From The Daily Mail:
[UK Finance Minister] Rishi Sunak rejected a proposal for an emergency wealth tax to recover the staggering £280billion the Government has spent so far on the coronavirus pandemic. The Chancellor was presented with plans for a one-off levy on those with assets of more than £500,000, or £1 million for a couple, including their family home and pension(1).
But Mr Sunak has told allies that he has ruled out the suggestion because he believes it would be 'un-Conservative' and go against the party's aspirational values(2). However, he is still considering proposals to raise tens of billions from the better-off by sharply hiking capital gains tax.(3)
The Wealth Tax Commission(4) last month proposed a 5 per cent levy on housing, pension, business, equity and savings wealth that it forecast would raise £260billion. The tax would apply to every UK resident with assets of £500,000 or more and would include homes excluding mortgage debt.
About one in six adults – 8.2million people – would be liable, but the tax would largely fall on older generations who have paid off more of their mortgages and built up larger pension pots. Almost 40 per would be aged over 65, while just 6 per cent would be between 35 and 44 years old. The Commission recommended households pay the levy at a rate of 1 per cent a year for five years.
It estimated up to 10 per cent of those affected would be 'asset-rich, cash poor' and not have the ready money to pay for it. For those people, it suggested smaller payments for a longer period. (5)
1) Hooray for taxes on land and buildings, especially if they replace existing stupid taxes on land and buildings, such as Council Tax, SDLT and Inheritance Tax. Taxing pension funds is stupid because they are heavily subsidised. It it far better to simply reduce or phase out the subsidies. Taxing the value of 'business, equity... wealth' is even more stupid. If you want more tax from businesses, just reduce corporate subsidies, and if still necessary, hike the corporation tax rate. Taxing cash savings is even stupider; a proper tax on land and buildings (i.e. LVT) ignores mortgage debt and is levied on the gross rental value of the plot. So as a quid pro quo, cash savings shouldn't be taxed either, or it's heads-we-win, tails-you-lose.
2) 'Un-Conservative' just means 'won't go down well with voters'. The Conservatives are the political party with no principles whatsoever apart from staying in power as long as possible. The same applies to 'aspirational values', which is meaningless. With a full on-LVT and lower taxes on earnings and business output (which are real taxes on 'aspirational values'), people would still 'aspire' to earn more and buy a nicer house (or a nicer car or nicer holidays, or more savings, whatever, that's the whole point of earning more). And those who earn more would end up in the nicer houses and pay the LVT voluntarily.
3) This is pure tokenism. Capital Gains Tax in the UK raises about £7 billion a year, about 1% of all tax receipts (from memory - it's fairly small numbers). CGT was never intended to raise much revenue, it is basically an anti-avoidance measure to deter people from reclassifying heavily taxed earnings or profits as 'capital gains' (which were not taxed at all until 1965). The revenue-maximising CGT rate appears to be about 15% and we are already past that point on the Laffer Curve. So it is nigh impossible to raise significant extra money from CGT.
4) Wealth Tax Commission is an initiative of think-tank the Institute for Fiscal Studies. They are well-respected and influential but nothing official. Their numbers and estimates are almost certainly correct.
5) Also known as 'the roll-up and pay on later sale or death option', just to knock that KLN on the head.
No wonder he's never around
1 hour ago
27 comments:
Mark, I think you missed the real reason Sunak opposes a wealth tax: his wife is worth about £300 million. If he did implement that tax, he wouldn't dare go home for months: he'd have to doss down under his desk at the Treasury
I bet those public sector pension pots wouldn't get taxed........the Mandarins wouldn't stand for that!
@Sobers,
Talking of Mandarins, and starting in London, a tax on all those properties owned by companies or individuals with connections to the CCP, could be a start. While we are infected, unemployed, and bankrupt, the GDP of China has risen substantially and millionaires are becoming billionaires (as long as they remain true to Xijin Ping Pong's plans for world domination).
...and if the Reform Party came out against a Wealth Tax then the Conservatives would lose at least some of their vote share.
If you are going to have to raise taxes to cover the Covid Debt then at least you should consider cutting costs too. Shelving HS2 perhaps? The financial return must be even weaker as more people become used to working from home or using video conferencing.
RM, I'm sure that's all 'off shore', or at least that he could word the legislation to exempt her.
S, sadly no.
PS, I get the idea, but it would be tricky to draft the precise legislate to achieve what you mean, so no.
DJ, Hs2 is a waste of money, obviously, the UK govern uses at least a fifth of its annual budget on waste, overspend, corruption, backhanders, white elephants etc. But the bulk of spending is worthwhile and has to be funded out of some taxes or other.
S, you can't tax public sector pension pots because they don't exist. By and large, public sector pensions are funded from revenue.
P, why stop at China? tax all properties owned by foreigners, especially Americans.
DJ, HS2 is a scam, no one is interested in its viability.
B, public sector final salary pensions have a mathematical value which is used to calculate the size of an individual's pot for tax purposes. Basically final pension per year times 16 or 18 or something (when testing whether they have reached the lifetime limit).
So it would be easy to lop X% of the mathematical value and scale down the final pension accordingly.
As for what the Conservative Party really cares about, I think Karl Marx had it bang on in 1852 (18th Brumaire of Louis Bonaparte. III):
"Thus the Tories in England had long imagined that they were enthusiastic about the monarchy, the church and beauties of the old English Constitution, until the day of danger wrung from them the confession that they are enthusiastic only about ground rent."
Why not just tax pension income the same as earned income? After all, pensioners are the most veracious consumers of public services, and don;t generally have dependants to look after. Makes no sense to whack a working age person on £9500 with 22.7% National Insurance (employee and employer) vs 0% for pensioner. At £12,500 it's 40.25% vs 20%. At £50k it's 40% vs 49%, much higher if you have kids (Child Benefit). Why have a means test on people with children to raise but not the wealthiest of pensioners on £50k+? Not that I propose means tests, get rid of it rather than applying to both groups
Mombers. Pension income is taxed as earned income. Pensions are technically 'deferred pay'. They are not subject to NIC. I think that this arrangement is 'fair'.
Apart from anything else, IMHO, we are at Peak Laffer and I seriously doubt that any extra tax would be raised. And 'taxing wealth' always destroys wealth which reduces production and so so. Obs tax land 'wealth' is A Good Thing.
The only way to sort out government finances will be to slash spending.
@L if it's earned income, then tax it as such. If I didn't defer my pay by putting it into my pension, I would get taxed 62% on it (personal allowance withdrawal, barf). Instead, I will collect a huge amount of tax free unearned income and capital gains, then get taxed 20% when I draw my pension. Would much rather have a lower working age tax rate so that I can give my kids the best start. And lots of pension pots are partly unearned on the way in, e.g. you can pay several thousands into an infant's pension with 20% tax relief. Soiling your nappy doesn't count as work ;-). And you can also inherit pension pots now.
@L how about slashing the £100bn pension budget? :-) I won't be so cruel as to suggest slashing the 50% of the NHS budget spent on pensioners
M. pension income IS taxed as earned income. Except that there's no NIC - which makes sense.
The reason that there are opportunities to use pensions for children (from memory £2,880 p.a.) is that the government want to wean us off the basic state pension. I have no problem with that.
OTOH I am fully in in favour of restricting pension contribution tax relief to the basic rate. The bulk of pension tax relief is paid to higher rate taxpayers.
One reform I would like to see is the scrapping of all state employee FS schemes and all moved to DC schemes. That would align their interests with the wealth creators in private business.
@L what's your justification for NIC exemptions? It's not an insurance scheme, i.e. you don't get to a point where you've paid enough premiums to offset actuarial liabilities, and you (largely) don't get higher benefits for higher premiums. It's just a tax on earnings, and exempting unearned income allows people to avoid it altogether during their working lives through dividends etc.
People who die before or soon after state pension age get a double kick in the teeth via a shorter life with a much higher average tax rate. Getting old is a privilege in my opinion, working to support oneself and family is a necessity. Private property deserves equal treatment to avoid all the anomilies
"OTOH I am fully in in favour of restricting pension contribution tax relief to the basic rate. The bulk of pension tax relief is paid to higher rate taxpayers."
Why not scrap it altogether? You don't gain much: if you pay into your pension from taxed income, you only pay tax on the capital gain in your pension pot when you withdraw it. Meanwhile if you claim tax relief, most of that is hoovered up by the pensions industry in higher rates.
L: "'taxing wealth' always destroys wealth"
I'm not sure it does, but that's not the point.
A general wealth tax (like they still had in Germany when I worked there) is stupid, complicated, will be full of loopholes and avoidance, complications and arguments about values and raises bugger all in net revenue. It's a boon for lawyers and accountants though.
Because land is so easy to tax, you can raise far more from a land tax (at a high rate) then from all 'wealth' (at its revenue maximising rate i.e. very low rate).
MW. I specifically excluded land from that assertion. I was thinking about taxing 'capital'. Which is alike taxing lathes. You get less lathes and hence less production.
M. NIC are an insurance scheme. I know they don't work like that that but that's what they are supposed to be. And why do you pay premiums when you're collecting the benefits?
The whole 'social contract' behind pensions is very worthy. You defer pay now and we won't tax it. But we will tax it when you take the benefits as pay, that is not as an annuity on the interest portion only.
Trouble is all this has been mightily corrupted by various flawed government interventions. And I also object to the higher rate relief, as that's where most of the tax rebate goes.
B. Charges do not hoover up the tax breaks as much as they used to. Anyway, about 63% of the charges made by the industry get taken away by taxation and regulation costs.
But, if the pension social contract applies I think the tax break on contributions plus tax relief on the find less the resulting income taxed as pay is fair.
As long as you restrict tax relief on contribs to basic rate.
"OTOH I am fully in in favour of restricting pension contribution tax relief to the basic rate. The bulk of pension tax relief is paid to higher rate taxpayers."
Basic rate tax relief on pensions is 40.25% (12% + 20% + 13.8% employer NI). So double the tax rate on earned income taken when you need it most, and half when you have a much lower chance of being in poverty due to the state pension.
Weaning off the state pension is a terrible idea. It's a cheap way to just about eradicate pensioner poverty and has no built in penalties like the old 100% taper on pension tax credit. I'm happy to pay for 0% pensioner poverty (although would be more fair to bring child poverty to 0% first) but not happy to pay for luxury retirements. Of course I'm tucking in as much as I can into pension tax relief. Do as I say, not as I do :-)
@Lola I'm currently paying premiums on my wife's car and my home, very much collecting benefits. I don;t get to stop paying after x number of years. My home premium is higher than average but it's a bigger than average home so I get what I pay for. A big difference to NI, which gives flat benefits for all levels of premiums, and many benefits don't require NI payment anyway, e.g. pension tax credit, Universal Credit, care home fees.
NI doesn't even cover the current budget of the things they say it does, never mind any easily calculated future liabilities. Proper insurance companies have to prove to regulators that they can meet expected claims. 'Premiums' paid now are subject to revision of benefits, e.g. raising the retirement age, screwing even more low paid people. We've got a huge baby bust coming due to Covid on top of an already shaky demographic picture, I have very little confidence in being able to tuck into enough of the next generation's private property to fund my retirement.
M.
I didn't say weaning off the state pension was a Good Idea. I said that that was what was behind the tax and pension 'reforms' that is being able to make contributions for children. FWIW, I am not it favour of that either. Nor LISA's come to that. Nor EIS and VCT (both vehicles with tax breaks that do largely end up in the hands of the scheme operators.
And, yes, there is no NIC ee or er levied on pensions contribs by employers. You do still pay NIC if you contribute as an employee.
You could look at this the other way about. Scrap NIC and roll it into income tax. Then restrict the pension tax relief rate to say 20% (or whatever).
But the 'social contract' argument is valid.
Better of course is to scrap IT and move to LVT etc. Then there would be no tax reliefs to be had.
2nd comment
That's the difference between insurance and assurance. You're doing insurance. A pension (or an endowment policy come to that ) is assurance.
Agreed about the (implied) support ratio.
Anyway NI is a racket IMHO.
@L we're in agreement if income tax and NI are merged - same rate for everyone and no muddying of the waters. NI has been increased at twice the rate as income tax. I tried to convince my old employer to make my personal pension contributions themselves instead of as me to save NI for both of us, a ridiculous scenario where the same contribution is taxed at a much lower rate than the other. Better to be 0% though of course and LVT to run the government of course.
State Pension is not assurance in my opinion - I think around 1/8th of people die before state pension age and get nothing. So you're not assured to get it, unlike a whole life policy. Child Benefit is as close as you get to assurance - the vast majority of people survive all or most of their childhood
Agreed re State pension. It's 'benefits'. There is no fund so no assurance. I get mine and I'm working hard on living a lot longer yet...
M and L, state pension is just welfare. Nothing more, nothing less (a good kind of welfare, but still welfare).
For some reason, pensioners often look down on younger people who waste all their money on rent and iPhones and smashed avocado.
When I'm that old, I will be ever grateful thankful to them for paying in a quarter of their wages in NIC to subsidise my lifestyle.
MW - Luckily I have four children, all working, so I know all my state pension is covered....:-)
Post a Comment