AIBU Income Tax rise.

[H202too]

To be panicking about income tax rise.

Things are tight and to loae even £30-60 a month will be difficult.

I know people are talking about the mansion tax being a no go. But I would prefer this than taxing the workers as per usual.
The tax free rate should be put up. What a mess.

You can always sell, if inherited, any monies are gains.

Yes 40% does make it less profitable but insurances can take out the risk of poor tenants.

Given UK pop. is only going up and house building can never meet demand, prices over time will increase.

Not all are inherited. Yes, as I wrote, we will sell if they actually become loss-making rather than break-even.

And if I were paying 40% tax, it wouldn’t be quite so bad. DH (higher earner) pays tax on the rental income at 45% and has zero personal allowance. My rental income takes me into the doom loop zone of an effective rate of 62%. It’s very hard to avoid, because I also receive a (variable) bonus every year so I cannot be sure how much of my salary I would need to sink into my pension to ensure I was “only” taxed on rental income at 40%.

So it’s a shit deal all round. I’m doing it because disabled DS needs the help, but as ever with socialism, those who try to be more self-sufficient and responsible for their family’s care needs just get fucked over for ever more tax.

Price increases are regional. None of our properties are in the SE and prices are very much dependent on availability of local industry and employment in the rest of the country. It’s low risk in our specific circumstances but far from a totally safe bet.

No, they do not.

Very many are “rolling in it”.

For universal credit welfare a savings limit exists. This should be the case for state pension welfare, also. Paying people £1000+ per month in welfare when they have sufficient assets or income to support themselves is not viable, realistic or a reasonable expectation. Like anyone else, if they are cash poor and asset rich and need cash then they need to sell some assets and convert them into cash, not claim benefits.

That’s not “Mumsnet wisdom”, it’s an established economic fact.

The income test would work - as in Australia - with an asset test as well. As with some other benefits, an imputed income from asset values can be used to show what level of income the assets should be generating. There’s no other way for it to work with the move now to DC pension schemes where withdrawals are flexible, otherwise people could continue to hoard assets and claim welfare they don’t need.

It’s not a very onerous assessment process and works fine in Australia. It’s well-established and generally supported by the public as a good system that supports the poorest and avoids wasting tens of billions per year on welfare to people who categorically do not require it. We can set the limits generously, there is a gradual taper not a cliff-edge. Unlike other tapers in the tax system it won’t have any statistically significant impact on economic growth at all because retirees aren’t working or starting businesses, on the whole. It won’t leave a single pensioner in poverty.

But no, pensioners should not be allowed to rattle around in a property 5 times the size they need at the public expense of paying their living costs when they could move to somewhere smaller and pay their costs themselves. Neither should they be able to sit on hundreds of thousands of pounds in savings for potential care costs (which only a small percentage will require) while living off the tax payer.

Care is precisely the kind of system which it makes sense to fund with a compulsory national savings model. I’d suggest that for the long-term alongside pensions there is a hypothecated amount that all employees or self-employed people are required to pay from earnings that goes into a specific fund for that individual, to save for potential care costs for the future (and that this amount - if unused - can be left free of IHT or other taxes to descendants so it isn’t used as another way to rip people off and they can see it is for their own benefit). This will avoid future demographic issues arising from a ponzi scheme system - pertinent given the falling birth rate. As for those already retired, I’m afraid it’s on them for not having reformed the systems to avoid the demographic time-bomb during their working lives, as the Australians of the same age did…

I would suggest NI on pension income is introduced for those who have already retired, and at a higher rate than the working population pay (to make up for the shortfall in taxes that they paid in working life) and applied to investment income as well as earnings/ private pension income, and that this specific money is kept in a separate fund and invested so that it will grow and used as a combined fund to fund care for retirees until such time as the system in the above paragraph comes to fruition so that everyone retiring has a significant dedicated personal care fund saved up.

Then the level of NI on pensioners can be gradually reduced as these personal funds taken over provision, obviously throughout with the state providing a backstop but only in cases where the person was either severely disabled and unable to work during their working life or has exhausted their personal fund.

Again, the solutions are long-term and won’t be palatable to the most entitled generation in history, but we cannot continue to have our young people’s futures (and those of all subsequent generations) destroyed just to please retirees who really like their 5 bedroom house which they live in alone. Like everyone else, if their assets are relatively illiquid and they don’t have enough money to cover day to day living costs then they need to take some responsibility and sell some of those assets and convert them into cash, not expect people who are, mostly, much poorer than they are to subsidise their living costs.

Ironically they’re the same ones often preaching about “personal responsibility”.

You really couldn’t make it up.

Nail on the head. The taxpayer can't keep paying benefits such as state pensions to people who don't need it. Even moreso when the taxpayer is on lower income and has lower assets that the pensioners they're paying tax to subsidise!

Yes, it has been the case since the beginning of time that people say they are happy to pay more tax for better services. But what they actually mean is that others should pay more tax, not them!

The fact is, as you say, better services mean taxing everyone more, not just those paying 45%. As we have seen already, higher tax rates in the UK mean people work less, and even higher rates in Scotland have pushed some of those who can over the border to England.

Nail on the head. THE real problem is too many people paying barely any tax at all, and too many people taking benefits they don't actually need, and too few people actually working as much/as hard as they could. Taxing the rich even more will not be the magic bullet that some people think it is.

Thank you, but no way I would ever become a politician!

I’ll advise them on economic strategy if they want…

We just need someone sensible who does want to be a politician to articulate this. Sadly, the Venn diagram showing “economically literate” and “politician” appears to have no overlap at all.

I can’t recall all your points but many are not to the left. Perhaps some are I can’t remember.

It would take a centre right politician for many of them.

Only on MN does saving for personal future responsibility = hoarding

That is not what I said.

Saving for the future is essential and part of the problem the country has actually is that many retirees neglected to do so.

Meanwhile, claiming state welfare when you are perfectly capable of supporting yourself, and crippling any prospect of productive investment in the economy as a result, is also not acceptable.

If you have significant savings and assets then you are not in need of state welfare that the country cannot afford. Savings are surplus money for a rainy day, not something you get to squirrel away while claiming welfare that needs to instead be invested in education, infrastructure and a proper industrial strategy so that living standards for the generations behind you don’t fall in perpetuity. If you can’t cover your day to day living costs without welfare, it’s time to use your savings.

My proposed solutions are not “left” or “right”.

They are based on economic evidence of what works to increase growth and productivity and, therefore, can enable rising living standards. This is the only way to do so.

Some of what I proposed might be considered left wing or right wing by various people depending on their particular political views. I reject this categorisation; it is artificial and nonsense as far as I’m concerned. This polarisation of views and squabbling about irrelevancies is what has got us here and what will continue the decline if people do not, instead, focus on the economic issues and how to improve them, regardless of whether all measures do/ do not fit with their personal preferences.

So how do you propose to encourage saving when someone who chose to holiday, eat out and generally live the good life, rather than prioritise saving, qualifies for the state pension and others who saved, rather than do those things, means they don't ? - where is the incentive?

To save your searching for it:

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 baseload 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.

Some would be things that people who consider themselves “left wing” would support, some would be things people who consider themselves to be “right wing” would support. I reject this entire categorisation of people as pointless and irrelevant if people actually wish to see any improvement. You won’t personally benefit from or agree with every single measure in a coherent and effective policy programme.

This was written off the top of my head so surely, given this is their day job, MPs with all of their advisors and plenty of economists like me at their disposal to advise them should be capable of coming up with a prospective policy plan that actually makes sense and has a prospect of working? It is not about “left” or “right”, it’s about stopping that damaging and self-destructive polarisation and putting forward evidenced-based policies that will actually raise economic growth and productivity and, therefore, living standards.

Part of the problem we have is that the UK electorate is unwilling even to engage with discussing viable policy solutions or accepting reality because they are so entrenched in their personal beliefs and political views and mistakenly associate this with what effective economic policy will look like.

See my earlier posts: cutting state pension welfare to those who do not need it would enable auto-enrolment to be made mandatory (with significantly raised contribution levels for both employers and employees) and a similar mandatory scheme for the self-employed alongside tax cuts to make this fiscally neutral. And guard against the effect of future demographic changes because it isn’t a ponzi scheme.

I.e. there will be no choice but for people to save for their own retirements.

Meanwhile, it’ll also leave further tens of billions of pounds per year currently paid out on completely unnecessary welfare payments which can be invested in the productive economy (infrastructure, industrial policy and education) to generate growth and higher productivity (therefore rising living standards and tax revenues).

I.e. tax cuts could be put in place to ensure higher mandatory contributions to individual schemes without this costing employers or employees any more than they pay now.

AND leave many tens of billions per year left over to invest in cash-starved and productive spending.

It’s time for the younger generations to have a sustainable system put in place, which the current generation of retirees should have put in place decades ago. They have extracted far more than they ever paid, sold off public infrastructure and run it into the ground, voted for tax cuts for themselves, during the longest and biggest boom period in economic history. The piper now needs to be paid and they need to cough up and cease strangling the country’s future.

@222daysthat may be so but that’s politics for you. A division between the policies and the politicians.

The problem with this is it will be decades upon decades in the making and requires a mentality and responsibility that no longer exists in the UK. If implemented tomorrow why should those who have already made responsible choices be penalised in the meantime? The ever ballooning welfare bill needs tackling before or whilst you implement this. Appreciate you have made viable suggestions for everything but disability benefits but surely, in the absence of anything else, even more people will try and access disability benefits, diluting what's there for those that truly need it.

No, it can be enacted instantly. And needs to be.

It won’t, though. So the decline will continue.

Precisely. Hence the situation.

People are doing that because the economy is a mess. If you look at the distribution the proportion of people claiming disability benefits in economically affluent areas is pretty low and in line with what we would expect based on the number of people genuinely so incapacitated that they need to do so.

In areas where there are no jobs, no economic hope, poor educational levels, little prospect of people bettering their own circumstances, far higher proportions of people are claiming them. In some cases e.g. parts of Blackpool, over 50% of the working-aged population is doing so.

This needs to be tackled, as I said, with a proper industrial strategy, investment in infrastructure and education. If people have hope of bettering their circumstances and see others around them doing that they will want to do that, not live a life on welfare unnecessarily. Meanwhile of course enforcement action should be focused on the areas of the country where it is quite clear there are numerous people claiming that shouldn’t be - and this will in turn enable us to increase the level of disability benefits to a liveable amount for those who are genuinely disabled, more in line with other comparable countries - but this must be combined with investment in the productive economy so that there is a viable alternative for people with some hope for the future. Alongside this, we need much better education in trades and technical skills with proper apprenticeships linked through businesses with the skills that they require, far more support for start-ups, a taxation and business environment conducive to business and investment, grants for small businesses, far more support also for R&D like in the US etc. And to repair the self-inflicted damage to our trading relationships which have trashed the ability of many small and medium-sized businesses (which make up over 50% of GDP) to export, support with the paperwork to do so to avoid pointlessly replicated effort across the economy, provide hubs to provide advice for entrepreneurs on how to establish a business and complete the legal compliance processes and raise capital etc…

Yes, people need to help themselves. Most would want to do so if they saw it as a viable and realistic option. The Government’s job is to create an environment where it is.

Well, the ironically titled 'Labour' government could start by making it more attractive for small businesses and sole traders to take on and train the tax payers of the future. What with the NI rise, NWM and Rayners Workers Rights they have done exactly the opposite as far as manual apprenticeships go. It should not cost employers, prepared to train, anything to give the actual workers of the future adequate skills - they should be paid to do so.

I agree. Hence the proposals that I made for reforms to education, tax, industrial policy, etc.

We have had a succession of Governments with no viable industrial policy or joined-up coherent economic plan with a hope of raising productivity or living standards. The current one is simply the latest one in a procession of clueless idiots.

The electorate needs to wise up and demand change and competent economic policy and stop buying cakeist fairy tales. Sadly, I highly doubt that it will do so because based on the latest polls it seems determined to vote for the next Government to be even more incompetent and accelerate the doom loop into a drop at terminal velocity with no parachute. Some people are very slow learners.