Written by Sir John Redwood
The majority of you who responded by email or blog post to my piece on the four millionaires thought none of them was rich. A few of you thought they were and thought I should concentrate on more representative people from amongst my constituents. They should study modern Britain more closely. Most of my constituents own their own house. Many of them own homes worth £250,000 to £1 million. Many also have savings, especially through company or individual pension funds. If they have provided for a pension of £10,0000 that’s another £200,000 of assets. Many look forward to larger pensions than that.
It is true I am talking here mainly about the older half of my electors. I write regularly about education, training, acquiring a first home and then a family home, and the need for more better-paid jobs, all very relevant to the younger half. People in the age range 18 to their early 50s tend to be acquiring homes, paying off mortgages and accumulating pensions, whilst people from their 50s onwards often own their own home, have repaid their loans and have savings. Younger people are also, of course, interested in wealth taxes as they may be involved in the finances of their parents in older age.
Let us now look at the taxes that impact people with homes, savings and pension pots. Two things emerge. The first is tax has a big impact on how people hold their wealth. The second is many feel they have been cheated by the state over the years as successive governments have changed the rules and broken previous government promises.
We were encouraged to save as young workers for our retirement through tax-privileged pension funds. Instead of using our savings to invest in a business or improve our homes or to boost our living standards as younger people we duly put the money away. Years later government decided to change the rules, saying if you had saved too much ( a level never mentioned before)or been good at investing those savings they were going to tax it after all. Large sums are now locked up in pension funds people do not wish to use because of the big tax hit if they do.
George Osborne promised to exempt £1m of assets from Inheritance tax for each family. This was a surprisingly popular pledge, given how few people will be in the position of receiving such a large inheritance. He then failed to deliver, keeping the sum at £650,000 for a married couple with complicated rules about family homes as a top-up in some cases. Many people go to great lengths to avoid any possibility of IHT through the many legal ways it can be avoided.
Elderly people who bought themselves good family homes, or built or improved a home, now find they are hit by sky high Stamp duties if they want to trade down to something smaller or wish to move closer to their children. Younger people are also clobbered as they try to move up the property ladder. Stamp Duty encourages immobility, poor use of the housing stock and is a direct tax on aspiration and personal happiness.
Capital Gains tax also immobilises a lot of wealth. People with second homes and or share portfolios are reluctant to sell these assets where they are sitting on taxable gains. They keep homes they would rather switch to a different location, or would like to switch into different assets altogether. Many share owners tell their investment managers not to take profits above the tax-free allowance each year.
Leo Savantt makes a valid point. National Insurance is INSURANCE. We pay it on every pay packet as insurance that we will receive a pension when we reach retirement age. It should have been invested wisely such that there is no talk now of the BURDEN of our aging population. And it is wrong that retirement age is constantly being raised and state pension quite simply is not adequate at present. I’m afraid even John Redwood only sees how the rich live. However, like MWT I do not disagree with him on his tax recommendations here. It’s the things he does not see/talk about that worry me.
Pauline £40 billion per year is spent by the state to fund mostly middle and high income wage earners pension pots. This may explain why people (mostly low earners) will have to work longer.
The crime of the centuryimposed by elites was the introduction of PAYE. This effectively hid the Personal taxes you pay. Most just read the line which says how much you actually get….It’s actual effect is to tax the employer.
I fall exactly within paragraph one.
The plight of the young these days enrages me. I bought my first house in 1970 for £400. It was a wreck but I did it up myself for the princely sum of £800. (There were plenty of houses around at that time for similar money)
You can put the price of houses (especially first houses) down entirely to migration.
My advice to the young these days is to avoid debt and live within your means. Keep your money in property when you get some, Live in it as you improve it to avoid tax. Consider very carefully how you spend money on it. And don’t be afraid to get your hands dirty.
The country as a whole cannot expect low levels of taxation when the people as a whole ask the state to provide so much.
Let the people save and pay for everything from schooling to their own health costs with charities providing a safety net for the genuninely hard pressed peoples. At that point then they can rightly call for very low taxes indeed provided the government pursues a sound money policy.
How can people expect low taxes when one of the biggest rackets going is pension tax relief which mostly benefits wealthier people not poor people.. £41 billion pounds it costs the Treasury in 2017/18. Yes, you read that figure right.
https://www.ftadviser.com/pensions/2018/01/23/pension-tax-relief-cost-to-hit-41bn/
Successive governments have squandered National Insurance by treating it is as a revenue rather than a savings scheme but things can get much worse. Lord help us if Mr. McDonnell becomes Chancellor, previously he and his boss were talking about taxing the ownership of a garden. The idea that growing flowers is a taxable activity is insane, but with a largely urban culture increasingly cut off from the natural world, existing on a diet of fast food and television, it might not be an unpopular policy.
That there has been folly in taxation policy in the past, such as taxing people to buy a home, is certain, however, we are only one election result away from complete and utter taxation Bedlam if the Reds win, something that rather concentrates the mind.
I get angrier every day that this man is not our Chancellor.