Eight things we’d like to see in the Budget

Here’s a list of things we’d like to see in the Budget. We aren’t really expecting any of them, but we are hopeful of being proven too cynical (this doesn’t happen often). Do add any of your own in the comments.

1) The abolition of pension tax relief to be replaced by a £30,000 a year Isa allowance. Easy and cheap. You can see our arguments on this here.

2) Failing that, the removal of the lifetime allowance (LTA) and the introduction of contribution allowance – this removes the punishment of good investors and encourages early investment up to the contribution limit – make it, say, £300,000 over a career and everyone has a target.

3) A large rise in the minimum wage. You can see our arguments here. But in a nutshell we’d prefer companies to pay their employees directly rather than have the taxpayer make up for low wages via the benefits system

4) The abolition of the ludicrously dishonest distinction between National Insurance (NI) and income tax. The distinction between the two, says Brewin Dolphin,  is so “blurred as to be meaningless”. I think that’s generous given that in tax-and-spend terms there isn’t actually a distinction at all. Everyone says they want simplicity and transparency, so – apart from the fact that a shift would alert everyone to the fact that the UK’s basic rate of tax is 32% and its top rate 52% – there seems no reason not to get on with abolishing the NI label.

5) The reintroduction of indexing on capital gains tax. It is currently little more than a tax on inflation (and so a wealth tax). And given that the government appears to be devoted to the creation of inflation, that’s just not nice.

6) The abolition of stamp duty on property transfers, and the introduction of a capital gains tax on primary homes to replace it. You can read our arguments on this here but it is worth pointing out that with the average house price around £250,000, the average stamp duty payment is around £7,500. That’s a hell of a lot of money for someone moving house to come up with*.

7) Failing that, the abolition of the slab system for stamp duty whereby the highest rate is applied to the whole purchase price rather than just the part of the price over any given threshold. This is a nasty stealth tax.

8) A genuine attempt at tax simplification – perhaps even a nod towards a location value tax (LVT) or the flat tax system George Osborne used to say he liked so much.

*Interesting stat from Ian Cowie in the Sunday Times: house buyers in the southeast pay 63% of all stamp duty, the Scottish pay a mere 3%.

  • CT

    Or how about this one from Conservative MP Nick De Bois to raise the 40p tax threshold for the squeezed middle: https://www.dailymail.co.uk/news/article-2577867/The-40p-tax-rate-killing-ambition-Top-Tory-calls-higher-threshold-help-families.html

  • CKP

    How about a commitment to halve the size of the tax rule book (biggest in the world I believe) within 5 years?

  • dave21kj

    1) How would the employees contribution to a pension scheme work, or do we have more to pay?

    Not sure what the point is about Scotland paying 3% of stamp duty. Perhaps it is because our properties are worthless. What % does Northern Ireland pay, Wales, NE of England? What is the population of “the south East” relative to Scotland? Where does the “South East start and stop”? How many Scots stay in the “South East”.

    Agree on most of the points!

    • jimtaylor

      I’ve noticed recently that several MSW articles have some anti-Scottish angles, whether relevant or explained or not.
      Seems to be stirring up anti-Scottishness even though she lives in Scotland – wonder what that is all about?

      • Prince Myshkin

        Forgive me if I’m being slow, but where is the anti-Scottish angle? I’ve honed my paranoia and sharpened the chip on my shoulder, yet still I can’t quite make out the alleged ‘anti-Scottishness’.

        • jimtaylor

          The inference that Scotland does not pay its way – see dave21kj’s post above for an idea of other equally valid questions that have not been singled out, for example.

  • Rags to riches

    I sometimes wonder why anyone needs a really large pension. Thirty thousand a year would be a good limit. There are other saving vehicles such as ISA,s, bonds and most people will have paid their mortgage off by then.
    I am not saying that one cannot have a larger pension but the government should stop any tax relief over a modest threashold.

    • 4caster

      I can think of five reasons to accumulate a really large pension:
      1. To maintain the lifestyle to which we became accustomed when working,
      2. To take the holidays for which we had insufficient time when working,
      3. To be able to choose a better standard of care home when we become decrepit; a place in even an average nursing home costs around £40,000 a year,
      4. To avoid become a burden on the state, or on relatives.
      5. To plan to leave a decent income for the comfort of one’s surviving spouse or partner.

  • Ellen12

    Simplifying tax rules, as CKP suggests, would help make things fairer but probably would have some adverse effects on special interest groups. And national insurance has been a nonsense for years and needs to be incorporated into income tax. The problem with pensions is they are outside of the control of their owners and are long tail investments. The fund managers get treated like they are the owners and collect the sweeteners and benefits and future governments will take out of them as it suits them and regulate them to prop up government debt. ISAs would give some recognition to those who own the investment and would be a thing, although it will never happen.

    Stamp duty is very unfair and prevents people from moving house when they need to. To answer your question, Dave, everyone in a one bed flat and upwards in the south east pay huge amounts of stamp duty while in Scotland, it appears, only larger dwellings attract stamp duty. It bears no relation to ability to pay or the quality of life accessed. Introducing cgt on primary residences would offset this unfair tax and be based on real profits

    Two things I’d like go add toMerryns list. 1. A disincentive towards buy to let, in the form of significantly reducing allowences that can be offset against expenses – to le el the playing field between investors and owner occupiers and 2. Making some of the childcare expenses incurred by families tax deductible, not just low income families.

  • CKP

    There are many unfair and non transparent taxes such as stamp duty and employers NI. If we get rid then the lost revenue needs to be replaced. Any fair and transparent new taxes or rises anyone? To me, the obvious tax we lack in the UK is an annual land value tax which would be easy to collect and would help redistribute capital away from property. Alas the landowning class in the UK has long been far too powerful politically.

    Completely agee with the previous point that childcare costs should be fully tax deductable.
    I would even go further and allow private school fees and health insurance as this would save money on NHS and government education spending.

  • r

    @dave21kj asked: How would the employees contribution to a pension scheme work, or do we have more to pay?

    There is still a misconception that part the NI contribution goes to the national pension fund. There is no government pension fund. Pensions are paid by the government out of current account – out of current tax incomes. If NI were abolished, it would be replaced by a change in the ICT rate with allowances adjusted for those entitled to a discount or who do not pay NI. Employers contributions would, presumably, be paid by a change in one of the many employers taxes.

    We would all be better of if the pension fund had been set up properly with individual pension accounts and the government making contributions in the form of tax relief (as now) and credits (as now). If that had happened, there would be almost no demand for pension payments directly from taxation whereas, at the moment, it is 100% from taxation and borrowing.


    • 4caster

      I used to think that Singapore’s Central Provident Fund (CPF) was a good example of a fully-funded government pension scheme, into which everyone and their employers pay throughout their working lives into a personal ring-fenced account with no redistribution element.
      But when I looked into it further, I found that most of the CPF assets are in the form of government bonds, some created for the purpose. Another ponzi scheme!

  • mr clyde

    Could I just point out that there is a very considerable difference between IT and NI in that NI is not currently payable on pensions or interest.

    …and tax relief on private care costs!

    • CKP

      Good point well made, incorporating NI into income tax would be a large tax hike on pensioners (who tend to vote). This likely represents the biggest political barrier to implementation.

  • r

    @mrclyde and @CKP:

    Surely, this can easily be accommodated by adjusting the ICT relief for pensioners so that it eliminates the extra tax.


    • CKP

      @r, it may not be as simple as you suggest, some groups may start drawing a pension at 55 or earlier and continue to have employment income alongside. Having age linked personal allowances will cause anomalies. Fairly soon over 65s will no longer have any additional allowance as the basic one is raised.

  • Merryn

    @jimtaylor. Nothing anti Scottish there at all. You can read it how you want. V pro Scotland as being a place where houses are affordable perhaps? Anti Scotland in the suggestion that houses in Scotland aren’t as desirable as those in the south? Or as it is meant – to show the huge disparity in housing affordability between the south of the UK and the north of the UK.

  • 4caster

    Screw the pensioners:
    1. Freeze the personal allowance for over-65s whilst the level for younger people rises to meet it.
    2. Combine income tax and national insurance contributions, so that pensioners resume paying national insurance, in effect.
    But they forget that most pensioners take the trouble to vote!

  • Angela

    I do not get this LVT business. We already have a tax based on land and property values, and a system in place to collect it. That could be tweaked to include undeveloped land.
    Of course the government wants a new tax, collected by the treasury, not just increased revenue from an existing tax base, paid at a local level.. Frankly if LVT were introduced, Council Tax should be abolished. It’s the same tax in all but name.

  • Merryn

    @CKP. No reason why pensioners couldn’t just pay a lower rate of income tax overall. This system would just make everything transparent..

  • Merryn

    There is much talk about the capping of ISAs. But as Jonathan Eley notes in the FT, this would be pointless ‘gesture politics.’ The annual cost to the taxpayer of ISA reliefs is £1.75bn. That to pensions is £23bn. Which is why the Treasury can’t stop fiddling with pensions. Just too tempting..

  • jboap

    i agree with MSW. I see nothing anti Scottish there. It is just a reflection of the values of properties changing hands. i have lived in Scotland all my life and am now retired, but have many friends and family in England. We are looking to downsize and are painfully aware of the vast differential in house prices between Scotland and the South East. Notwithstanding that, when we move our biggest outlay will be in stamp duty. Meantime our son and his wife returning from abroad will be first time buyers and will have to live in the South East (there are no suitable employment opportunities north of the border). I will have to help him and his wife with a deposit but their biggest outlay will be stamp duty too, so Mr Osborne will swipe a large amount from my savings within a very short time although I am on a severely restricted income these days. This is undoubtedly a wealth /stealth tax.

  • camholder

    Rather than the help to buy scheme I would like to see an arrangement where first time buyers could withdraw a defined amount from their pension to use as a deposit. This would create a sustained demand for new housing and help first time buyers with cash so their interest rates are lower.

  • quark

    4caster, allowances are already being lined up to the standard rate, so a little homework is needed there.
    As for combining tax and NI that would really screw the Pensioners. I assume you are not a Pensioner; but for sure you will be.
    Yes Pensioners do tend to use the ballot box. It’s called democracy.