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Sunday, July 02, 2017

Thrashing around for new sources of government income

This has absolutely nothing to do with marketing to older consumers. It is Dick Stroud musing on what is likely to happen to taxation policy in the UK. 

We all know, well we all should know, that public finances in the UK are in a precarious state. For the UK read, US and most of Europe. Who is to blame? The answer to that question is complicated and I doubt if anybody really knows. What matters to those that determine policy is who can you target to pay more taxes. The blame thing is something you can leave to the PR department to work on later.

Before you make a major change in tax policy you have to make it seem that you are being 'fair' and that there is at least a grain of logic to support your decision.

For the past few years there has been a constant stream of reports coming out of the policy think tanks painting the villians as the old. These purport to show how the old have done well financially compared with the young.

One of the planks of the Conservative Party manifesto, at the last election, was to build on this theme and to cut back on payments by fiddling about with the way state pensions are calculated and abolishing some of the 'fringe benefits' that come with age. In addition, there were outline plans to try and get a grip on the costs of providing age-related care.

Much to my amazement and to most others, the young voter decided this was not a good idea and voted for political party that wanted to leave things as they are. You couldn't make it up. Astonishing.

Well it is not that astonishing since most young voters didn't give a stuff about these policies but were focused on the vague promise of abandoning student loans. Like in the US, the UK has a mass of zombie debt that will not be repaid. This results from funding worthless assets (i.e. a large majority of university degrees). This is another story and not one I want to get involved with. What it does reveal is the astonishing levels of ignorance, of all things financial, by large swathes of the population.

I detect the start of the 'softening up' of public opinion for a couple of more radical ideas about raising taxes. Two reports emerged this week with some new ideas about relieving older people of their wealth and income. What is interesting and disturbing is that these reports are clearly trying to change the way we look at two fundamental elements of our society – wealth and universal benefits.

The Resolution Foundation (the thing started by Baby Boomer bashing David Willetts) believes wealth should be seen as ‘active’ and ‘passive’ and each component is taxed differently. The active bit is the wealth that results from savings behaviour – for example putting income into savings products or a deposit on a house. The other component can be label 'windfall gains'. This is the sort of name you give to the taxes you raise from the baddies like the banks and the utility companies. In this case the 'passive' wealth is that resulting from external and unexpected impacts on asset values (i.e. significant house price rises or longevity increases that make pension entitlements more valuable).

What they are really saying is 'look chum you had no input into this big increase in your house price so you are open game to have it taxed at a higher rate'. 

The other report from Kent University proposes that the state pension, that is paid to everybody, should be reduced, with the aim of it being removed, from the wealthier members of society. So there your are, you have paid your statutory 35 years of tax but because you have been a tad sharper than the average punter the state could (if this were ever adopted) not provide a pension. The fact that this is a breach of contract between state and the citizen is neither here or there.

I expect that one or both of these ruses to relieve older people of their income will come into force. That might be soon than later if there is a radical change in government in the UK. Dick Stroud


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