How should covid be paid for?

[KenDodd]

I think there should be a small wealth tax (up to 1%) and before anyone starts saying I'm just jealous or whatever, I would be in for thousands of pounds that I don't have and would have to owe. I feel really strongly that we can't just load yet more debt onto the young, they have it much worse than my generation did already (I'm 51).

Yabu - No to wealth tax
Yanbu - Yes to wealth tax

If you vote No, please suggest an alternative that you think would be fairer.

Yet the problem is when we move from a contributory welfare state which Beveridge set up to a non contributor one you lose the buy in of the higher earners which ultimately destroys the welfare state. When all feel that they pay in and take out it works a lot better as originally designed. Most of the EU has something similar - you pay your NI and only if you pay enough in do you take out. The UK lost that and that has damaged our welfare state. I remember the days when if you had lots of NI paid in then you got much higher unemployment benefit than those who had not paid in.

I have posted something similar, many times. A lot of mumsnetters disagree and thing the situation we currently have -51% of contributors and 49% of takers is sustainable. It isn’t, at some point a party to the right will start campaigning for a US style system, lower taxes, no welfare but everyone who can afford it paying their own private unemployment insurance etc. IMO we either go back to contributory or we end up with a US style system, where the 49% of takers will end up with a lot less than they get now.

@Lincslady53

I have read about half this thread and a couple of points come to mind. The first is that I think no one has grasped how large the debt is going to be from this crisis. To think it can be paid off by just the tip 5% is naive. We will all be paying for it, one way or another for the rest of our lives, and the debt will still not be paid off. There have been a number of people advocating cancelling the triple lock pension. If you have paid the full amount of national insurance over your working life, you will get £175 per week. Not enough for most people to live on. If you are female, you will probably have to work for an extra 6 or 7 years than you thought when you first started work before you will get your pension. That is also 6 or 7 more years of paying national insurance. The increases in pensions are accumulative. So if you are 45, with a pension age of say 67, and the pension increases are reduced by just 1% per year, that means YOUR pension will be over 20% less than it would be with the triple lock (actually a lot more as I haven't compounded the 1%) We already have one of the poorest pension schemes in Europe so why do people want to make it even worse? Yes, some pensioners are quite well off, but if they have had a high income then it follows that they have paid a high amount of national insurance too.

Trouble is that you don't actually have to "pay" any NIC to get the benefits. If you are a part time worker (or have two part time jobs), you may well earn enough to qualify for NIC credits but pay little, if any, NIC. Likewise you get credits for home responsibilities, unemployment, etc etc. That's the problem. What you pay in is no longer linked to what you get out. NIC has become just another tax now, not an "insurance" scheme. Time it was scrapped and other taxes increased instead.

Good point @Lincslady53

Putting it in perspective:

Upper estimate of the cost of Covid to the U.K. is £400 billion (office for budget responsibility).

The 2008 banking crisis was at the time expected to cost £500 billion, but ultimately “only” cost £27 billion - £125 billion depending on how it is calculated.

Aggregate total wealth in the U.K. is £14.6 trillion.

Total government receipts including tax revenue are normally around £700 billion and are normally about 35-37% of GDP.

U.K. GDP was £2.21 trillion for 2019.

So at the upper estimate it will have cost a little over half of the normal receipts for a year, or about 20% of GDP.

I found these two sites to be particularly interesting for looking at the breakdown

www.oecd.org/tax/revenue-statistics-united-kingdom.pdf

www.ifs.org.uk/publications/9178

So if you are 45, with a pension age of say 67, and the pension increases are reduced by just 1% per year, that means YOUR pension will be over 20% less than it would be with the triple lock

The BBC is reporting today that the Bank of England is consulting with the banks about negative interest rates. It’s not going to be sustainable to have a collar of 2.5% for state pension increases.

Yes, I certainly support reduction of state pension particularly as it costs us so much. there is no point in our picking on things that hardly cost anything like MPs' expenses. We need to look at what raises loads.

in Switzerland eg they asked people to pay their tax as late as possible as it costs money to hold money in the tax office bank account due to negative interest rates - you pay to have money held on deposit in the topsy turvy world of today. Mind you as most religions including Christianity used to ban interest (which is why jews in the UK ended up being the money lenders) and Islam still does not allow it (hence sharia compliant finance products which tend to be interest in all but name) may be it is not such a bad thing if you do not pay much to borrow money.

I agree we should be rid of employer and employee NI and merge NI and income tax into say 33% basic rate (which is I believe the current 20% income tax rate plus about what NI is so no change for most people). However for 30 years Governments keep trying to look at that but it is very complex to change it so always give up.

One reason the triple lock happened was Gordon Brown's 75p pension rise in a year of low inflation.

For some reason sticking to the rules he set out made him wrong.

As Xenia richly illustrates, never underestimate the power of meaningless soundbites to defeat logic.

Most of the EU has something similar - you pay your NI and only if you pay enough in do you take out.
That is true. Most of the benefits in comparable countries are way higher than ours, too.

Yes, I certainly support reduction of state pension particularly as it costs us so much

So high earners should get universal benefits like child benefit, but pensioners who receive benefit based on lifetime contributions, shouldn't? Nonsense, as usual.

@DynamoKev

We will all be paying for it, one way or another for the rest of our lives, and the debt will still not be paid off. Well only if you subscribe to the ridiculous idea that it's like personal borrowing on a credit card.

It’s not a ridiculous idea. The debt from WW2 was only paid off in 2006. Boomers spent most of their working lives paying for a war that ended before they were born. The same will apply to the debt being accrued now.

@DynamoKev

Most of the EU has something similar - you pay your NI and only if you pay enough in do you take out. That is true. Most of the benefits in comparable countries are way higher than ours, too.

But that's not true in Britain where you can actually not pay a penny in NIC for your entire working life, yet still qualify for the same state pension as someone who's paid thousands every year.

Most of the EU has something similar - you pay your NI and only if you pay enough in do you take out.

How does that work in practice though?

Let's say you're 18, you're pregnant and you've just been kicked out by your parents.
Or your living with a partner, not married, not working but at home with children, partner leaves, you have no income.
Or you're a student, age twenty, have an illness causing you to go blind and be unable to work.
Or you're an asylum seeker just arrived.

None of these cases would have contributed to a tax system, what happens to them?

It’s not a ridiculous idea. The debt from WW2 was only paid off in 2006. Boomers spent most of their working lives paying for a war that ended before they were born. The same will apply to the debt being accrued now.
But the borrowing or printing money as a nation is not the same as a credit card. I am not arguing with you about the 2006 pay off - it's the interpretation. Show me a country with no debt and I'll show you a totalitarian regime. Every nation is doing this and has been - you seem to think debt is bad and should be eradicated when in fact we'd be crazy to try. What is does do is form a uselful pretext for Tory political desires to spend money on projects for their mates and supporters and cut spending to where it might be socially useful. It's just an idealogy.

But that's not true in Britain where you can actually not pay a penny in NIC for your entire working life, yet still qualify for the same state pension as someone who's paid thousands every year.
Theoretically possible - how much does it actually happen?

Britain was 2 days away from famine before that debt was secured from the USA after the war. So some debts are essential.

@KenDodd

Most of the EU has something similar - you pay your NI and only if you pay enough in do you take out.

How does that work in practice though?

Let's say you're 18, you're pregnant and you've just been kicked out by your parents.
Or your living with a partner, not married, not working but at home with children, partner leaves, you have no income.
Or you're a student, age twenty, have an illness causing you to go blind and be unable to work.
Or you're an asylum seeker just arrived.

None of these cases would have contributed to a tax system, what happens to them?

I'm guessing the poster doesn't give a shit about those sort of people.

you seem to think debt is bad and should be eradicated when in fact we'd be crazy to try

I’ve obviously given the wrong impression then because I agree with you.

Show me a country with no debt and I'll show you a totalitarian regime.

Doesn't Norway have the worlds largest sovereign wealth fund? I've heard it's equivalent to 200k for every person in Norway?

The above is a question btw, not a statement. I've heard countries need debt for some reason, I can't remember the economics of why though? I know they're not like households or businesses and it's a mistake to treat them as such.

I am not wanting abolition of the state pension but it is very expensive and when it was set up people lived about 3 years after retirement and then died (eg average death age of women in my family over last 100 years is age 66 years. My mother made it to 75). Now people draw it for 30 years sometimes even more and it has that triple (or as currently in practice double) lock on it. I would keep the state pension as a universal entitlement which applies by the way only if you have 35 years of NI (including 10 years caring at home).

The problem is if you don''t have the 35 years of hard graft (I have worked full time since 1983 without even a break when i had my babies) (so in my case will be 44 years full time NI without a break by the time I reach 67) you get more not less money if you are badly off - you get pension credit and housing benefit. So those who chose never to work now get more than those who worked full time all their lives and bought a place so have no rent. It is very topsy turvy and tries to be all tihngs (contributory but also welfare state) to all people.

I have never said i don't want a welfare state but I do want one we can afford and which those who pay a lot of tax feel part of and take out from and pay into so we all feel in this together - that we slog away and still get child benefit, free university, state pension even if we are better off. When you strip what the better off get right away then they choose to work less, pay less tax, organise things within the law to pay less tax eg by working part time or working abroad etc. It is not as simple as tax the rich until the pips squeak and then there will be loads of money for the less well off.

When old age pensions were introduced the Tories opposed them (these are Times reports from the 1908)-
" the scheme was not contributory, it had the appearance of discouraging thrift" and "Did they, he asked, really propose to give pensions described as honourable
to men who had been dishonourable and pensions to all blackguards, or there must be an inquiry into character. He spoke strongly in favour of a contributory system on the German model…"

Nothing changes does it?

One thing I do know is that during my 40+ years of NI contributions, the rules for pensions have changed - often.

When I stated work employers could compel workers to join a company pension scheme.

State Pensions were low - and Thatcher had removed the previous Labour commitment to link them to increases in earnings - in 1986 we had an exceptionally cold winter but not quite cold enough to trigger the extra £5 to help with heating bills. John Major refused to intervene and allow the payments - until of all people, Thatcher forced him to as even she could see how damaging it was.

I don't want us to go back there just because rich people don't want to pay for anyone else.

I say that as a 40+ year net contributor by the mean-spirited and nasty measurements suggested on here - I really don't mind paying for oth people's pensions and at a decent level.

I don't think it is mean spirited to want state pension to be in line with pay eg many workers are on less pay than 10 years ago even allowing for inflation whereas pensioners have been protected.

I agree state pension and other pension rules have changed so much over time - so much you almost lose trust in them. I cashed my private one out at 55 to give HMRC a massive load of money taxed at 45% and my children money for housing. When I set that pensino up I could do that at age 50 but without my consent the state moved that to age 55 (and is changing the system yet again soon to make it age 57).

When I started work I could get a state pension at age 60 and now it is 67 years for me.

I don't think it is "rich people" objecting to a confiscatory tax on their savings or house equity. Rich people can easily ensure they don't have assets or a home here. It is middle earners who will be sadled with it, yet if I had not moved from the NE and put this exact house down back in Newcastle, a house I will never sell and is not an asset in any real sense, there might be no "mansion" (ie small London house) tax on it.

In fact the council tax on this house already allowing for inflation since I moved here is already been about £70,000 and stamp duty felt ridiculously high even in 1997.

I say that as a 40+ year net contributor by the mean-spirited and nasty measurements suggested on here - I really don't mind paying for oth people's pensions and at a decent level

I paid NI for 46 years for my state pension. It’s incredibly depressing to see people wanting to see pensions reduced - it’s £175.20 a week, which doesn’t feel excessive to me. And I too am happy to contribute towards other people’s. I’m a lot happier than I would be to subsidise someone earning six figures via child benefit.

i don't want us to go back there just because rich people don't want to pay for anyone else.

This is the issue though. One section of society are paying in but getting very little back therefore don’t feel part of the welfare state. The architects of the post war welfare state understood that in order for there to be buy in ie the higher earners agreeing to pay in, then everyone had to get something back. This is also how the Scandinavian countries and Germany’s systems work, and also why their citizens are happy to pay higher taxes to fund more state provision.

In the U.K. we lost this connection when we moved to a needs based system in the 1980s. This is why it’s now impossible to raise taxes because the 51 % of the population who are net contributors know that they get very little in return for those contributions and are therefore not going to vote for higher taxes.

the 51 % of the population who are net contributors know that they get very little in return for those contributions and are therefore not going to vote for higher taxes

They get plenty back - education for their kids, healthcare, police and fire services, roads, refuse collection, libraries. If they choose to use private education and healthcare that’s a choice they make. We could all list services we don’t use and query why we should pay for them but that isn’t how our society works.