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I expect and would agree with the annual pension allowance being slashed to say £20k.
I don't think that's likely - £20k is not a huge amount to save in a pension, especially when it's taxed on the way out 20k in is the equivilent of £30k per annum out - which is less than a lot of final salary pensions (ie its less than a teacher might expect to get, if they work a full career full time)
Is that what happens for most people though? Given that most don’t pay higher rate tax.
Fair point. I guess I am living in the past where the state pension was way below the personal allowance and it allowed pension income to be largely tax-free for most. It felt fair if the rate you save on pension contributions is 20% higher than what you will pay on later income (so a highly simplistic world where higher rate taxpayers generally retire and pay standard rate on pensions, standard rate taxpayers retire on pensions below personal allowance).
Pensions are generally a bit of a mess all around really. Not how anyone would set things up if starting from scratch.
Start at the top, remove all loopholes for those that can afford a good accountant, and tax the hell out of large inheritance, second homes, large tax dodging corporations etc etc.
If that's not enough then by all means ill not grumble if I'm next in line to take a hit, but I'll be dammed if I pay more whilst those that have millions in the bank don't feel the same amount of pain as the rest of us.
I don’t think that’s likely – £20k is not a huge amount to save in a pension, especially when it’s taxed on the way out 20k in is the equivilent of £30k per annum out – which is less than a lot of final salary pensions (ie its less than a teacher might expect to get, if they work a full career full time)
It isn't a huge amount, but it feels like enough. Why should the government continue to offer large tax breaks beyond that point? If you can afford to save more for retirement then you are still welcome to do so by sticking it in savings/investments, but you don't need to keep getting the tax break on the extra money.
Unfortunately final salary pensions are a bit of an irrelevant benchmark nowadays.
It isn’t a huge amount, but it feels like enough. Why should the government continue to offer large tax breaks beyond that point? If you can afford to save more for retirement then you are still welcome to do so, but you don’t need to keep getting the tax break on the extra money.
because they still want to encourage people to save for their retirement so they're not dependent on the government during their latter years. Encouraging saving is something that governments need to do, otherwise people don't do it. At some point people have enough cash not to worry about falling back on the goverment (so you don't need infinite amounts of tax benefit)
because they still want to encourage people to save for their retirement so they’re not dependent on the government during their latter years.
If someone has enough income that they are currently able to put away £60k (gross) per year, surely it is on them if they blow it all and end up living off the state pension in old age? Why would it matter if they did?
Why do people with that sort of income need tax breaks to encourage them to save?
the poor are much more likely to spend money on domestically produced goods.
i think you might have that arse about face .
the poor are more likely to spend their money on cheap imitation shite from China than stuff made in Britain due to the costs
see Clarksons explanation of how much it costs to produce a quality sausage in this country vs importing from abroad
To answer the OP, I would also abolish stamp duty, which just seems silly (why should moving house be taxed?) but replace it with some form of significant annual tax related to property size which can be adjusted by number of people living there. So a family of 4 people living in a 2 bed house pay peanuts, a couple who own 3 large houses pay loads. There would be some form of credit/rebate against this for people who recently paid stamp duty. I haven't figured out how rented property would be treated.
There is no need to balance the books. All governments run deficits most of the time and you can pump money in to a point to stimulate demand. At some point inflationary pressures take over but we are a long long way from that point.
Very basic stuff.
If someone has enough income that they are currently able to put away £60k (gross) per year, surely it is on them if they blow it all and end up living off the state pension in old age? Why would it matter if they did?
Why do people with that sort of income need tax breaks to encourage them to save?
the £60k thing is a bit of a red herring. If you're earning enough to tuck away £60k you're likely to be paying 40% or 45% tax rate in your earnings, but you're also highly likely to be paying at least 40% when you withdraw your pension - so the net tax saving is pretty marginal. The biggest benefit is the 25% lump sum - I've never really understood the benefits of it, but if you capped the lump sum at some figure (say 25% or £250k) you could probably abolish the annual cap and have almost no impact on the overall tax rates - if you've saved enough to be getting a £50k pension, saving any more is pretty pointless.
so that in order to avoid paying tax you would need to put it to some kind of economically useful purpose
this would be the end of the ability to preserve land in its current form for future generations - ie national trust, woodland, SSSIs, that sort of thing. Not sure that's a desirable outcome
There is no need to balance the books.
It depends which books you're talking about. The spending and taxing pledges made by the previous govt for day to day spending commitments is currently what the BoE have financed, and was voted into law by the previous parliament. The spending part of that has been overspent by £22bn. and last figures that are easily google-able say that HMRC raised more money that they were expected to - there's a bit of hedge/emergency funding, but the Tories already burned through that, but if say the Dept. of paperclips is already overbudget, are you going to give it more? Or tell it to stop spending money on paperclips?
He sounded like the builder who says you need a completely new roof after you’d called him in to clean the gutters.
By now we have all lost count of the number of black holes he has found in the country’s finances.
Was the £22bn shortfall the same as last week’s £22bn shortfall? Or was it a completely different £22bn? After a while all the numbers start merging into one another.
Another way of looking at it is. Why would a Labour govt go to Parliament to ask it to pass an amendment to the budget to create the £22bn to cover the arses/embarrassment of the previous Tory Treasury team?
This. Plus by setting low expectations now, he can pave the way for a bit of "actually, we were able to come up with something better, aren't we great?!"
It's a better system of Government than the previous lot who promised 40 new hospitals and sunlit uplands and magic unicorns for everyone and then delivered huge piles of shit. At least if you're promised shit and you get shit, it's realistic; if you're promised shit and you get some nice compost, it's regarded as an improvement!
if you capped the lump sum at some figure (say 25% or £250k)
It is already capped at £268,275.
If people only saved 20% tax on their contributions, but expect to pay 20% when they receive the pension as income, then a pension becomes nearly pointless
The above tax free lump sum means you get a free 6.25% uplift in the scenario where you are basic rate in/basic rate out. There is a risk due governments changing the rules in the interim...
£20k is not a huge amount to save in a pension, especially when it’s taxed on the way out 20k in is the equivilent of £30k per annum out – which is less than a lot of final salary pensions
This isn't comparing like-with-like - the final salary pension pays out every year. £20k in a defined contribution is more like £660 per year (using 3.3% withdrawal rate - more UK-centric version of the '4% rule')
Where’s rone and Ernie?
Give them time.
They’ll be along soon enough to tell us all how they know best and everyone else is wrong.
Don't you just love it when people lack the ability to offer a coherent argument and instead rely on personal attacks?
I haven’t figured out how rented property would be treated.
The landlord will within a few minutes of finding out how much it is and how much they will have to increase the tenants rent to capture this additional cost.
Starmer and Reeves are wrong, we should use MMT and spend more, Richard Murphy said so.
Seriously...
Come on.
There is no black hole. It's an utter nonsense designed to do what is going on in this thread - justify needless austerity.
But no worries - it will backfire because austerity ends with one set of outcomes.
Lower growth, ruined economy and devastated communities.
Starmer and Reeves have got terrible advisors.
Lol at anyone who believes in blackholes in government finances - which by the way were not a feature of campaigns until last year - needs to spend a bit more time understanding spending and taxation.
Get a grip.
Give them time.
They’ll be along soon enough to tell us all how they know best and everyone else is wrong
Amazing.
Enjoy your wreckless government then.
It's fine by me.
Got to giggle at the Centrist's hanging to the last thread of Starmer's credibility as he walks the country into austerity.
The hypocrisy is staggering if this was the Tory party - no one would buy it.
Not at all.
Also the amount of non-MMT economists are starting to pull apart Reeves' shocking grasp of economic toss.
https://twitter.com/D_Blanchflower/status/1828454957785199047?t=CYgvDBOknt150E9ka_aPvQ&s=19
https://twitter.com/DanielaGabor/status/1817501624782205345?t=EI_K6v7828Ic93nD4T9__w&s=19
I am of the view that there's still benefits and tax breaks which the richer half of society benefit from, and increasingly so.
I would start by flat rate of tax savings on pension payments, removing the higher benefit to higher rate tax payers, and limiting overall pension pot size. Make all pension payments salary sacrifice.
I would really tighten down on inheritance, probably reducing overall limits.
Then the richer people would spend more on goods and services, benefitting the economy overall.
Starmer and Reeves have got terrible advisors.
They have a chance with the coming budget to tax the **** out of those in the country (business/private) who have seen their wealth increase at an obscene rate over the previous 14 years, otherwise Labour are dead in the water/busted flush/stuck pig or merely utterly ****ing pointless
A massive streamlining of tax legislation as a whole to make it harder to avoid would be just as/more effective.
This I completely agree with.
Why Income Tax and NI? Why not merge into one tax, with a more progressive set of levels, and far, far fewer tax breaks for individuals.
Companies the same, but with rewards built in for investing in training people, innovation, stability and sustainability.
You may be right Revs, I was just paraphrasing Keynes, Prest and Coppock. Think beer, fish and chips.
the poor are more likely to spend their money on cheap imitation shite from China than stuff made in Britain due to the costs
I don't think you are allowed to sell cheap imitation anyway in Western world. Do you mean cheap OEM?
If you are referring to cheap imported clothing then perhaps a better choice is to get everyone to wear same clothing like those in the Victorian era. Those clothing last longer and repairable.
see Clarksons explanation of how much it costs to produce a quality sausage in this country vs importing from abroad
That's because farming is out of fashion for the young. Not enough food produced then the only option is to import, otherwise starve.
The unfair thing is that the government incentivises high earners to put away a whopping £60k per year,
If you are a really high earner, the pension taper takes the tax-free pension contribution down to £10k per annum, the same as if you had started to draw down from your pension fund. The threshold is £260k and £2 is lost for every £1 earned above this.
The annual allowance was increased to £60k so that those workers in the public sector on final salary schemes where they would accrue £2k pensionable income per year (equivalent value £40k contribution at 20x multiplier) did not gat a tax demand for the excess contribution above £40k value. In the private sector, where there is a REAL pension pot, with REAL funds, those lucky individuals could pay this tax demand from the pension pot automatically rather than find the money themselves. In the public sector, where there is NO pot, the individual would have to pay it themselves from their own savings.
So you are a senior civil servant on, say 125k per year. You accrue 1/43 per year in the alpha final salary scheme - that's a value of £2907 income at retirement per year, value for tax purposes is x20 or £58.1k into the civil service "virtual pot". Take off the £40k annual allowance, and you will have a tax bill to pay on £18.1k, at 45% tax relief - which is a £8.2k cheque to write each year. Hence the increase in annual allowance to £60k so that this annual tax bill is not needed in most instances.
Messing long-term investments such as pensions is tempting due to the size of the pots involved, but politically damaging. The tax free allowance might be a source of income, and the limit will be frozen so fiscal drag can play its magic part. But look elsewhere for big changes.
Got to giggle at the Centrist’s hanging to the last thread of Starmer’s credibility as he walks the country into austerity.
As a fully paid up member of the fanatical centrists (trademark pending), i enjoy reading on here how governments are always wrong, the experts in places like the BoE, the treasury, etc are all inept compared to the select few posted who have never been part of those experts brought in to be part of supporting a budget/department/etc.
As for credibility, as per Occams Razor, when a politician is delivering hard truths rather than what the public want to hear, as a brand new PM and government, wouldn't it be easier to stand up and tell the country it's all good, tax cuts are coming, more investment is coming and so on, rather than deliver a negative speech on the upcoming budget, why would it be easier on them to support austerity rather than spend, spend, spend?
Fortunately the austerity doctrine has proved to be so successful over the past 15 years that we can now just discard any opportunity to change and just keep doing the same thing again. I believe they call it grown up politics, although to me it looks more like a dogmatic adherence to continued failure.
Yep,like some old bloke once said:
The definition of insanity is doing the same thing over and over again, but expecting different results.
The only success is that people still seem to believe the lie that you need austerity.
Paying public sector workers properly (not just with claps) and taxing and withdrawing benefits from wealthy boomers. Bring it on. Sound choices if you ask me.
It's the 70's again. but with less money.
Net cash flows from the ONS.
See how there's nearly always a 'black hole' ? (Using their own dismal terminology) The government runs on deficits.
If you've believe the government runs like a house-hold, there's no helping you and no amount of evidence you will ever believe.
Crack on austerity. But know you are using Tory framing for your argument and expect things to deteriorate.
We've heard all Starmer's words before literally coming out of Cameron and Osborne.
Wish I hadn’t started this! Think my point was 22bn sounds a lot to a lay person but is relatively insignificant in the scheme of things. Feels like the start of Cameron’s austerity measures that were painful and largely pointless politics. If they wanted a positive agenda they could have said we have 1100bn to spend which is a bit less than before so let’s not go crazy.
Er, Danny Blanchflower was a longstanding member of the Bank of England's MPC and is currently professor of economics at Dartmouth College, New Hampshire.
Let's use austerity to fix the problems created by austerity.
You can't make it up.
(I'd be happy for this to be in the Starmer thread!)
Er, Danny Blanchflower was a longstanding member of the Bank of England’s MPC and is currently professor of economics at Dartmouth College, New Hampshire.
Yep. And he's openly honest about how he supported Starmer and is now appalled by what's going off.
Good graph that Rone. ^^Interesting.
Basically tells a story (to me) that the banks ****ed us in 2009 and we've never recovered.
Enjoy your wreckless government then.
Ironically, after 14 years of the Tories wrecking the country in every possible way, I'm quite looking forward to a "wreckless" government.
But I don't think that's what you meant.
(Wink emoji here)
Anyone that thinks the (properly) rich will be squeezed, give your head a wobble.
It'll be the middle earners that get dry bummed the most, the easy targets
And as for getting excited about an increase in fuel duty. You do realise that this will give rise to the cost of household goods? But this won't be a rise in line with the increased fuel costs, no, it'll be a greedy money grab by the big supermarkets et al - see recent energy crisis price hikes leading to massive inflation driven by greed and reflected in company profits. So austerity, plus tax rises, plus inflation, plus interest rate hikes. Happy days
It’ll be the middle earners that get dry bummed the most, the easy targets
Median household income (after direct taxes) is around £32k, which I suspect is less than the STW view.
you’ll get more tax up-front out of savings that are made, and you will discourage savings among high earners, which will make people spend more (boosting the economy).
So as one of those who falls into that bracket, here's what will happen:
1. I'll go (more) part time, so less money overall goes into the economy.
2. I'll just drop the money into salary sacrifice schemes (Cycle To Work, electric vehicle etc). If pensions are going to be taxed in and out, I'll have the shiny new bike now, thanks.
If they fix the marginal rate issue then I'm actually fairly ambivalent about paying more tax, but I dislike being in the situation where I suffer nights out of bed and get taxed at 62% for the pleasure.
I would also expect this to be distributed fairly if it's on pensions with a proper calculation of the value of public sector final salary pensions and appropriate tax.
Are we all in it together (middle to high earners?). Or is it just the private sector employees who are fair game?
I know this sounds like a horribly Tory perspective (and it probably is to be honest), but to clarify I don't object to a higher tax burden in principle.
It's perfectly fair to tax existing pensioners, it's entirely their fault we're in this mess.
I would also expect this to be distributed fairly if it’s on pensions with a proper calculation of the value of public sector final salary pensions and appropriate tax.
that's tricky to do as a defined contribution pension varies in value as markets fluctuate, whereas a defined benefit pension doesn't. Annuities were in the doldrums for years (~3% per annum income) wheras they're much stronger now since interest rates perked up (~7% per annum if you're retiring at 68) - so the equivilent value of a defined benefits pension has halfed. I can't see a fair way of taxing those two outcomes - you'd end up with massive swings in taxation as people are about to take their pension which would be a worse outcome than the unfairness we have today.
its an interesting graph, but slighly skewed as the axis is linear. If it was to show spend as a percent of receipts, it doesn't look like we're that much higher now than we were in '95 - which is also confirmed by the graph on page 5 in here
Are we all in it together (middle to high earners?). Or is it just the private sector employees who are fair game?
Private sector? Any public sector workers will be fair game as well.
The exceptions will be the really well paid in either public or private sectors with bespoke contracts/limited companies to avoid the pain.
Public sector pensions are a red herring as well. They get paid less today in return for the pension and most recent(ish) hires will be screwed over. Just like in the private sector where the DC pensions are kept for those who dont need them.