Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a1059440

Chancellor tipped to cut pension tax relief to help young

Pension tax relief could be cut for older workers to fund tax cuts for the younger generation as part of government’s effort to win back support from Labour.

 
Chancellor tipped to cut pension tax relief to help young
 

Pension tax relief could be cut for older workers to fund tax cuts for the young, as part of the chancellor’s plan to win over the younger generation, according to reports today.

According to The Daily Telegraph, No 10 is considering cutting national insurance contributions (NIC) for workers in their 20s and 30s. This would be funded by reducing pensions tax relief for older earners, it said.

Such a policy would closely resemble an age-based pension tax relief system first talked about by investment broker Hargreaves Lansdown last September.

Under Hargreaves' model tax relief, or more accurately a government top-up, for employee contributions on defined contributions pensions would be calculated as 100% of the money put in minus the individual’s age.

For a 26 year old, for every £10 they put into a pension, they would get £7.40 from the government.

According to the Telegraph’s report this morning, the chancellor will use his 22 November Budget to ‘restack the deck for the next generation'.

George Freeman, the head of the Prime Minister’s policy unit, told the paper: ‘We need to look at a new model of saving for a generation who will not benefit from the post-war model of national insurance.’

This will be Hammond's second major Budget set piece and second Budget in a year. He will hope any changes to NICs will fare better than his attempt in the Spring Budget to increase class 4 contributions, which ran against a manifesto pledge not to raise NICs at all.

Changes to the pension tax relief system in the Budget were tipped by former pensions minister and Royal London director of policy, Steve Webb, who claimed in September that cuts were a near certainty.

Speaking at the Chartered Institute of Securities & Investment’s annual financial planning conference Webb said: ‘ Hammond’s got to raise all the money he hasn’t raised, plus the economy is slowing, plus the spending pressure.

'He’s a few months after a disastrous election, so he’s unlikely to raise the headline rates of income tax, national insurance or VAT, so where’s he going to look for money? Tax relief on pensions.'

However, reports suggest a cut to older worker’s pension tax relief is just one option in a more general ambition to link tax to age and help out younger workers.

Last year Nigel Wilson, chief executive of pension and investment provider Legal & General, said the pension tax relief system was unfair on the young and unsustainable. 

He said: 'Providing such generous relief to the older generation is simply intergenerationally unfair. Especially as that generation will be a huge drain on NHS resources.' 

39 comments so far. Why not have your say?

Drogue

Oct 16, 2017 at 10:55

Those of us old enough to have paid the 15% inflation, gone through the expensive costs of borrowing, wage restraint etc. cannot remember the chancellors of the time rallying around to support the younger generation in their time of need.

The same people who went through that era of high cost borrowing are now to quote " 'Providing such generous relief to the older generation is simply intergenerationally unfair. Especially as that generation will be a huge drain on NHS resources.' However fair or unfair I have a feeling that the conservative government in trying to woo younger voters have decided to write off the "silver voters".

Best of luck and lets see what happens in an election

report this

S_M

Oct 16, 2017 at 11:24

Totally agree Drogue, as a Conservative voter all my life I have never felt so disenfranchised with an incumbent Tory government. They seem to forget that we had to endure a property crash, with negative equity and sky high interest rates.

Now because some of us have had the good fortune to benefit from rising house prices they are not happy to just tax us once but seem to want to come back for a second bite of the cherry.

What ever happened to the phrase work hard and prosper.......

report this

jvl

Oct 16, 2017 at 11:28

The Conservatives seem to think that their core voters will still vote for them because they don't have a choice with the other two main parties being so left-wing and even worse.

But I think that they're alienating them so much and going so far left that a lot of their usual support will actually decide to vote for Corbyn, not just out of anger but because it might be better to endure 4-5 years of chaos just to get a proper Conservative party and choice back at the end of it (assuming election loss gets them to wake up and change).

We don't want a choice between left, left and left!

report this

Drogue

Oct 16, 2017 at 11:39

Likewise, I have most times been a conservative voter, but recently their campaigns are anti their silver voters and desperate for the young vote.

For one I would consider voting for Corbyn just to show the labour cheerleaders how untruthful the story has been. Let us see how the Corbyn/MacDonnell promises stack up with the shadown cabinet of the trades union leaders pulling the strings.

This is off piste I realise, but am so annoyed at the current conservative incompetance and disarray, and the lack of concern or empathy for their previous core suppoort. This latest item is perhaps the last straw.

Your time in the limelight Jeremy?

report this

Jon

Oct 16, 2017 at 13:39

Drogue - I think that you would be cutting off your nose to spite your face. With Corbyn we would end up half in and half out of the EU, paying the same with no rebate and no EU investment. Our borrowing would go ballistic with the Uk credit rating falling off a cliff. Pay demands would rocket with strikes and disruption. Inflation would go cazy, hitting those on fixed incomes. Taxes would rise to the point at which commerce would move abroad with a huge loss in jobs. Public services would be allowed to become even less efficient. Remember the Wilson Era.

report this

Al via mobile

Oct 16, 2017 at 13:59

While i sympathise withe the comments, I am terrified of a Corbyn victory. He is very likely to give 16 year olds the vote, and we can kiss goodbye to ever having a prudent government again, of left or right

report this

Chris Phillips

Oct 16, 2017 at 14:34

Foolish to chase younger voter - they've been brought up in a promiscuous culture that actively discourages loyalty, aided by the best-value-for-money websites. Older generation, whether through ignorance or inerta, tends to stick with the devil they know. Remember the debacle over the so-called dementia tax? Anything that adversely affects the older voter - housing, health, pensions - is the equivalent of scoring an own goal.

report this

Momoney via mobile

Oct 16, 2017 at 14:34

Beware wealth tax

report this

alex1490

Oct 16, 2017 at 15:05

Even as a lifelong conservative voter I have always considered the pension tax relief grossly unfair, the higher rate should be for the lower earners reducing when one hits the higher rate tax band.

report this

Jon

Oct 16, 2017 at 15:25

alex1490 - Well how would you work that when an employer or the taxpayer pays most of the contributions - often after the employee has retired when pensions are not funded and liabilities rocket with longer living ? Are you just going to hit the employees who have to fund their own pensions?

report this

Law Man

Oct 16, 2017 at 16:24

Chancellor scheme: unclear. Possibly cut employee NIC for those aged 30 or under, while cutting pension tax relief for all aged over 30 to 20%.

This does nothing to encourage pension saving; indeed, the reverse.

What about the self employed?

HL scheme: again unclear: possibly give pension tax relief for contributors aged 18 to 75 at a rate from 82% to 25%. This does not mean that young people will take this (incredibly valuable) relief. Many employed young people can afford little beyond a statutory minimum (which at present is too low).

It is all too complicated. How about:

1. Compulsory minimum contributions (employer & employee) of 10%, and

2. Flat rate tax relief of 30%?

report this

PeteDavis

Oct 16, 2017 at 18:15

S_M: "What ever happened to the phrase work hard and prosper......."

Good question! Ask a lot of 20-30 year olds today, and they'll say they're simply working hard to get by day-to-day, let alone prosper. How are you supposed to start a pension and save for a house deposit, when rent and bills takes so much from a monthly salary you essentially have nothing left to start with?

report this

bouleversee

Oct 16, 2017 at 18:41

All vague and half-baked as usual. My 2 self employed sprogs in mid to late forties have only started SIPPS this year so have had no tax relief so far and have a lot of catching up to do. One of them still earns considerably less than some graduates start at. What has age got to do with it?

The govt. would do better to do away with IHT relief on pension funds. Why should pensions get both tax relief on the way in and also after death when ISA contributiors get neither?

report this

Roger Savage

Oct 16, 2017 at 23:36

Intergenerational unfairness is nothing more than a construct of treacherous politicians, their donors and the media they have bought and paid for.

They alone have robbed and cheated the public and need a convenient smokescreen to divert attention away from themselves and their openly corrupt affiliations.

As just a small taste of their crimes that should see them all in the Tower, they have:

- Tolerated and funded a benefits culture for the lazy, abusing what should be a safety net to fuel the myth that such people are disadvantaged and hard done by (to buy votes)

- Liberalised and maintained cheap credit to fuel rampant, reckless, debt fuelled consumerism

- Destroyed communities with mass immigration to achieve their desire of suppressing wage growth, 'rubbing the middle classes noses in it' and importing votes

- Created a home for terrorism by abandoning anything that could be recognised as robust or responsible border controls so they can introduce an Orwellian surveillance state as an excuse to 'save us'

- Bailed out and enriched bankers and house builders who milk the public purse whilst rewarding themselves with excessive bonuses off the back of record profits from schemes like Help to Buy

The oldest members of British society that are alive today will have fought for freedoms and stability that they have wiped away by such actions.

The elderly have done *nothing* to create the perceived ills the young supposedly have to endure. When they were young, they would have found it much, much harder to acquire the luxuries young people take for granted today and the lifestyle choices they have.

I genuinely wonder how long it will be before a LibLabCon government suggests compulsory euthanasia of the elderly as a way of paying for their "sins". What is the point of anyone saving for a pension if you feel it will be robbed from you or taxed heavily in the future? This seems to be the way things are going.

Wake up people - divide and conquer is the game here - setting young against old (and vice versa).

The likes of Hammond apparently not being able to find money on one hand whilst extending billions of giveaways to party donating house builders feeding at the trough of the public purse so clearly stinks to high heaven. All whilst politicians reward themselves gold plated pensions taken from funds provided to them by the overtaxed people they want to rob of their pensions.

Total and utter sc*m.

report this

Alan Tonks

Oct 17, 2017 at 01:03

I will say this Roger, you have robbed me of the comment I was going to put, very well said and all so very true.

report this

S_M

Oct 17, 2017 at 07:46

Roger, a lot of what you say makes sense with the exception of the border controls for terrorists. The Americans have amongst the toughest immigration rules in the world, yet it didn't prevent 9/11 or the Boston bombing amongst other atrocities.

You also lose credibility when you start all of this "during the war" type of rhetoric. Don't forget for many centuries the British invaded large swathes of what we now call the Commonwealth. How you think the Indians felt about having "immigrants" in their country for many decades, leaving a mess of carnage and ethnic cleansing in both India and the newly formed Pakistan. The British, of course, washed their hands of the problem when they finally left in 1947.

Going back to the article, the Conservatives have to be very careful. You can't buy the younger vote, peoples allegiances change as their income grows and they realise how much Labour wastes taxpayers money.

Students have always been left wing, the only difference between today and previous generations is they have started to vote in large numbers. A big reason for the increased youth turnout at the last election surely has to do with the result of the EU referendum.

report this

Mr J

Oct 17, 2017 at 08:25

Roger some very good points but you lose it when you yourself put down the young because 'they didn't fight for freedomd' and 'take luxuries for granted'. Should the young start a war just so they can fight in it, which they surely would just as valiantly as your generation. The young have mobile phones and flat TVs but that is not their fault it's just technological progress. You had an inside toilet and a motor car whereas your predecessors had horses and holes in the ground.

Age related taxation is another bonkers idea that will just make the system costlier to run and more unfair.

report this

Drogue

Oct 17, 2017 at 08:41

S_M, Quote "A big reason for the increased youth turnout at the last election surely has to do with the result of the EU referendum". I would suggest that it had more to do with the perceived promise by Corbyn of reduced or cancelled student loans which would of course appeal. I reality Corbyn said it was an ambition.

report this

horshamtim

Oct 17, 2017 at 09:36

Any reference to pensions or taxing those with money tends to bring out the usual gang on Citywire.

Wake up and smell the coffee guys!

Even without any new giveaways in next month's budget, the UK is still running a deficit budget and building up more public debt and is projected to do so well into the next decade. This also doesn't include any ill-effects of Brexit or the likelihood that the next recession will come along within a few years. Once interest rates start rising our ability to pay the debt costs will be squeezed. Private debt is also rising and is now back at 2007/08 levels.

The reality is that collectively we have been living above our means for a very long time. Whatever Government is in power, and whoever the PM is, there is an increasingly desperate need to raise taxes. With OAPs (and I am one) now receiving over 2/3rds of the total benefit expenditure, and nearly half of the NHS funding, while at the same time holding a disproportionate share of the housing wealth and paying lower taxes than those under 65 (pensioners don't pay 12% NI), I am afraid the suggestion that intergenerational equity is an imaginary concept is close to being laughable.

To pay an even higher percentage of public budgets to go on care services on the elderly who have assets, simply so they can leave their money to their children, is likely to lose more votes than it gains. Due to the growing number of the over 85 group, this bill is anyway going to increase.

In the end to raise the kind of money needed for all of this, you have to look at the big income earners which are Income Tax, VAT, and NI. The obvious measures - hitting pension tax relief, reducing the tax free cash will hit those who have not retired more than those who already have. Taxing wealth is likely to yield more, as would merging Income Tax and NI - this would enable the basic rate to be dropped while increasing the yield by bringing the tax of all those better off pensioners like me into line with their working counterparts.

IHT is largely a distraction, as it yields much less. Changing the rules might bring a bit in at some point, but those who pay it are usually the ones who don't plan ahead - there are plenty of legitimate devices to reduce this. Besides when we have all finished paying for our care when very elderly, our estates are likely to be smaller anyway....

Bottom line - those of us who have got assets (whether earned, inherited or down to the luck of buying years ago in places like London) can expect to pay more over the next few years whoever is in power.

report this

S_M

Oct 17, 2017 at 10:56

Drogue, I disagree. Corbyn was around pre-referendum. A lot of younger voters are furious that we are leaving the EU. Corbyn hit the sweet spot by the promises he made with regards to tuition fees. I give younger people more credit than simply being seduced by this proposition alone.

report this

S_M

Oct 17, 2017 at 11:06

Horshamtim, the deficit wasn't caused by middle income earners who pay their share of tax throughout their working lives and embrace the principle of providing for their retirements. It also wasn't their fault that living in the South East has meant that a lot of them have significant property wealth. The blame for house prices lays on the door of successive governments who did nothing to curb speculation, both domestic and international in our housing stock.

As usual, the richest benefit from the advice of specialists the poorest sit on their backsides receiving handouts all their lives and the middle ground get pulverised by the chancellor time and time again.

I won't be voting Conservative in the next election or until they start representing people who actually want to make something of their lives, and not have it taken away. Luckily my cultural ties with India mean we don't dump our parents in homes but collectively look after as long as possible until their time comes. I appreciate it's not possible for everyone to do this, but perhaps the government should be offering a better deal for family carers rather than trying to tap into property wealth.

report this

Jon

Oct 17, 2017 at 14:12

Horshamtin - the deficit was wholly caused by Brown when he ramped up spending after the financial crisis even though he had not saved for a rainy day when GDP rose entirely due to increased borrowing - so the solution now is to put extra tax on all those who voted labour during the Blair/Brown years :-)

Our trade balance went well into the red during those same years, so the UK was not paying its way in the World. The Pound stayed far too high, and people had good pay rises when they should have had none given the true state of the economy. Brown pumped vast sums into the NHS with little to show for it other than GPs who could now comfortably live on part time working. Brown boasted of prosperity when the GDP net of increased borrowing was actually falling.

Brown also robbed pension funds and savers big time, not only by preventing the reclaim of tax credits, but also from the extra tax coming in on the increased spending of other people's money. Do not forget that HMRC take 30% from the average payroll, and when employees spend what is left it is taxed again, including VAT, and so on. So over the years, apart from what people spent on imports and foreign holidays, Brown received almost all of the borrowings which were never repaid. And with the crash, the shareholders (pension funds and savers) took the brunt of the losses. So taking the extra tax received less the cost of the bailout Brown made an overall hefty profit, Thus in effect the shareholders' wealth was taken by Brown.

So don't talk to me about taxing wealth. Older people with savings and pension funds have been well hit over the head already by underhand means. And now artificial Government interest rates are taking more from savings and making annuities meagre. My pension fund projections for an annuity fell over 60% as the direct result of Brown, the Financial Crisis and miminal interest rates.

So Horshamtim you need to understand all of this - Wealth IS being taxed and some.

report this

horshamtim

Oct 19, 2017 at 09:16

S_M I understand your feelings. Unfortunately on the latest figures, on average you have to be earning about £70k a year to be paying your way in terms of the tax you pay as compared to the benefits received over a lifetime. As this level of income puts someone in the top 5% of taxpayers, it follows that 95% of taxpayers and all the non-tax payers do not pay their way. I am afraid you have fallen for one of the enduring myths that have been encouraged by politicians. The reality is that the large bulk of the population receives more than they put in during their lifetimes. It is particularly ironic and deplorable that some of the most strident critics of the benefit culture are baby-boomer pensioners like me who are have been the biggest recipients of state funded benefits.

Over 30% of all Government expenditure now goes on the over-65s and that percentage is continue to rise due to the demographics. Given the squeeze on other programme areas since 2010, there are only three big ticket items left - pensioner benefits, the NHS, and Education. Once interest rates start rising the costs of servicing a public debt burden that has more than doubled since 2010 will make life even more difficult for any Government. At the current level of public debt every 1% rise in rates will ultimately add another £18BN a year to those costs. Debt servicing is now the 5th largest cost, and will overtake Defence in the near future (currently £2BN a year more).

To balance the books in anything like a foreseeable timescale requires either an axe to be taken to the three areas referred to above, or more taxation. There are no politically easy solutions.

The median salary in 2016 was £27,600 a year, the average estate on death is below £50k, about 85% of estates are worth less than the £325k basic threshold for IHT, and the average price of a house outside London and the South-East is worth less than £200k. In many areas in the North, houses are worth less in real terms than in 2008. In other words a lot of people regard themselves as middle earners, without realising compared to most of the population they are well off. It is to this section of the electorate that policies will be shaped to win forthcoming elections.

As I said, those of us who are in truth better off than the true middle earner need to realise what is coming. Wake up and smell the coffee.

report this

horshamtim

Oct 19, 2017 at 09:36

Jon - there isn't space here to deconstruct all your points. I produce a regular economic bulleting for an International Institute and go through all those tedious things like the detailed budget papers from the Treasury and OBR, as well as the respected organisations like IFS. Because my audience has no collective political slant, I try top keep it objective and I do my best to base everything I say on evidence, fact, and reason. Gordon Brown did not cause the deficit - initially at least he made good strides in reducing the deficit left by the previous Conservative Governments. For most of the population, the move on dividend tax credits was largely irrelevant, whatever you personally feel about it. The main drops in things like annuity levels have been caused by the demographic shifts on ageing, and ultra low interest rates post 2008.

If you look back over the 20th Century, Governments of all political complexions have run deficits for much of the time - and wars are particularly bad news in this respect. We have relied on foreign earnings and more lately North Sea Oil, to make up the difference - which is no longer working. We could have done what Norway did in creating a Sovereign Wealth Fund with our share of the North Sea Bonanza, which would have helped us through leaner times. We didn't - it was largely used to fuel tax cuts instead.

If you have assets worth more than £325k or earn more than £45k a year, you are in the top 15% of the population. You may not regard yourself as well off, but compared to the other 85%, you are.

report this

S_M

Oct 19, 2017 at 09:54

Horsham Tim, where did I say that 95% of taxpayers do not pay their way? Seems like you are suffering from a bit of confirmation bias.

A lot of middle earners do not earn £75,000, but that doesn't give the government the right to take a slice of the pie when it comes to property wealth that has been accrued out taxable income.

Why does someone who earns £50,000 average during their lifetime in London have to pay more for elderly care just because their house is worth more than £500k, when someone who earns £20,000 in Sunderland doesn't pay anywhere near the same amount because their property is worth £100k??!!

Whilst the differential in salary might seem great, the reality is with the cost of living in London being exponentially higher than other parts of the UK, the current rules do not in anyway treat Londoners fairly. And yet London, through its high tax take subsidises the rest of the country.

Cutting things like pension tax relief for middle earners, only stores up more problems further down the line for successive governments both in providing an adequate income in retirement. George Osborne must be given credit for encouraging people to save for their retirement through pension freedoms, but it seems as though the current bunch are just hell bent on destroying one of the few revolutionary pieces of retirement legislation passed in recent times.

With regards to the long-term care issue, as I said before it's a cultural thing as much as an economic one. Ethnic minorities look after their elderly, perhaps it's about time the indigenous Brits did the same.

PS I don't drink coffee I drink tea, and I have made adequate provisions for my old age thanks very much. I do feel sorry for those people who are not in such a fortunate position through no fault of their own.

report this

jvl

Oct 19, 2017 at 10:36

"Given the squeeze on other programme areas since 2010, there are only three big ticket items left - pensioner benefits, the NHS, and Education"

How about:

1. Housing benefit: roughly £30 billion

2. Tax credits: roughly £30 billion

3. Incapacity, disability & injury benefits: roughly £40 billion

4. Interest payments on debt: £50 billion

Means test things like heating allowances for pensioners. Stop subsidising housing and cut regulations so more are built, reducing prices, inequalities and housing benefit (and releasing capital for other more productive things). Keep on with common sense measures like the 'spare room subsidy' and checking abuse of disability benefits. Restrict low-quality immigration right now, deport more quickly. Introduce the public to the concept of linking tax with what they get by introducing an insurance system for health, like most civilised countries...

Plenty of sensible ideas to reduce spending. Just do it!

report this

horshamtim

Oct 19, 2017 at 11:09

jvl. I am afraid you are double counting - a large chunk of HB is paid to pensioners, similarly disability benefits, similarly Pension Credits. So what you are in fact suggesting is indeed cutting pensioner benefits. The only way we can cut interest payments is by reducing the national debt - which as I indicated is still increasing and will continue to do so for several years at least. With interest rates poised to start going up again, I would be interested in knowing exactly how anyone can cut those short of defaulting on repayments!

report this

horshamtim

Oct 19, 2017 at 11:36

s_m I am not sure you understand the point being made. You claimed in your earlier post that middle earners paid their share of the tax. My answer was that no they don't, in the sense that only 5% of earners pay in more in taxes than they get in benefits across their lives. The rest are subsidised to a greater or lesser extent.

On average you need to pay about £25k tax a year be about in balance. While no-one likes paying more taxes, in the end the Government has whatever rights Parliament votes through. While the differential costs of London are true - trying to explain to the bulk of the population elsewhere that somehow you are being hard done by is an increasingly difficult pitch. In the end it is about votes, and once both main parties believe that future electoral success is bound up with attracting the votes of the young and those who are within one standard deviation of the true middle in terms of earnings and wealth, then it is likely the policies will follow.

The gross earnings of those at the 75th percentile last year was £34,500 and those at the 25th percentile only £14,500 - so 50% of all UK earners fall within that range!

My clients range across the income spectrum - one of the difficulties is that most only look upwards and see those earning more than them and want a lifestyle they can't afford, rather than realise what they already have.

Going back to my original post this time, we are where we are because collectively we have been spending more for a long while than we earn, both in terms of public and private expenditure. The figures don't add up, so something will have to give. These may be things that both you and I don't like but as I say, wake up and smell the drink of your choice.

report this

bouleversee

Oct 19, 2017 at 12:12

Horshamtim -

"If you have assets worth more than £325k or earn more than £45k a year, you are in the top 15% of the population. You may not regard yourself as well off, but compared to the other 85%, you are."

That's debatable, depending on what you think is meant by being well off. If you live in the south, most of your wealth may be tied up in your house and most of your income going to pay your mortgage and associated housing expenses inc. Council Tax, fares, food and other basics. After tax, you may not have much left. Even if you are older and the mortgage is paid off, other costs are still higher than in the North and it can be easier to save on a somewhat lower income. The amount you may be able to afford to give to children or grandchildren towards their first house purchase will go a heck of a lot further in the north. Retirement flats and care homes in the south are a lot more expensive than in the north and if you try to stay in your own home, the outgoings, including garden help etc. will be a lot higher in the south. If you haven't spent most of your wealth on care by the time you die, the taxman will help himself to much of what is left. Is it any wonder that some people think they might as well spend their money on cruises, dining out etc. while they have the chance and then the state will have to provide when they run out? What a time bomb that is going to be.

The big mistake was to stop tax relief on mortgages for owner occupiers while continuing to allow it for buy-to-let.

The article pointed up many idiocies in our tax system but it omitted one: pension fundss, which have had tax relief on contributions, can be left to heirs free of IHT if death occurs before 70 and subject to personal tax rates of heirs if death occurs after 70, so if you leave your pension fund to your grandchildren, they could manage things so they paid little or no tax. If, however, you have an annuity or a final salary scheme, no such luck, and if you haven't had the opportunity to build up a pension fund but have paid into an ISA out of TAXED income, it will be subject to IHT along with any other assets. Perhaps Horshamtim could explain the logic and fairness of that one.

I don't mind paying my fair whack of taxes but so many of our tax laws are simply unfair and indeed downright stupid. Another example is tax during the administration period of an estate: 7.5% on dividends, 20% on interest, 20% on rents from property, 20% on capital gains, subject to an allowance of £11,300. Why the differentials, especially as interest rates are next to nothing now? Money is money and all income should be taxed at the same rate IMHO.

report this

Jon

Oct 19, 2017 at 13:02

horshamtim - you state that Brown did not cause the deficit !! Take a look at the ONS graphs of Treasury income and expenditure. After the financial crisis you will see that tax dipped only slightly as the banks made losses, but expenditire rocketed on an exponential curve, which levelled off and started to fall again under the Coalition and then present Government, but is still way above the inflation adjusted level of the Financial crisis spend.

You state that poor annuities were not really affected by the financial crisis. But, if you look at pension funds and many leading savings funds, they fell some 15% rather than any growth in the year following as most had large investments in banks. We know that annuity levels are based on fund values. And, furthermore, I previously illutrated how this loss of value was, in the long term, a transfer of wealth to the tax payer.

You admit that annuities are decreased by minimal interest rates. Such low rates reduce the cost of Government debt and subsidise mortgages for the younger people. So, in real terms there is a transfer of debt from older people whose pension funds are at a peak and who have savings, as well as drawing poor annuities should they decide to go on that route.

And the Brown Tax which has been running now for over 20 years has prevented pension and savings funds from reclaiming tax credits of around £100 billion over the years despite the fact that future income from these sources is taxed again.

The only improvement in older peole's portfolio is increased house prices, but these are of no benefit unless one is moving. And if the sale of a house increaases the estate passed on to the younger generation, then this effect is neutral between the generations apart from IHT.

These are facts, and I suggest that you are in denial if you try to dismiss these. The fact is that older wealthier people have been subsidising borrowers and the Government in so many ways through these hidden erosions their capital. You may produce an economic bulletin etc. but there are pleanty of "economists" who failed to see the financial crisis coming, who do not look at the big picture, and who ignore basic long term fundamentals.

The real problem is that the prductivity of the UK is falling. Emphasis is placed on GDP which is merely the level of spending - not waelth creation. Politicians and economists love greater consumer spending which is exactly the opposite of what should be happening. We need to encourage the population to save and invest in export creating industries and workers, reduce imports through a lower pound and encourage a culture of improvement in productivity and ownership by our workforce, rather than a belief that they are entitled to a rising standard of living and all the latest gizmos fashion and takeaways !!

report this

Mr J

Oct 20, 2017 at 01:25

I agree with a lot of what horshamtim says.

The fundamental problem however is the tendency to constantly take money from those that do the right thing to give to people and organizations that have done the wrong thing. It is the little red hen. Those that sowed the seeds, tended them for a lifetime, cut the crop, milled the grain, and baked the bread are then punished by being forced to give their hard won bread to those that did nothing but lie in the sun eating other people's bread all their lives.

I think we need to move to a system of lifetime allowances instead of annual ones. That way we would all know where we stand. A lifetime income tax allowance, say £500k, a lifetime isa allowance, say £400k, a lifetime capital gains allowance, say £300k. A lifetime dementia tax limit, say £100k. That would be better than the government arbitrarily dipping their grubby hands into your piggy bank anytime they feel like it.

I think most people are happy to see a progressive tax system, happy to pay for what the state provides, happy to help those in genuine need. What they don't want is a feckless state returning again and again to help themselves to yet more of the money they have strived and made self sacrifices to build up.

report this

Franco

Oct 21, 2017 at 13:48

Tinkering with age allowances is futile. What is destroying our society is the grotesque distribution of wealth we have brought about and which needs correcting. Therefore:-

Expand the tax free personal allowance to £40,000. Tax the rest of the income at 40% (the present higher rate) and compensate by a 1 % tax (or whatever) on stockmarket and land wealth above £5 mln. Simple and fair.

report this

Drogue

Oct 21, 2017 at 14:09

That would have been tube train drivers etc. looking for pay cuts. Where this financial idea from. Was it a good Friday night out?

report this

horshamtim

Oct 21, 2017 at 18:18

Boulerversee – a key point I was trying to get across was that it really isn’t about whether we individually feel well off. As indicated the evidence underpins the tendency to compare ourselves upwards with those who have more wealth or income. However when it gets to the point that we start asking others who have less to pay more taxes for our benefit, it is difficult to justify. If you are in the top 15% or higher, the large bulk of the population may struggle to see any fairness in such a proposal.

The surprise is not that the two main parties are now looking at more populist policies, but that it has taken this long to realise that focussing policy on ageing baby-boomers may not be a winning electoral strategy for the future.

As to our taxation system being unfair, over complicated and full of anomalies I entirely agree. A succession of Chancellors have fudged the big issues, added a few more tweaks of their own, and generally ended up benefiting tax lawyers rather than anyone else.

On the IHT front – again I would agree it is a badly constructed tax and the cliff edge nature of the threshold causes difficulties. Again rather than a sensible reform, the latest changes have made it more complicated, and again benefitting those who are in those top percentages. With the £100k addition, the number of estates that will pay anything is probably down to less than 10%. Given the various legitimate ways of reducing IHT liability, I hold by the line that it is largely a voluntary tax paid by those who have either not considered the impacts or have chosen to hold their wealth in a way that makes them more exposed. More to the point in the context of this debate it is a small earner, and of little impact.

NB The age at which pension beneficiaries have to pay tax at their marginal rate is 75 not 70.

report this

horshamtim

Oct 21, 2017 at 19:05

Jon – What can I say? I hope having the rant made you feel better. The two things that stood out were that you do not understand the difference between deficits and debt, and that you have an irrational dislike of Gordon Brown.

Gordon Brown did not cause the annual deficits that most Governments have been running since WW1, which have all added to the National Debt. GB was actually one of the few 20th Chancellors (in his Prudence period) who brought the deficits down. Another was Roy Jenkins, and he was widely blamed for having lost the 1970 election as a consequence.

GB did not cause the global financial crisis of 2007/08, and many think he was instrumental in persuading other Governments to intervene. If we had let RBS, HBOS, Northern Rock and others go into liquidation I share the common view that the problems would have been very much worse.

As to the Dividend Tax Credit issue – actually it helped him reduce the said deficit so you are being a tad inconsistent there. As a long term investor, it hurt a bit at the time, but frankly there have been a lot of other things that have been more testing – such as the market falls due to the bursting of the dot.com bubble. I am old enough to have invested through Black Monday – and the oil price fiasco of the ‘70s. In the end none of these things have made a long term impact, and for all those large majority who weren’t affected as they didn’t hold shares or have such pensions, frankly it is all pretty irrelevant now.

I agree that the current monetary policies have hit the real wealth of investors who hold cash and unwinding QE could be difficult. However these policies have improved the values of many other assets not just housing, and pushing people out of cash was one of its aims. On the evidence the proportion of housing and non-housing wealth held by the over 65s has increased both absolutely and relatively. In 2016 nearly 75% of all those retiring had occupational pensions and the like.

The millennials will struggle to get the same gains in housing, pension or other wealth –and the state pension will be available at a later age – if indeed it is still around. The unfunded liabilities for the current state pension would take the national debt over £3TN if the Government had to prepare its accounts in the same way as a PLC. Again it would be hard to blame GB for that, but I am sure you will have a go.

I come back to my original comment that for most of the population the issues of taxing wealth are a bit of a no-brainer. As I have said in reply to Boulerversee, it is a mistake to think that the grievances of those who are in truth well off compared to the large bulk of the population will get the sympathy of that majority, or even the continued support of the Government.

I do agree with you about the productivity issue (again difficult to blame GB for that either), and it is reasonable to argue that this one of the reasons why pay has been more or less stagnant. No-one really knows how to deal with this, and increasing automation may not prove to be the unalloyed boon some claim.

report this

Mark Stringer

Oct 21, 2017 at 21:53

Whatever anyone wants to call our collective national debt there is one certainty, it ain’t never getting repaid!,

Frankly the roots of this latest cobblers was planted in the 60’s with the government actuaries and others who had the figures extrapolated for demographics in UK.

The good old kick in the knackers had to be Maggot Thatcher and her blue sky thinkers who sold us what we already owned and kidded the proles that they could be capitalists without any cost to this country.

Blair/Broon did the same trick with education to keep the unemployment figures down and bribing the public sector , especially the so called mismanagement, with huge pay rises well beyond their abilities with the massive pension liabilities that continue today.

Our natural resources wasted by Maggot Thatcher to keep her in power aided and abetted by the testicle free vegetables in her cabinet apart from ego Hesletine who had his own agenda for his empire.

This tax nonsense won’t change a damned thing and is more tinkering. The next time a politician does anything useful unless they are throwing themselves off of a high building will be a first.

However the HRT for pensions is and has been in force for too long.

My advice to the yoof, ditch the world polluting Ryan Air hols, iPhones, ready meals, iPads, £35,000 useless degrees, £300 festivals and leased cars and accept that if you want it all then you are going to be disappointed.

Very few will actually ever vote to change things being tribal at heart.

As I told my MP who had the effrontery to walk down the private road I lived in looking for a vote “ why bother, if I put a blue rosette on my dog it would get voted in round here”. That can be extrapolated (word of the day) across the country.

We better get used to it, we will always be taxed unfairly,have it wasted and never do anything about it. By the time each generation realises they have been had it’s too late.

Still, at least the yoof won’t get rheumatism in their thumbs with all that texting.

report this

Mark Stringer

Oct 21, 2017 at 21:53

Whatever anyone wants to call our collective national debt there is one certainty, it ain’t never getting repaid!,

Frankly the roots of this latest cobblers was planted in the 60’s with the government actuaries and others who had the figures extrapolated for demographics in UK.

The good old kick in the knackers had to be Maggot Thatcher and her blue sky thinkers who sold us what we already owned and kidded the proles that they could be capitalists without any cost to this country.

Blair/Broon did the same trick with education to keep the unemployment figures down and bribing the public sector , especially the so called mismanagement, with huge pay rises well beyond their abilities with the massive pension liabilities that continue today.

Our natural resources wasted by Maggot Thatcher to keep her in power aided and abetted by the testicle free vegetables in her cabinet apart from ego Hesletine who had his own agenda for his empire.

This tax nonsense won’t change a damned thing and is more tinkering. The next time a politician does anything useful unless they are throwing themselves off of a high building will be a first.

However the HRT for pensions is and has been in force for too long.

My advice to the yoof, ditch the world polluting Ryan Air hols, iPhones, ready meals, iPads, £35,000 useless degrees, £300 festivals and leased cars and accept that if you want it all then you are going to be disappointed.

Very few will actually ever vote to change things being tribal at heart.

As I told my MP who had the effrontery to walk down the private road I lived in looking for a vote “ why bother, if I put a blue rosette on my dog it would get voted in round here”. That can be extrapolated (word of the day) across the country.

We better get used to it, we will always be taxed unfairly,have it wasted and never do anything about it. By the time each generation realises they have been had it’s too late.

Still, at least the yoof won’t get rheumatism in their thumbs with all that texting.

report this

Jon

Oct 22, 2017 at 10:40

horshamtim - I think that you have not read my post properly, as I never said that Brown caused the financial crisis, althogh the Blair government did encourage the bankers. I said that he caused the (annual) deficit as can clearly be seen by the ONS statistics. Thus the cumulative debt increases, although Brown did sell our gold reserves at a low price to reduce our cumulative deficit.

To brush out any other measures which hit pension and savings funds on the basis that it does not matter over time completely ignores compunding returns.

My overall point is to illustrate that many of the older generation with savings and pension funds (which invest heavily in Gilts) are subsidising the Government and other borrowers, and have donw for some time. So this is effectively a wealth tax. It may not apply to all assets, but certailny hits the middle class baby boomers.

report this

Mark Stringer

Oct 23, 2017 at 08:55

Jon,

The contribution holidays for companies paying into pension schemes when assets were (temporarily) high wasn't a great idea. Another great bit of blue sky thinking.

This baby boomer crap that we keep getting hit over the head with by lazy journos, commentators and prat economists (what other type can there be) are too thick and lazy to accept that the only way our main asset can be realised if you live in the south is to move to the sunny north. Moving within the south east means moving sideways unless you go from several million pound property to a 3/4 bed.

We certainly are subsidising the younger generation.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Centrica shares crash after loss of 823,000 customers

by Daniel Grote on Nov 23, 2017 at 10:37

Sorry, this link is not
quite ready yet