If Labour raises taxes what will you think?

Unfortunately most voters will choose whichever political party promises them more Government spending that is paid for by taxes on somebody else or from borrowing more money that becomes the problem of a future government or future generation.

There is no way in a democracy that the measures necessary to fix the economy will ever be passed.

Which comes back to my favourite quote from Alexander Tyler in the late 1700s:

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy"

Passionate stuff. Who will you vote for to bring the economic controls we need?

That will not happen.

My point is that if you accept that reforms to public spending need to happen then why is the focus not on the only area where there is clearly the best part of £100bn of utterly wasteful spending annually?! And far more when you add in the absurd and totally non-functional NHS system.

Our spending on welfare on the working-aged population is badly distributed and poorly administered but it is NOT the cause of the UK’s economic problems. It’s actually below that of most comparable countries (or what used to be our comparator countries in northern Europe, before decades of economic mismanagement meant our PPP has fallen far below theirs).

This “IMF bailout” stuff yet more nonsense peddled in the press. The IMF simply don’t have the money to bail out the UK economy. There is no prospect of this. All that will happen if we continue along the current path is that living standards will continue to fall in perpetuity. The trade deficit will continue to increase, welfare bills will continue to rise because employers will continue to cut jobs, FDI will fall (upon which we’ve become very reliant precisely because of lack of investment for decades in the productive economy), we’ll continue to import inflation making our living standards lower year on year because we are reliant on imports priced in foreign currencies for energy, fuel and other essentials. Perhaps there’ll be civil unrest. But neither the IMF nor anybody else is coming to save the UK. People in the UK don’t have some God-given right to high living standards as they seem to think. Just like any other country where people have far, far lower living standards and the UK population has been entirely unconcerned about this, of course this can happen here and no other country is likely to be remotely bothered about it.

The more likely scenario is that in time the market for UK bonds evaporates except at extortionate interest rates and forces a future Government’s hand to take very harsh measures to avoid hyperinflation, but by that point it would take a hundred years to improve things (if it’s possible at all). This is why it’s important that anybody who does want any kind of future for their children or grandchildren to listen now and support the necessary measures to address the actual problems before it is too late. Every year it is left undone makes it harder to do so.

Thanks. I largely agree. I was not discriminating between in and out of work benefits. But both are out of control.

The only way I see the structural economic reforms which need to happen is via an IMF bail out.

Actually workforce participation for working-age people is at its highest since it began being measured properly in the 1970s.

The benefits system needs huge reform to become contribution-based (with the exception of disability benefits) and the tax system needs changing immensely to incentivise work. But the primary problem with the public finances is productive areas that would generate growth and productivity rises (the only way to increase living standards) being starved of investment because over 50% of public spending is going on 15% of the population: retirees. Many of whom do not require this. It is the over 65s who are addicted to state support and have strangled the economy, and refuse to let go of their vice-like grip on it to enable the changes that need to happen, despite having paid - as a cohort - £200k less per person in tax in real-terms over their working lives than is required to fund the services and welfare they are demanding to extract from the state (a figure rising every year).

Until this fact is accepted there will be no way out of the doom loop. The fuss recently over £5bn of cuts to benefits for disabled people when £80-90bn per year is being paid in totally unnecessary welfare to wealthy retirees, and the NHS is consuming an ever larger share of public spending to extend lives for very elderly and sick people far beyond any quality of life and who often do not want this while working-age people can’t get treatment they need, is completely unviable.

Nothing will change until this is addressed and I’m afraid that there is no further way to tax the way out of the doom loop because the peak of the Laffer Curve has already been passed, and such tinkering is ineffectual and pointless anyway because it will make no substantive difference to the productivity issues or generate growth so all that is being done is depressing growth further with higher taxes and funnelling that into unproductive spending that won’t generate any growth.

Therefore, unsurprisingly, the next year and the next year and the next year you’ll find that tax revenues have shrunk further, productivity isn’t rising, inflation has continued to increase and living standards fall further and they come back saying they need more and continue the doom loop.

Or you could be insane enough to vote for Reform and make the doom loop spiral a vertical jump at terminal velocity with no parachute.

Or, the UK electorate could grow up, learn something about economics or at least listen to those who do, stop voting for mouldy unicorn cake, get a grip on basic numeracy and instead squabbling over irrelevancies like disability benefits or illegal immigrants in hotels or MPs’ expenses or bankers’ bonuses or whatever the other irrelevant rounding error of the day is being focused on actually engage with the real issues that need to be addressed if they want any prospect of living standards rising in the future.

Oh please!

Tories increased working age and pensioner benefits with reckless abandon. Now the country is addicted to benefits!

Is it getting better?

Barclays is forecasting that Reeves will be looking for £41bn in tax rises in the budget, up from their prediction of £26.5bn in September.

A - they were left with a massive economic shitshow from the last bunch. It’ll take more than a year to put right tge danage done by Truss, Boris etc.

Well worth watching:

I will post again here what I posted on another thread a few days ago…

Quite a lot needs to change for our economy to be made sustainable and productivity to increase, which is the only way to raise living standards sustainably rather than it just be a case of dividing up the remaining crumbs between warring factions. Fundamentally, it requires a huge improvement in the efficiency of spending, a coherent industrial and trade policy, investment in infrastructure and education and a very large redirecting of public spending from the old to the young. Over 65s are 15% of the population yet consume over 50% of public spending. This is why taxes are going through the roof, and there has been chronic underinvestment in the parts of our economy that will actually generate improved productivity, rising living standards and growth and some hope for the future. The longer this is not done, the worse the effect will be.

A good start would be to:

1. means test the state pension with a gradual taper rate like in Australia, so that it reaches zero when the PLSA income level for a moderate retirement for an individual/ couple is met (or assets sufficient to generate this income). This would create absolutely zero poverty because it is set at a level which allows for foreign holidays, running a car, eating out regularly, etc: the only impact would be that those pensioners who don’t need the state pension and are currently spending it on extra luxuries no longer receive it/ all of it. This would save £80-90bn per year - these completely unnecessary welfare payments to wealthy pensioners are by far the most wasteful part of public spending and it needs to stop. The quid pro quo can be no further raises in state retirement age. There is no rational argument for the status quo. The current generation of retirees are - on average - extracting £200k per person more in welfare and state services than they paid in tax over their lifetimes, in real terms. This is not sustainable and cannot continue. They didn’t pay sufficient tax to fund their demands on the current working aged population and neither did they provide anything like what they are demanding for their own parents and grandparents. It’s crippling our economy. Ceasing these payments to people who do not need them at all would create no poverty whatsoever, just upset a lot of pensioners who continue to claim that they have “paid for their pension” and that it “isn’t welfare” when all they have done is pay the tax required so that they aren’t breaking the law and go to prison and it’s been clear ever since the National Insurance Act 1948 that this is a welfare payments and - just like all welfare payments - the eligibility criteria and amount is subject to change (the PLSA levels are uprated with inflation every year and currently £31,700 for an individual or £43,900 for a couple after tax and housing costs - so far exceed the income of the vast majority of working-aged people who are paying NI, housing costs, childcare and have nowhere near this amount left as disposable income, so no pensioner would be left in poverty by removing their state pension at this level. When you consider that the recently-proposed cuts to disability benefit aimed to save £5bn per year and this measure would save £80-90bn per year, you can understand the scale of the problem and that it is pension welfare that is one of the reasons why the UK’s infrastructure and education system and all productive investment is falling apart. This ponzi scheme cannot continue and simply won’t, because it can’t, but the longer it goes on the more damage it will do and the harder it will be for the UK to recover, all so that working-aged people can fund luxuries and extra holidays for wealthy pensioners who are perfectly capable of supporting themselves, because politicians are scared to upset them. They need to get over this and do it - it should have been done decades ago). These pensioners funded nothing like this for their own parents or grandparents, and as a cohort paid nowhere near enough to fund it for themselves. They had decades where the collapse of this ponzi scheme was foreseen as an inevitability yet continued to vote for politicians who did nothing about it and demanded no change, and now state that it would be “unfair” to change it for those already retired. Ridiculous. It has to be changed and somebody needs to get a grip and tell them it is being changed, with immediate effect.

2. The above measure would enable significant investment in productive parts of the economy that have been starved of cash in which investment is essential to generate growth: education and infrastructure in particular. We need a lower proportion of people going to university and far more technical colleges with apprenticeships set up in conjunction with businesses leading to respected and useful vocational qualifications that lead directly into employment with the training employer, more similar to the German model. We also need to increase funding for schools by 50% to ensure smaller class sizes and a wider range of schools to suit different needs - some more academic in focus like the old grammar schools and some more focused on arts or sports or practical and technical skills. Trying to pretend all children are identical is ridiculous and we need to abandon the failed model of forcing almost all children into one-size-fits-all mainstream education which serves nobody well. Fund SEND education properly and put a proper regulator in place for education which will impose fines and sanctions and strip qualifications from people or even impose prison sentences when the law is broken, as is the case in every other sector (law, medicine, finance) rather than individual parents being expected to enforce the law. In the long run, the failure of education and enabling every child to reach their potential is going to cost us orders of magnitude more in terms of welfare, lower growth, higher justice and healthcare costs, etc, so underfunding education is economic insanity.

3. All responsibility for the provision of education and social care should also be taken back within the remit of the relevant central Government departments so that there is accountability, even if they delegate implementation tasks to Local Authorities. The recently mooted plans to redistribute Council tax across the country just add another layer of bureaucracy to achieve the same effective central funding outcome but with no accountability allowing central Government to blame Councils for the failures when they are underfunded and not capable anyway of administering these systems competently and this has led to a huge squandering of resources on ineffective systems designed more to try to circumvent their statutory responsibilities than actually implement the required services. Social care whether in the home or out of the home should be treated equally in terms of funding. General taxation can rise slightly to fund this and Council tax be significantly lowered with Local Authorities responsible only for local services such as waste collection, leisure centres, road maintenance, libraries etc.

4. The savings from point 1) also would enable us to remove the op-out for auto-enrolment and significantly increase the level of mandatory contributions for both employees and employers whilst making tax cuts to make this fiscally neutral and ensure that there is a stable pensions system in place for the future. A similar mandatory scheme should be introduced for the self-employed unless they can demonstrate sufficient levels of independent assets to fund their own retirement entirely independently. Meanwhile the Government should commit - as independent report after independent report into the pensions industry in the UK has advised them for years now - NOT to make any further changes to the rules around withdrawals, tax relief, etc because this is undermining any faith in people trusting the system sufficiently to invest their money into it, knowing rules might be changed in the future.

5. Abandon the failed NHS model and emulate on of the far superior European models like those in France or Germany which have been shown to deliver far better patient outcomes and value for money. People would get treated in a timely manner, healthcare would vastly improve. There is a reason why no other country in the world has emulated the NHS system and all of the countries that have better health outcomes do not use a system like ours. Every time this is proposed ridiculous people try to pretend that changing it would mean we were moving to a US model which - again - nobody else in the world has copied for very good reasons. There are very good models between these two extremes that actually work and won’t bankrupt the country.

6. Rejoin the single market and customs union as quickly as possible and implement a coherent industrial strategy and trade policy, focusing on Government support for start-ups in key high-productivity sectors where the UK has an existing competitive advantage and knowledge base (tech, pharmaceuticals, engineering, the arts, finance and professional services, defence, life sciences etc) linking these up with grants, research from our best universities, knowledge clusters and business support networks including a new Government export assistance service for small businesses to help them overcome the costs of legal hurdles and compliance documentation with templates/ paperwork assistance etc.

7. A huge investment in our failing infrastructure (water, internet, road, rail, housing - but with acceptable standards for homebuilding unlike now) and plans for food security, water security, energy security, climate change protection (e.g. flood defences). We currently have some of the very highest energy prices in the entire world. This is hugely harming economic growth. The energy pricing model is completely insane, where all units consumed are priced based on the most expensive energy units in the national mix at a given time. This is entirely artificial and perfectly possible for Government to change instantly. Meanwhile we need to invest far more heavily in Nuclear alongside renewables to provide reliable base-load for the future (thanks Nick Clegg for declaring 15 years ago that it wasn’t worth bothering because it wouldn’t be online for 15 years, when at the time the UK could borrow at negative interest rates, i.e. being paid to borrow the money to build our infrastructure. The economic illiteracy has gone on for a long, long time. While day to day public spending needed to be cut after the financial crisis, we should have borrowed HUGE amounts to invest in infrastructure because we could have done so at a profit before even having build anything!). Energy prices are crippling our businesses and making them uncompetitive. Importing a large amount of essentials commodities like energy makes us extremely reliant on FDI and imports inflation.

Markets will be favourable to a coherent long-term investment plan in such areas because of their impact on long-term productivity and growth rate therefore this would not negatively impact the UK credit rating. This would also generate more highly skilled jobs and demand for the apprenticeships per point 2.

8. Stop selling indexed links gilts! Most comparable European countries have a tiny amount of their debt issued on an index-linked basis and are therefore paying much lower interest than us on similar debt levels. This was gross economic mismanagement.

9. Fix the ridiculous UK tax system which is harming productivity. These points are not in priority order and frankly this one should be done immediately because the effect would be almost instantaneous unlike some other items on the list and it is entirely within Government control to fix. Anomalies and perverse incentives little the system at every level. All taxes and welfare should be levied on a household unit basis, as in pretty much every other developed country. Couples could choose to opt out and be separate “household units” splitting their household tax allowances/ thresholds between them equally if they wish to maintain separate finances. Obviously those in HMOs or adult children living with parents would be separate “household units”. This is how the system operates in all sensible countries of which I am aware. Then two households with the same household income will be taxed the same amount regardless of whether they’re a single parent or couple or how the earnings are split between the adults. This is a matter of basic fairness. Income tax does need to rise but this needs to be through the basic rate (due to sheer mathematics). This should be done transparently by simply changing the rate. Fiscal drag is economically damaging and a commitment should be made to uprate all tax thresholds annually with inflation.

10. As well as the above, the cliff-edges in the tax system need to be removed. Child benefit, childcare funding and the personal allowance should be made universal again, and the universal credit taper rate reduced significantly because there is robust independent economic evidence demonstrating that this would generate more economic growth, reduce long-term welfare dependency and raise tax revenues and economic participation rates significantly. This would also reduce the number of people cutting their hours/ retiring early/ emigrating and therefore reduce skills shortages and the need for immigration. Rationalise the tax system so that pensioners pay NI given they are by far the highest users of welfare and healthcare which it was supposedly meant to fund (obviously we all know it isn’t hypothecated and does no such thing anyway, but there’s no reason they should be exempt). Adjust tax rates to reduce the discrepancy between the level of tax on earned income and investment income (some is justified to generate investment and risk taking, but the current level is too extreme with employees being taxed far too heavily proportionately).

There’s absolutely no excuse for this Government or the last one not to have taken the measures in points 10) and 9) to fix the tax system given the very clear evidence of the economic harm that the current system is causing, suppressing growth and productivity. And certainly no excuse to be telling us they need to make “tough decisions” and make cuts/ raise taxes without taking these measures first. Restore the social contract: the quickest way to undermine public services entirely is to exclude those who are actually paying for them from using them. They will be paying their share AND for many others to access the same and in most European countries that is accepted and it works. If you start excluding higher earners from childcare funding etc you create perverse incentives in the tax system, discourage work from our most productive people, and condemn those public services to perpetual decline and cuts and well as creating further social division.

11. Link up Government IT systems properly so that healthcare records, HMRC records, DWP records, CMS records are all linked together. Ask the Estonians if we can buy their integrated IT system from them given our Governments are so terrible at IT projects. This will enable much easier identification of fraud and tax evasion. Digital ID cards should be required and added to traders’ invoices so that their transactions are logged and they cannot do “cash work” and under-declare and make it an offence to pay for work over a de minimis value without this digital ID number to stamp out black market. These ID cards can also be used to reduce black market working generally. There is a huge amount of tax evasion going on. Implement a system like those in other countries where absent parents who don’t pay something resembling 50% of the cost of housing and raising their children (not the laughable current CMS rates) have their driving licences and passports confiscated and if they still don’t pay then they will be sent to prison i.e. treating these debts with the same severity as money owed to HMRC.

12. All benefits other than disability benefits should be contributory like in most European countries, so that they resemble the insurance-based system that they were intended to be. This would enable them to be set at a level where they are a percentage of previous salary, again in line with most European countries, so that they do actually provide a genuine safety net for all sufficient to cover their baked-in existing living costs which is important for the social contract (and those with higher costs will have been paying proportionately more tax to fund this while working). This will also prevent people claiming unemployment benefits as a “career” without ever working at all (unless severely disabled). Benefits like the child element of UC should be replaced by an additional tax allowance based on the number of children (again, a model that’s worked well in other countries for decades) because this encourages work rather than disincentivising it, while still recognising the additional costs involved in raising children.

13. Implement something akin to the EU Directive on Tax Transparency which Brexit was largely designed to avoid being implemented in the UK, requiring publication of the beneficial ownership of all accounts held in UK offshore tax haven territories. Reform rules around transfer pricing which enable large companies to move profits abroad and transfer costs into countries where revenue is generated to eliminate their profits. Reform the rules around dividend distribution linking them to the requirement to provide disclosures on long-term viability so that a company cannot make distributions unless it can demonstrate sufficient cash is being kept in the business to meet long-term investment requirements (e.g. water companies needing to invest in infrastructure as population changes/ upgrades are required).

These would be obvious first steps for a Government genuinely wanting to generate growth and rising living standards. None of it is rocket science.

What is wrong with our politicians that none of them are capable of articulating this, even with a huge majority and nothing to lose?

They are Fabians.

They want the current systems to fail. When you understand this, then it all makes sense.

Precisely. Not that they are very good even at “counting beans”, evidently, given their claims just after they were elected that they “didn’t know” that the public finances were a mess. All of this information was in the public domain prior to the election. The disingenuousness is off the charts.

But yes - quite clearly the OBR can’t forecast with any accuracy uncertain effects in terms of magnitude or timing. That is not what their forecasts are for or within their remit. They are meant to simply provide an extra tool for analysis for accountability, not to drive fiscal policy. Are these morons seriously saying that no long-term fiscal policy that would be beneficial per the basic rules of economics should ever be implemented because it isn’t something the OBR can accurately “score” and include in a forecast!? Literally nothing will ever improve if such an approach is taken and I believe OBR officials themselves have told the Government repeatedly that this is not how their forecasts are to be used, when getting bullied by the treasury to “include” things that are not relevant for the purpose of this type of forecast.

It’s absolutely astonishing, given that pretty much every measure that is likely to actually improve things is not something that will fall within the OBR criteria for inclusion in the forecast.

To base fiscal policy choices on OBR forecasts is beyond mad. The policy choices will be scored in subsequent forecasts once the effects start to show and are capable of being extrapolated forwards. They treat the OBR as though it is a crystal ball!

I really despair of the level of stupidity.

@222days I think the key to understanding the evident insanity is to realise that Starmer, Reeves and the rest of Labour are bean counters.

They are very good at adding up numbers in a spreadsheet but have absolutely no clue about how any of it actually works, no understanding of causes and consequences, and can't see through the details to what actually matters.

Why can’t we have any politicians with the backbone to just speak plainly and articulate a credible analysis of the UK’s problems and some long-term solutions that they are going to implement to improve things?

All we get is a cycle of “blame < “the rich”, “the disabled”, “the immigrants”, “the previous Government”, “Civil Servants”, “landlords” of whatever other ridiculous target of the day >.”

It’s absolutely pathetic.

This is utterly insane. The issue is low productivity meaning there is no growth, so rather than introducing fiscal policy that will raise productivity and growth she is planning to take further measures to suppress it as a result of what is, essentially, a rounding error in the forecasts.

This was never the idea of the OBR. It is meant to provide an independent assessment in order to hold Governments to account if/ when they made wild and highly unlikely economic claims. There has never been a suggestion that OBR forecasts will be a precise assessment of outcomes to within a single percentage because that is not what forecasts do. It’s not possible. Determining fiscal policy on the basis of what the OBR will/ will not “score” or adjustments to its forecasting methods and stifling growth with further taxes in order to match it precisely within the bounds of a rounding error is complete madness.

Markets would react far better to a coherent industrial strategy and re-prioritising of public expenditure with a credible plan to raise productivity and growth, whether “scored” by the OBR or not, than to further tax rises which will cause a further deterioration in the very problems causing the downgrade in the forecast - particularly now that apparently she’s also said that none of this tax rise is going to be used for anything that would increase growth: she is planning to throw the majority of it at the black hole that is the NHS! You really couldn’t make it up.

Do they think large participants Bond markets don’t do their own economic forecasting and make their own judgements? Do they genuinely think that investors are concerned with rounding errors in the OBR forecasts rather than whether there is a credible plan, competent leadership and a sensible trajectory of policy which is likely to lead to an improvement in economic conditions so that investment in the UK is less risky and more likely to grow in value?

This evidences quite clearly that this is all about political optics and soundbites about self-imposed and idiotic “fiscal rules”, rather than any concern whatsoever about the country’s future or the standard of living for UK residents.

Universal credit needs to be the real target. It is essentially allowing part time workers to earn a full time wage.

Thanks to @strawberrybubblegumfor link but yes. It shows how quickly Labour can go from its fine it’s a few VAT patents we loathe them anyway all good, to over £45k is not a working person let’s go for them.

How quickly their fiscal policies fail.

I totally agree.
Tax / bash / eat the rich has been the "goto" solution for Labour, and keeps many party members happy.. until the economy runs out of steam due to lack of confidence and investment etc. (see Laffer Curve)

Then it starts to hit everyone, including the poor. Sadly I'm old enough not to be surprised as I know what happened last time.

Watching KS in PMQs explaining how wonderfully the economy is going, was quite shocking, with very carefully selected metrics and failing to respond to questions with a meaningful answer, I'm just surprised he didn't mention "free" breakfast clubs" and what an achievement it was to spend tax payers money.

KS's valiant and no doubt well meaning intension to "smash the sleaze", has backfired specularly with 11 ministers so far, yet RR can blatantly lie to him and he does nothing. As with the Tories, "sleaze" will probably be their undoing.

Tragically, KS and RR are the "voice of reason" and appreciate they aren't in control really (it's the bond makers), but their replacements probably don't.

It's come out over the last few days in several papers

https://news.sky.com/story/income-tax-and-national-insurance-unlikely-to-rise-as-sky-news-obtains-definition-of-working-people-13459288

“Current talk of anyone earning over £45k not being a working person. It’s complete nonsense but it shows how they are failing.”

Where is that @EasternStandard?
So full time average worker wage? That would be seen as socialism and won’t be viewed well by business and bond markets. How foolish! If not viewed well, it means we get punished, currency suffers, investment is pulled, we get poorer.

Both. It needs to be done, I support it but it was bloody obvious to me the second I read their manifesto that they’d have to break it because they needed to raise more money, and so it was duplicitous/inept of them to say they wouldn’t.

The Tories weren’t talking about austerity because they were drowning in tax revenues…

The real issue is Labour held themselves out as better than the Torres, as the party of ethics and have proved themselves to be d anything but that. That’s the real duplicity.

Absolutely but it was a vote winner so they’ll keep going with the spite. The result though is it moves from VAT to ever increasing groups of people.

Current talk of anyone earning over £45k not being a working person. It’s complete nonsense but it shows how they are failing.

Individual Labour MPs have a survival instinct for the next election which is why they vote against cuts in government spending eg WFA or PIP.

But on the longer term reputational damage to the Labour Party they don't
care. Besides most voters base their voting decision on voting for anyone except whoever is in power.

@Dbank @Araminta1003
You both make prescient points.

DH and I have never worked 9-5 and are in our mid 60s. Similarly, my parents: dancer and chemical engineer; DH's electrical engineer and deputy head. My grandparents were farmers and worked from 5am until 6pm for much of the year, including Saturdays and Sundays.

The 53%, net recipients, were implemented in 1997 with the introduction of tax credits (which we never did). That created a dependent working and white collar class, allowed employers not to raise wages/salaries and was a key factor in the exponential increase in house prices. I really hope history will look back in anger at the quiet economic destruction wrought by the Blair Government. That money made people feel good and kept them voting at the expense of those funds being directed to the infrastructure.

We also didn't have 53.3% of individuals living in households that were net recipients of government spending. (i.e. They get back more than they put in)

Therefore many of us, see less of the benefit. The inevitable outcome of socialism.