spend more): whereas inflation is more about trying to squeeze the toothpaste back into its container. An altogether harder proposition.
@TI (54) – thanks for the name check. Famous in the comments section, like it.
Not sure you’re 100pc on the money though – when ‘people like @BBlimp’ call remainers lefties I think they are harking the correlation between left leaning social views and remaining, not economic ones. Ask 100 people their opinion on the death penalty and lockdown and you’ll likely be able to tell which 52 voted leave and which 48 lost the referendum.
BB:
Here’s one for you 🙂
https://www.cityam.com/why-uk-services-exports-have-continued-to-grow-post-brexit/
Apparently UK is now 4th largest exporter worldwide.
@mark – prepare to be flamed. Tying yourself to the slowest growing region on the planet is the only economic viewpoint allowed in these comments.
Any comments criticising Brexit, ‘our’ NHS or lockdown make you a fruitcake
@BB: Leavers will always bear a triple burden:
1. It’s not a choice to be “tied” to Europe. We’re an island (or strictly a collection of islands) directly adjacent to a peninsula of Eurasia, namely to the north European plain (and also to the island of Ireland). We don’t get a choice in that. It’s a fact of geography. We can’t choose to untether the UK and anchor ourselves next to Singapore, or in Gulf of Texas. Like it or not, we’re just stuck with being a part of Europe in some form or other. Remainers say make the best of it. Leavers seem to want to will the fact out of existence but, in doing so, they burden themselves with arguing in the face of an inescapable cartographic reality.
2. For whatever reasons, the old strongly tended to vote for Leave and the young for Remain. Absent the miraculous end of mortality in the world, and even without any Leavers changing their minds (and plenty seem to have already), each year the Leave voting population is dying out, and the Remainer share of the population increases. Doesn’t matter whether that’s a good or bad thing. It’s just a fact. Leave used to be the future back in 2016, but it becomes ever less so with each passing day.
3. Leave has had the misfortune to see its cherished dream come true. Now every shortcoming or mishap will be blamed upon it, both consciously and unconsciously, by all but its conviction supporters. This is how ideas die. Make no mistake, leaving the EU has been extremely damaging and in a great many ways; but even if it had not been such (and it was), then the sense of it being a factor in the actual or perceived shabbier state, decline and dysfunction of the UK is, and will continue, to ever more deeply establish itself in the collective pysche. Back when Leave was an outlandish idea it could just promise anything; America beating down our door to do a trade deal on our terms, £350 mn a week for the NHS etc. Now that Leave is a reality which is seemingly universally held both abroad and at home as having, at the very least, over promised and under delivered (even Mr Farage stated Brexit had been a failure, blaming the Tories) it’s its own turn to become the target of the generalised resentment, anger and disappointment which the Leave campaign harnessed so effectively in 2016. There’s nothing so cursed as victory.
@Delta Hedge — Excellent and fair response, better than I could have managed at this stage in the game… 😉
@BBlimp — Well I have a soft spot for you for assuming the moniker despite our differences. And I’m sure you’re right about that correlation (though you might want to dive into the archives from 2020 and see me being condemned as heartless for warning there would be economic consequences from lockdowns, that we should consider the total picture, be strategic etc, especially in the early phase). Not sure I’d want to be associated with death penalty support, though I guess that somewhat proves your point.
All that said I’ve been called a leftie or worse many times for economic reasons. My support of IHT is a big one but there are others.
Anyway this is going very off-topic for an excellent thread, albeit one in its final breathes…
@mark — Again, the UK will continue to grow. The UK will be richer in 20 years than it is today.
The issue is whether it would have been even richer without Brexit.
Since every single analysis not written by a Telegraph leader writer after a boozy lunch at Rules has demonstrated only economic damage (it’s just a matter of how much damage one sees) and there have certainly been no wonderful offsetting trade deals – not to mention the humble laws of economics – I have always believed the answer is “yes, probably substantially richer without Brexit” and to say nothing has changed my mind is an understatement.
I always said Brexit would be a slow bleed, compounded. I’m no genius, so did plenty of economists. That’s come true.
£100bn GDP here, £100bn there. After 20-25 years your economy is £1 trillion smaller than it would otherwise have been.
Watch it happen and weep.
If the Brexit revolution had achieved anything positive economically we’d be hearing about it. We’d be debating the pros and cons. See Thatcher for example, where for all the fury both sides could make coherent arguments about positives and negatives.
There’s nothing to debate with on the pro side, economically, with Brexit.
It’s like punching a ghost.
p.s. Your own link shows UK goods exports underperforming the G7 by 15% since 2020. Bring back ‘making things’, eh?!
p.p.s. All this is the economic ‘argument’. If one voted for max sovereignty then fair enough. Except we got Johnson’s cabal partying contrary to his own rules and the shortest lived British PM ever, plus record immigration contrary to the expressed views of so many Leave voters, so all I can say is, as the kids put it, LOL
@DH
1 – DH reads an article about the U.K. moving from 7th biggest services exporter to 4th and says ‘we can only trade with Europe because it’s closest’. Lucky the services exporting firms can see passed that.
2 – People get older.
3. You might be right. There were people on this site silly enough to think U.K. interest rates rise was down to Liz Truss – not sure how that tallied with rates rising the world over at the same time – but it doesn’t really matter what uneducated or daft people think about the causes of what’s happened does it ? Mr Second Referendum himself is about to win a thumping majority and realises Brexit can’t be overturned – he has access to focus groups you know, and doesn’t live in a remainer bubble. Raise your head from bbc, guardian and monevator and you’ll realise there is a big wide world out there – we’re exporting services to even more of it 😉
Lol, I saw Liz Truss is bringing out a book, ‘Ten Years to Save the West’. I thought it was an April Fools joke at first but no, it’s genuine. But it’s good timing just before the local elections, the more airtime she gets the worse the Tories will do.
The more I read from BBlimp the more I think he must be a troll, I mean: “There were people on this site silly enough to think U.K. interest rates rise was down to Liz Truss – not sure how that tallied with rates rising the world over at the same time…” That’s quite a breathtaking version of events. I must have just imagined all the mortgage lenders pulling their deals, sterling falling to a record low of $1.03, and the BofE having to pump billions in to prevent a doom loop in the pension funds.
With regards the death penalty, lockdown, and brexit, and why the same ‘free thinker’ people seem to hold the same views on these things, I think this article from the Daily Mail explains it quite well (see I do read beyond the BBC and the Guardian!): https://www.dailymail.co.uk/sciencetech/article-2095549/Right-wingers-intelligent-left-wingers-says-controversial-study–conservative-politics-lead-people-racist.html
@BBlimp — I’m pleased enough to see good figures. They show how smart people who work in services and who mostly didn’t vote for Brexit have persisted to do well despite Brexit’s impositions. (Exporters have not been able to do the same, obviously).
However the UK was always a huge exporter of services. It was doing wonderfully well on this front before Brexit. The narrative that Britain was somehow doing especially badly versus its peers was a Leaver fiction.
Beware this data is very noisy too. But let’s hope the strength continues.
*On average, not all, you can Google the results for yourself rather than have me perceived as insulting you/Leave voters.
@BBlimp #73
28 of those 100 people didn’t actually vote; your spit should read 37 vs 35…
Will of The People? Hmm…
As 37 is a higher number than 35, no ‘people’s vote’ was required. Seem to remember a thumping Brexit win in the 2019 European elections and 2020 general election as well… funny isn’t it, everyone ‘regretted’ their leave vote but voted for the Brexit party or Boris years after – and Reform is the fastest growing political party even now. Somewhere along the line somethings not quite adding up
Lots of interesting comments, but I think a lot of posters are focusing on process rather than result.
Maybe some feel the result is / should be obvious – “ever more cash to the NHS”, but it’s not.
I think a lot of folks are making the same mistake which has led to the mess we’re in.
We need to start with a question like: what do we want the state to actually do for the common good. Only once you’ve decided on that, can you start addressing the point about what kind of taxes to have, and how low or high taxes should be.
The nearest I’ve really seen to that in the comments above is ZXSpectrum48K saying they want defence spending to increase to 3% of GDP and then giving a way as to how that could be done.
‘Chancellor’ Klement’s choices:
https://open.substack.com/pub/klementoninvesting/p/the-next-time-you-complain-about