Whitehall “braced for private schools collapse” 6

[ICouldBeVioletSky]

Continuation of previous threads to discuss VAT on independent school fees.

Talking of Norway, there is considerably less wealth inequality there, so obviously it’s easier for everyone to contribute a more even share and everyone to have a clearer idea of who is genuinely contributing in some way to society, rather than knowing who is simply more wealthy. The ridiculous tax and benefits system is a desperate attempt to paper over the cracks of grotesque and unjustifiable inequalities, and an attempt to deal with the fact we have an ageing, unhealthy population that is increasingly made up of people over retirement age, and which would still be expensive to maintain even if the entire working age population were fit and gainfully employed. Countries where the inequalities are not grotesque don’t have to twist themselves into quite so many knots effectively trying to redistribute the wealth, because it’s more fairly distributed in the first place.

Unfortunately, attempts to redistribute the wealth in the UK are not working, they are just forcing down the quality of life of the middle classes, making work seem onerous and unrewarding, and enabling the genuinely wealthy, whose income is not solely or even partly derived from a salary, to become ever richer still, so exacerbating rather than fixing the problem.

@strawberrybubblegum ,

‘But given the relative numbers, the only way to meaningfully increase the money available for state services is for that majority to pay their share, instead of siphoning it from a tiny, unpopular portion of the population.’

Isn’t a better way of looking at this what percentage tax is being paid out of disposable income and if you are left enough to have any sort of a life?

Fuel prices , which are not only taxed but also pushed up in price by a dubious pricing mechanism act as a subsidy for the ‘tiny unpopular’ section of the population (energy share prices, unlosable EIS schemes for green power etc). The TV licence and alcohol duties are also both massive taxes on the portion of the population who can afford it the least.

And we could also talk about QE and zero interest rates which again took from the poorest in terms of inflation and low yield on gilt investments (which most basic pensions have) and gave to the richest in terms of inflated house and financial investment prices.

Effective taxes and benefits are far more complex than simply looking at tax rates.

Isn’t a better way of looking at this what percentage tax is being paid out of disposable income and if you are left enough to have any sort of a life?

There are many different ways of looking at it - which is why we have different political parties!

In the end everyone is trying to find the best balance between maximising how much 'value' is produced in the UK (by encouraging higher and more efficient work participation - which includes work incentives, private/state investment, managing our international trading context etc) versus how we share out the 'value' created (in accordance to how the person contributed to the value creation - through both work and investment capital. And also our desire for everyone to have at least a minimum standard of living).

The two are certainly inter-dependent, and sometimes opposed, since how we share out the 'produced value' changes behaviour. In particular, excessively 'equal' sharing - with no consideration to contribution (whether work or capital - capital basically being delayed consumption) - reduces what is produced. We saw this play out with plummeting living standards in every single communist government there has ever been.

My political opinion favours maximising the value created - since then there's more to share out. And also favours a strong connection to contribution when sharing out the 'created value', rather than sharing it equally regardless of contribution. I believe that works best.

But people have different opinions on where the 'sweet spot' is, and also on how to get there. That's basically politics.

I do think it's a shame that politics has become so adversarial, and so populist. Populist 'othering' harms social harmony, and leads to poor policy. The best political policies come from considering many perspectives, and seeking the very best solution (according to your own values!) instead of being tribal. It feels like we've moved far from that.

The thing is, capital wealth is so fiercely protected, it’s easy to accumulate and multiply it without any personal effort or suffering whatsoever. People have been protected from the risks of capital investment, but not so well protected from a cutthroat job market.

@strawberrybubblegum ,

Fundamentally I agree with a lot of your last post. I agree about what politics is and that people on either side seem to think it is a solved problem, rather than an ongoing discussion between different views, both of which can be rational.

‘The two are certainly inter-dependent, and sometimes opposed, since how we share out the 'produced value' changes behaviour. In particular, excessively 'equal' sharing - with no consideration to contribution (whether work or capital - capital basically being delayed consumption) - reduces what is produced. We saw this play out with plummeting living standards in every single communist government there has ever been.
My political opinion favours maximising the value created - since then there's more to share out. And also favours a strong connection to contribution when sharing out the 'created value', rather than sharing it equally regardless of contribution. I believe that works best.’

Communism has totally been proved not to be the sweet spot but capitalism as it is today has also not fared that well. As I have said in a previous post, we don’t really have capitalism, we have crony capitalism, and that is increasingly getting worse. Banking has produced very little value to the economy, including the collapse, and yet bankers are still one of the best paid professions. And look at those who run the privatised water companies, where the board still take millions as they deliver no value and still pollute our rivers.

‘My political opinion favours maximising the value created - since then there's more to share out. And also favours a strong connection to contribution when sharing out the 'created value', rather than sharing it equally regardless of contribution. I believe that works best.‘

I think everyone wants to maximise the value created but no one can agree how to do it! I have left wing friends, one who has lectured in economics, who insist redistribution is the best way to maximise value as the poor spend a higher proportion of their marginal extra income (and some other arguments) and I have an equally blinkered right wing friend who argues simultaneously for the animal spirits of capitalism and the bank bailout.

Also, and most importantly, it is hard to value the value created by teachers, doctors, nurses etc, as well as the non monetary value of a more homogeneous society (they are certainly happier on average).

But, where you are absolutely right is that we have two rather blinkered polar narratives whereas the truth lies somewhere in the middle-and that is politics!

That is not true. I work very hard to maximise the little savings I have to keep reinvesting it at the highest bond interest rate available. If I had 10 million in the bank, it would be a full time job investing it really well. Sure I could just pay some fund managers, but that is not what rich people do. Most of them manage their investments (including property) very actively like hours a week at the very least. Money does not just grow on trees. You have to work at it. It may look passive from the outside, but even buying property, building a house etc - it is all effort. You cannot just sit there.

capital wealth is so fiercely protected, it’s easy to accumulate and multiply it

That's the asset spiral Gary Stevenson talks about, which he proposes a wealth tax to combat.

It's true that excessive accumulation of capital can stifle productivity, and there's a balance to be found in taxation.

But all investment - not only financial - returns dividends over time. That is forgotten by these anti-capitaliats.

If someone uses their ability, energy and time in years of training and a tough career, they will earn more than they spend and they can invest. Their family will enjoy the financial dividends in future years..

If someone decides not to work, and uses their energy and skills to develop their children, then those children will become more capable and emotionally able. Their family will benefit from the emotional growth and better future opportunities of those children in future years.

If someone uses their strength, skill and time to build a beautiful garden with fruit trees, then their family will benefit from a lovely environment and fruit every year.

Why should the first (financial) type of dividend be seen as fair game - everyone thinks they are entitled to a piece of it - when the other types of dividend accrue only to that family? That's just not fair.

This narrative of 'capital: bad, not fair' is simply wrong. Capital is the result of someone's hard work - and delayed consumption - and it's right that they and their family should be the ones to benefit from it.

I still find it ironic that as a future pensioner, a person will want to maximise corporate profits and returns to shareholders. As an employee, a person will want a fairer share of any profits resulting from their contribution to the business and less to go to shareholders (pension funds…) and CEOs. As a citizen, a person will want business to have more of a social, environmental and societal conscience and to actively protect or enhance these things, instead of focusing on profit to the detriment of these other concerns, because quality of life cannot ultimately exist in a polluted, degraded and divided society, where the harms caused by profit-making activity are greater than the benefits gained from the profits made. Individual voters therefore have split personalities… To protect the pension fund, to protect the worker, to protect the planet, or to protect the specific community we live in - and how on earth to achieve a balance where one or the other is not massively over-exploited.

Laws and regulations are in place to protect all the stakeholders in your example @Walkaround - including the banks lending money to businesses so they can grow more, create more employment etc - the idea is progress and that everyone gets a more comfortable and easier life.
Look whilst everyone doom mongers and humans have become too competitive with each other and jealous in some cases, overall life is so much easier than it was even 50 years ago. On demand shopping, entertainment, travel, foreign foods, massive progress in healthcare etc.
If anything humans have become entitled and lazy expecting others to do for them, across society that is.

IMO the sweet spot in terms of distribution of wealth can be found by looking at countries, which are happier.

Laws and regulations are currently doing a very poor job of it, @Araminta1003. And yes, people have become more self-centred, but it is clear that, whilst life in some ways is easier now than it was 50-years ago, in other ways it is worse, unhealthier, and with a genuinely less positive outlook. If that were not the case, you wouldn’t be complaining about VAT on school fees and advising your children to leave the country.

Many things feed into happiness, and not all of them can be re-created easily.

The UK is ranked 23rd out of 147 countries in the world happiness rating, which is pretty good to be honest.

Do you think that Sierra Leone (4th from the bottom) could replicate the UK's happiness level by emulating our economic model?

The problem is that the low and middle income earners do not have any income to spare, they are financially stretched . So to raise taxes on then you would see more pull on benefits eg as rents become unaffordable and people become homeless etc at great state expense. I don’t disagree in principle- but at the moment the high earners are the only group who can be taxed more.

@Walkaround - yes I am most definitely advising my children to leave. As a Londoner, we identify more with other European Cities than we do with much of the rest of England. And we have been bled dry for nothing in return. One of my kids wanted to go to a specialist music school and we qualify for nothing and are expected to pay VAT on top! In most other European countries, we would get something back. So out of principle, we will leave, all of us. However, there are plenty of people all over the world willing to take our place. It just so happens that managing to get Irish citizenship back means we qualify for a better life elsewhere, that is particular to our circumstances. So what. We have been massive contributors during our working lives so it is not like we have not contributed massively. But I am not willing to sacrifice my children to that as well.

So obviously our family will never end up paying VAT on any school fees, but the VAT policy is the straw that broke the camel’s back for us. There will be no revenue from us on it and there will likely be millions lost in tax revenues over the life time of 4 people. Let’s hope we are a very small minority.

@Araminta1003 - I find thinking where to invest my capital next tiresome, but the effort of moving it around is minute compared to an actual job. It’s like comparing gas and electricity providers and insurance products - just tiresome housekeeping tasks for those lucky enough to have money to play with. Of course, the truly wealthy can afford to take big risks for big rewards, create investment vehicles and shell companies to hide ownership, and keep money offshore, safe from the taxman, and of course it’s time consuming to avoid tax and maximise massive investments, it’s just not always good for anyone but the wealthy person doing it and their personal advisers. There is, after all, a limit to how much any one person can consume, however hard they try to get through their billions, and it is not true that all billionnaires are busy putting all their money to genuinely good use. Money can do harm just as much as money can do good, and vast amounts of money in a tiny number of hands creates massive power imbalances that are harmful for everyone.

Even those who are ordinarily wealthy have heavily protected assets - eg an owned home can be protected from funding care fees and inherited; up to £20k per year can be invested in ISAs which over many years can balloon in size, all tax free; anyone, even a person not in employment, can put money into a pension fund and have a top up from the government as a reward; there are financial compensation schemes up to £85k in regulated banks (not £85k protection per person, but per bank); there are compensation schemes when mainstream fund managers go rogue (eg Woodford); there is quantitative easing to stop everything going belly up, thus ultimately rewarding greed and stupidity in a bid to avoid everyone suffering the logical consequences of the behaviour which preceded it. Yes, of course these protections (except the last) encourage behaviours that are worth encouraging, because they encourage relatively ordinary people to save and invest for the future. It would be helpful if the people benefiting from the protections and benefits remember they exist, though, rather than claiming not to be getting any benefits.

@Walkaround - I do not think people who have to pay for care home fees will be sticking around en masse in 20-30 years time when you can go to other countries and access better quality and much cheaper care. If you stay here, they will simply make you pay yet again for those who supposedly cannot afford to pay for themselves. That is very much the established thinking here now across everything, so another reason to make sure my DCs leave whilst they are young and productive.

With climate change, I’m not sure where I’d fancy retiring to where I can get cheap labour for my care. I suspect I’ll opt for the cheaper suicide pills they’ll start doling out for anyone who reaches the age of 67 in poor health and financial circumstances, or 80 if in better personal wealth and health. 😉

@Araminta1003 ,

You always say you are leaving and yet you never say where you are going or what types of school your children are going to transition into for the next phase of their education.

I will wager you will still be on MN threads in two years time saying how awful it is here and how you and your family are leaving!

Most people don’t just up sticks and leave, especially if they have decent opportunities here. Yes, there are the ‘people of the world’ class who are always flipping from country to country looking for the best lifestyle and the lowest tax, but they generally aren’t worried about 10s of thousands (or even hundreds of thousands).

Yes and what I find astounding is the privilege in saying ‘I will just leave’ when what they are railing against is just so minor compared to what so many other families are experiencing right now - despite being well educated, working hard. Opportunities are not fair and the whole point of this policy is to try and very slightly even out the playing field and make life better for the majority.

@Countrylife2002 - we cannot afford to stay. I am not having a second child not be able to fulfil their musical ambitions. So once he is 16, we will leave. Helps the net migration figures anyway and that is all that most politicians here seem to care about anyway. This country got a really good deal out of us. We are the losers here, not the other way around.

@strawberrybubblegum
I agree with you on most of the things you have said about VAT on school fees. Redistribution of wealth by taxing parents irrespective of their actual income is s problem. I think income tax is much fairer.
I agree that we should also value people who create value in whatever form that takes.
You are right that Sri Lanka probably can't emulate our economic model. However, it is probably in our power to emulate Finland and Denmark, the happiest countries on the world. Big disparities in wealth can lead to high crime rates and a fractured society.
See the patriotic millionaire's website showing that some rich people do think there should be some redistribution of wealth.
The tax system needs to find the right balance between encouraging people to create economic value and protecting the poor. I would hate for us to be like the US with huge wealth disparities and hardly any welfare support or to have a crime rate like the US or South Africa.

“Most people don’t just up sticks and leave, especially if they have decent opportunities here. Yes, there are the ‘people of the world’ class who are always flipping from country to country looking for the best lifestyle and the lowest tax, but they generally aren’t worried about 10s of thousands (or even hundreds of thousands).”

@Newbutoldfather - not sure who you are friends with but I have friends all over Europe, the Middle East, Singapore, Hong Kong, Australia etc, who are happy they left. And they are all middle class, not massively rich, certainly miss a few thousand here and there.

My brother already left for Zurich years back and one of my kids is there studying at the ETH for virtually free, gets paid 35 pounds an hour for their uni part time job in a tech company and will get a free exchange with MIT. Why would he stay here. For what exactly.
Personally, I would like to go to Copenhagen or Vienna for at least a few years. If I have to top my earning up after a stint in the Middle East, that is fine too. Life is too short to be exploited by British politics of envy and populism. I would also happily be shipped off to Thailand to a care home. Healthcare and dental care is actually quite good there.

’the whole point of this policy is to try and very slightly even out the playing field and make life better for the majority.’
The point is to damage the independent school sector, close schools and reduce parents access to non state education options. ‘Even out the playing field’ does sound better than crabs in a bucket though.

Or maybe the point is to send a number of successful international people packing who paid a lot of tax but took supposedly British jobs? If I look around here in London, many of the kids in private schools have parents (usually at least one, often two) born abroad anyway, same is true for most grammar schools now. Perhaps these people are just all considered too aspirational/privileged. How dare they! Better send them off packing. And all those private schools teachers too.