The new stealth tax

With inflation already at 4.4%, twice the Monetary Policy Committee's target of 2%, there is a new, subtle form of tax – inflation.

About now, those of us yet to complete a self-assessment tax return start to worry about the 30 September deadline, after which HM Revenue & Customs refuses to do the sums for us. But with Consumer Price Index (CPI) inflation already at 4.4%, twice the Monetary Policy Committee's (MPC) target of 2%, you should worry about a more subtle form of tax inflation.

Developed economies historically do well when inflation is positive but fairly low, which is why the MPC has a 2% target for inflation. But once inflation gets out of control, there are few winners. For reckless borrowers it's a boon because, provided they can afford interest payments, inflation gradually erodes the value of debt, which is fixed at the point a loan is taken out.

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