It is only on rare occasions that I agree with Sir Ed Troup, the former first secretary of HM Revenue & Customs. He arrived at HMRC from the private sector, and I was never quite convinced that he did not serve that sector's interest well whilst in office, but the FT reports that yesterday he:
told MPs looking into the pros and cons of a wealth tax that the “defects” of the existing tax system needed to be tackled first.
And I agree with him.
As the FT added:
Members of the Treasury select committee are investigating which tax changes should be made as a result of the economic fallout from the coronavirus pandemic. “We have a lot of taxes on various aspects of capital . . . none of them work properly,” said Sir Edward on Wednesday, citing capital gains, inheritance and council taxes as examples. “It's always better to try and fix what you've got than to pile something else on top of it.”
This was the major message of my work on Tax After Coronavirus (TACs) that I undertook earlier this year, the evidence of which I have submitted to the Committee, and which can be read in these links:
- There is significant room for wealth taxation in the UK
- The UK could tax wealth more
- The relationship between income, wealth and tax
- The TACS approach to wealth taxation
- Reforming taxes on wealth by equalising capital gains and income tax rates
- The need for an investment income surcharge
- Capping total ISA contributions
- Abolishing the personal savings tax allowance
- Restricting pension tax relief
- Abolishing higher rate tax relief on gifts to charity
- Reforming council tax
My logic is simple. Whilst capital gains get favourable tax rates, savings get favourable tax rate, those able to save get significant tax reliefs and whilst there is no NIC equivalent charge on unearned income then the scope for raising the tax rates on wealth by increasing the tax due on the returns from it is much higher than it is from any wealth tax.
I have no desire to see any further increases in wealth inequality in the UK.
Right now I have no desire for an overall increase in tax take in the UK, because that would be economically counter-productive.
But I do have the desire to see income and wealth redistributed and Ed Troup is right to say that the best way to achieve this is to tax the income and gains from wealth more.
Sunak should be announcing such a programme next week, with all the proceeds being redistributed and not retained.
Will he do that? I am sure he will not. But he's not good at doing the right thing for this country.
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One good aspect of the overall discussion was the point that all forms of wealth should be included..I wonder if those lucky enough to be on final salary schemes realise how valuable they are particularly those in late 40s/50s where retirement is in sight..For example a£30k final salary x30 yields £900k of NPV.
That’s a decent hit for the proposal one-off wealth tax that levied 4 per cent on net assets above £500,000>
You do appreciate that i am arguing against a wealth tax? And that there is not a hope in hell of one happening – hence what I actually asked for?
Simon, most final salary schemes are set up on a discretionary basis and the final pension is paid at the discretion of the trustees, hence the sum used to purchase the annuity is not considered to be part of the annuitant’s assets. The income, less any tax-free cash, is of course subject to income tax at the appropriate rate.
What are you talking about?? You purchase an annuity with a defined contribution scheme.. a final salary scheme is that it says and it the liability of the underlying corporate..there is no annuity purchased
So there is no asset then
“So there is no asset then” ?? Of course there is an asset!! …The Present value of future income streams!!.. that was the key point in the discussion of a wealth tax, ALL wealth is included.
A final salary scheme has an imputes lump sum value ( the calculation is straightforward and many make the change into a lump sum, it is normally available by the scheme provider).. it is absurd to say there is “no asset”.
It’s a the inverse of owing a pension pot built up though defined contributions.. if I decide to buy an annuity with that pot, does my asset automatically disappear?. You imply it does and could I therefore avoid it included in a wealth tax calculation? No I have a stream of income which can be imputed back to a lump sum and which I can therefore be taxed upon.
If you really believe there is “no asset” there is a lot you still need to learn.
Simon
I don’t much like your style
I expect respect between commentators
Richard
Inequality is the scourge. The OECD identified in 2014 that the UK had lost some 9% of GDP growth due to inequality, and that was before the government tried to push us into recession.
Then there’s the £23 billion we give to the banks by way of seigniorage: low hanging tax fruit if ever there was any.
Quite why Sunak, an ex-banker should be talking austerity measures at this time is baffling, he at least knows that the QE will never be repaid.
Dear Mr Bishi. From your points about seigniorage and the amount it’s clear we have come to similar conclusions. Here is my version.
Warm greetings,
Alan Storkey.
https://www.alanstorkey.com/money-creation-credit-seigniorage-vanishing-money-and-the-banking-crises/
Richard, this isn’t really the place to discuss these technicalities but to clarify the point for Simon above, Final Salary Scheme Trustees could pay a pension directly from the pension fund but this requires careful actuarial control and these days the Trustees will buy an appropriate annuity from a pension provider which could be paid to the pensioner directly or back into their fund. The pensioner would not necessarily be aware that this has been done. In all cases the allocated fund does not form part of the retiree’s estate.
Thanks
So I own a pension and buy an annuity pot or my final salary scheme buys an annuity…are you implying the ownership of an annuity avoids the pension being included in a wealth tax calculation??
I thought we were trying to close loophole for avoidance not make them the size of the M25!
I cannot imagine pension pots being included in any wealth tax
I argue, in any case, that a wealth tax will have a limited impact
There are better ways to address this issue – which I blogged a couple of days ago
“I cannot imagine pension pots being included in any wealth tax”
Well that’s promoting avoidance!! Why should the holder of a pension have preferred treatment over any other forms of wealth?
I own money in the building society I get taxed, I put it in a pension I don’t – madness
I am saying what I think is the realpolitik of this, whether desirable or otherwise
I want to tackle inequality
I choose the best ways to deliver the goal
This is not it
But he is isn’t he?
From public sector workers to the rich.
This is what the Observer has reported ‘Richman’ Sunak saying this morning:
“You can ask me any question and say, are you ruling it out, or ruling it in. When we launched the spending review, we said when we think about public sector pay that should be done in the context of the overall economic climate. I think that’s an entirely reasonable thing to do”.
“And we’ve also talked about fairness — we need to see what’s going on with wages, with jobs, with employment, with hours, across the economy, when we calibrate and figure out what the best thing to do for the public sector is as well.”
So, the Tory Government does not see public employment and pay as a tool it could use to prop up the economy even though it has said that it wants a strong economy. They want to emulate the losses in the private sector instead – basically.
I know that Richard understandably has some antipathy to the economist Paul Krugman but he made a salient point when he summed up the wage dynamics in the economy quite elegantly: ‘Everybody’s wages is someone else’s wages’. That is how the contemporary economy (for all its waste and planet damaging results and room for improvement ) REALLY works. And that is also the redistributive dynamic of wealth isn’t it really amongst most of the population?
This is something that either Sunak and Johnson do not understand or their blind adherence to neo-lib anti-public sector bullshit just blinds them to.
It’s a recipe for disaster.
I also hate how the MSM don’t seem to realise that pay constraint and haemorrhaging of jobs in the private sector is a result of Government INACTION over decision they took to manage the economy – lockdown was not an act of God.
If we had a hostile nation at our doors or Isis had taken over Europe and were waiting to come over from Dunkirk and Calais, we’d find the money to fight them off and rightly so and we would not be worrying about money.
So despite using war like rhetoric, Johnson is once again lying as he has not taken a real war footing by spending ourselves out of the threat of Covid -19 and dealing with it properly. But this ‘war footing’ is precisely what we need to be on.
Why aren’t we then on a war footing on Covid?
Because the Tories are simply addicted to finishing what Thatcher started – it’s their homage to her – why let the deaths of thousands and little bug get in the way of that?
I honestly think that Johnson and Co can be reduced to simply that: ideological ineffectiveness.
Agreed
I think that all we are seeing is a right wing advancing their agenda – ticking the boxes on their list. Pitting one sector in society against another.
Put a job guarantee into the mix and all talk of fairness between private and public sector begins to recede.