Chancellor's choice...#024
Tax, Rachel Reeves and me
Last week Kamala Harris. This week Rachel Reeves.
Rachel Reeves speech on Monday 29th July was direct, clear and for some contentious1. She told us the UK has a £22bn black hole and set out her stall around the tough decisions to be made to balance the books.
Call me old fashioned, and politics aside, it makes sense to me that government spending be determined by need, and tax paid by ability.
Age and need
In reality it seems that a number of benefits are determined by the attainment of an arbitrary age. Historically that might have been due to inflexible systems. Does that still ring true?
The removal of Winter Fuel Payments for those of state pension age not on means tested benefits was a headliner. Controversial for some, and painful for those on the margins who will suffer (which needs to be addressed). But as a financial planner, I’ve witnessed the other side of this blanket payment policy with wealthy clients receiving Winter Fuel Payments which weren’t needed. Nor for many, State Pensions too, but that’s another subject.
On attaining 60, living in London, I have access to a 60+Oyster Card meaning I can travel for free2 on buses, tubes, the overground and the Docklands Light Railway (DLR). For some it may be needed. For many not.
Likewise blanket free prescriptions from age 60 for those living in England.
In these times of stretched public finances, with advancing technology and AI, the arguments around the time and cost to refine the recipients of such payments by need must surely pale.
Toil and tax
Moving away from age, Capital Gains Tax (CGT) being lower than Income Tax does not make sense. For many, capital gains are passive, derived from buying investments on the secondary market3. No physical or intellectual effort, just buying, holding and selling. Yes, I’m aware of the subtleties and importance of stimulating growth and incentivising and rewarding the risks of entrepreneurs with tax breaks less they ‘not bother’ to build businesses or ‘seek to go elsewhere’. If true, correctly identify and incentivise this group of individuals and early stage direct investors.
I’ll leave my thoughts on the tax free nature of one’s main residence plus the thorny issue of care home fees for a future blog (the latter no doubt further informed as the Chancellor’s thinking around social care evolves).
Burdening the young
With an ageing population, a creaking NHS designed when we didn’t have the sophisticated diagnostics and treatments available today, and a burgeoning need for Social Services, the numbers just don’t add up.
The narrative needs to change around taxation and the benefits we can fairly expect from the State. With it, we need bold changes to how taxation is assessed and fairly collected. Contrary to what many seem to think, tax and National Insurance does not go into a long term savings pot to be distributed when we reach a certain age; tax paid today goes straight through the system and is paid back out today.
Increasingly tax is a transference of money from those of working age to those who aren’t. The young to the old. With more business efficiencies and lower employment levels we need to find new ways of raising tax. Perhaps more sophisticated Corporation Tax rates targeting higher levels of profits? A tax on machines that replace humans? A closure of tax planning loopholes exploited by accountants and business owners? Honesty around the fact that National Insurance is really income tax in sheep’s clothing?
Scott Galloway’s recent TED Talk 'How the US is destroying young people's futures' is blunt and to the point. He pulls no punches. What I particularly like is his insight to the fact that he and his wealthy peers are a huge part of the problem and calls on the (US) Government to be bold enough to make the changes needed. He may be talking about the US but he could quite easily be talking about the UK.
You
Rachel Reeves’ first budget as Chancellor of the Exchequer is on the 30th October. It’s clear tax is going up. Will she be making sensible choices or continuing austerity? Time will tell.
Tax and benefits is a complicated and emotive subject and I’ve no doubt missed many subtleties in my brief distillation of my thoughts. But how about you, what do you think on the thorny subject of taxation, allowances, benefits and payments? What is fair?
Do drop me a line, I’d love to hear from you. Alternative views welcomed 😊
Until next time
Ruth x
In particular Jeremy Hunt, kicking off, yet again, unpleasant political bickering across the political divide.
Free (except between 0430 and 0900 Monday to Friday) transport is paid for by local councils using Council Tax
The secondary market, or stock exchange, enables investors to buy and sell stocks or funds. Sometimes these are sold quickly, often they are held for the longer term. The investors do not give capital direct to the company in which they are buying shares.
Photo of Rachel Reeves By Lauren Hurley / No 10 Downing Street - Number 10 Flickr page, OGL 3, https://commons.wikimedia.org/w/index.php?curid=150044082