UKC

/ Fancy some free money

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David Cohen - on 08 May 2018

I cannot think of a more ridiculous idea (as below).

The cost will be enormous, the policy will make little difference where it is needed, for the wealthy it is not needed at all and the input will be often avoided and the lag in collection longer.

https://www.theguardian.com/money/2018/may/08/give-millennials-10000-each-to-tackle-generation-gap-says-thinktank

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ThunderCat - on 08 May 2018
In reply to David Cohen:

I think it's a great idea. I'm 44 now, so as long as I get my ten grand with 19 years of missed interest I'll be laughing 

Ben Sharp - on 08 May 2018
In reply to David Cohen:

The idea has been around for a long time, taxing unearned/inherited wealth and investing it in the next generations training, housing and education. It's the results of a two year study, not a policy and could therefore be implemented in a number of ways. I suggest listening to the reasons to be cheerful podcast on it from a few weeks ago which was quite a good round up of the current academic findings on the subject.

I'm not for it by the way, I'm just tired of the usual reactionary and thoughtless comments people make at headlines without taking the time to read up on what they're talking about. The results of a 2 year study are published and I'm sure 90% of the public's opinions on it will be based on nothing more than the head line.

AV2 = an opportunity for the country to express their distaste of Nick Clegg,

Land Tax = an opportunity for everyone to be up in arms about "garden tax" despite the blatent economic benefits of it,

Brexit = £300m a week for the NHS.

When will we wake up and start thinking things through before forming opinions.

Post edited at 07:48
stevieb - on 08 May 2018
In reply to David Cohen:

> I cannot think of a more ridiculous idea (as below).

> The cost will be enormous, the policy will make little difference where it is needed, for the wealthy it is not needed at all and the input will be often avoided and the lag in collection longer.

Maybe quantatitive easing was an even more ridiculous idea? Pump money into the top of the economy, generating an asset bubble that makes the wealthiest even wealthier? 

The £10000 is a bad idea because it will create an even bigger sense of entitlement but there is some evidence that the PPI refunds (free money to poorer people) was economically beneficial. 

1
GarethSL on 08 May 2018
In reply to David Cohen:

10 grand! Sounds lovely, wonder if it will be means tested... -_^

baron - on 08 May 2018
In reply to Ben Sharp:

The article suggests that the money will be raised by taxing people.

Great if your a recipient not so attractive if your being taxed.

The article doesn't state if the money will be tax free.

Knowing how governments work it probably won't be.

gravy - on 08 May 2018

David Willetts:

raise fees to 9k/yr 2010

give the young 10k 2018

go figure...

Irk the Purist - on 08 May 2018
In reply to stevieb:

Entitlement is relative isn't it?

Some people feel entitled to state funded education and affordable housing.

Others feel entitled to pass on vast amounts of unearned housing wealth to their children and expect others to fund their free social and health care in the meantime.

The real question is not about entitlement, it's about how we make society fair and balanced when faced with an ageing population.

 

3
Trangia on 08 May 2018
In reply to Irk the Purist:

> The real question is not about entitlement, it's about how we make society fair and balanced when faced with an ageing population.

Agreed "fair and balanced " are the key words there

 

john arran - on 08 May 2018
In reply to Irk the Purist:

> Entitlement is relative isn't it?

> Some people feel entitled to state funded education and affordable housing.

> Others feel entitled to pass on vast amounts of unearned housing wealth to their children and expect others to fund their free social and health care in the meantime.

The problem with that analogy is if such 'entitlement' were to be taken away, in which case the two situations suddenly look very different indeed. Which isn't to say that either will not be abused by some if they feel they can get away with it.

 

Deleted bagger - on 08 May 2018
In reply to David Cohen:

Although I've not read the article in full yet I've long thought that council tax is a waste of time. It doesn't raise much beyond a sense of entitlement to services which amounts to far more than is raised locally. 

I've personally benefited from inherited money that I didn't earn. I see no reason why shouldn't have paid at least basic rate income tax on it. I now find myself in the position of being asset rich but paying very little into the collective pot. A new and much more progressive property tax is needed.

Phil79 - on 08 May 2018
In reply to Irk the Purist:

> The real question is not about entitlement, it's about how we make society fair and balanced when faced with an ageing population.

Not just an aging population, but a society in which the wealthiest consistently capture the majority of any increases in wealth, leading to ever more inequality. 

stevieb - on 08 May 2018
In reply to Irk the Purist:

> Entitlement is relative isn't it?

> Some people feel entitled to state funded education and affordable housing.

> Others feel entitled to pass on vast amounts of unearned housing wealth to their children and expect others to fund their free social and health care in the meantime.

Definitely true, but I think the link between hard work/socially useful work and money/services has been watered down by many things - benefits, services free at the point of use, rampant house inflation, compensation culture etc etc - and chucking around 6 months wages for free just feeds into that.

A £10000 grant for apprenticeships or university would be far more sensible, though it would (a) mean most over 25s would have already missed out (b) be shamelessly abused by exploitative training companies

 

oldie - on 08 May 2018
In reply to baron:

 

> The article doesn't state if the money will be tax free. <

> Knowing how governments work it probably won't be. <

Tax does seem to be a practical way of getting some money back from those who don't need it as much....below a certain income no tax. As a pensioner it makes sense for me to pay tax on the same basis as anyone else.

 

Toccata on 08 May 2018
In reply to David Cohen:

We are in an age of the rich getting richer. Couple this with declining social mobility and we have a society dominated by a few wealthy individuals. How can this be right or even desirable?

A few easy tweaks could help.

Abolish stamp duty on house purchase and instead levy an inflation-deducted 40% tax on capital gains. Allows people to get on the housing ladder more easily and the money raised from the lucky home owners (who get 60% of the cash they did little for) is ring fenced for affordable housing.

Inheritance tax: £500k tax free per child as a lifetime allowance, up to £2m per child paying 40% then 100% after this, money all ring-fenced for education. Close all the loopholes such as trusts etc - if any money passes out of these it is taxed at the appropriate level. Ditto overseas money, it is taxed as it comes in to the country. We are very lax in the UK on this. As an example if you work in Canada for 5 years (as a UK expat) they will tax you on the value your house in the UK has accumulated. I suspect the £6.5bn Duke of Westminster estate could be put to better use educating tens of thousands of disadvantaged children.

And, with respect to the OP, I'm not in favour of a cash lump sum and would prefer the Government looked at ways of reducing the debt mountain young people are faced with. Interesting topic and one in which I enjoy the collective wisdom on UKC from both sides of the argument.

(Massively shortened version of argument due to lack of time to type - busy surgery.)

1
baron - on 08 May 2018
In reply to oldie:

There seems to be a misconception that pensioners have had an easy life and now sit on vast sums of money in terms of assets like houses and index linked pensions.

While this is true for some I would suggest that many pensioners are not in this position and barely get by.

There is also the case that taxing people removes the incentive for them to save which is what they should be doing.

So a pensioner who has rented their home and spent all their money on non essentials becomes a financial burden on the state claiming numerous benefits while the careful saver sees their wages taxed, interest on their savings taxed, then their pension taxed and then their assets taxed while not having access to means tested benefits. At every stage the government wants its tax.

Then, when you finally can't cope, you see just about all your monies taken by the state to pay for your care.

Unless of course, you have no money and the state provides the care for free.

Young people might need help but taxing old people isn't a fair way of providing that help.

oldie - on 08 May 2018
In reply to baron:

> Young people might need help but taxing old people isn't a fair way of providing that help. <

My comment was simply that income tax is often a practical way of ensuring that people, young or old, are taxed on their incoming wealth whether earnings or pension.  Both equally get little or no tax if poor. Seems reasonable.

 

baron - on 08 May 2018
In reply to oldie:

Yes, sorry.

I didn't mean for my post to turn into a lecture which is how it turned out.

Pete Dangerous - on 08 May 2018
In reply to David Cohen:

Large tax evading corporations need to be forced to pay people a decent wage. It's mind boggling how such a small percentage of individuals and companies have amassed so much wealth. More people should be outraged by this but the newspapers tell them it's the immigrants' faults and the benefit scroungers. They need to wake up. Surely it's in the interests of large companies for people to have money to spend on their products?

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pasbury on 08 May 2018
In reply to Toccata:

Good progressive, socially just ideas; so they don't stand a cat in hell's chance of being implemented here.

LastBoyScout on 08 May 2018
In reply to Ben Sharp:

> taxing unearned/inherited wealth

But at some point, it has already had tax paid on it by the original earner, so it seems money-grabbing to tax it again, just because it has changed hands and especially that the recipient will surely use it to buy things that have a further tax levy of some sort against the purchases or interest earned on it.

Out of my earnings, I pay a sizeable chunk of tax to start with, then I pay more tax of some sort on most things I buy with what's left of it. The companies that I buy from then pay tax on their profits and use the money left to pay their employees and the companies they buy from and the whole cycle starts again.

Go round a few iterations of this and the government already gets a sizeable chunk of the original salary, so it seems somewhat unfair to repeatedly tax the people that have been able to save any amount of money.

I know that's simplistic, but there must be a better way of handling taxation generally.

1
Skip - on 08 May 2018
In reply to Pete Dangerous:

> Large tax evading corporations need to be forced to pay people a decent wage.

And pay their taxes

stevieb - on 08 May 2018
In reply to LastBoyScout:

> But at some point, it has already had tax paid on it by the original earner,

I'm not sure this is total true.

I have worked full time for almost all the past 20 years.

I have also owned my home for the past 20 years.

My after tax earnings from working 2000 hours a year for 20 years, and from sitting in my house doing nothing for 20 years are roughly the same. The house paid very little tax, apart from one far too large dose of stamp duty.

 

Pete Dangerous - on 08 May 2018
In reply to Skip:

Well yeah, ideally. One step at a time though

Stew99 on 08 May 2018
In reply to Toccata:

+1 reduce the financial burden on the yoof.

-1 take from the old what they have acquired.

Yoof:  Makes no sense to take from them with one hand (tax + cost of skilling up + house deposit etc) and give to them with the other (free hand out).  Take less from them in the first place and avoid the additional layer of complexity.  Problem that must be accepted is that even if, for example, you were to make them tax exempt 100% until 25 - some will decide to plunge themselves into debt anyway and others to invest it all in a great pension.  You can't force the yoofs to do the right thing ... only nudge them in the right direction.   Personally I don't like free handouts.  If I've earned it - then I'll value it.  Freebies bread a hand out/entitlement culture - "The elderly owe me my £10,000 - I've earned by being born!". 

Elderly:  You can't punish those who gave up today so that can have more tmw.  That's perverse.  If everyone knew that they were going to be taxed tmw on what they give up today ... everyone would structure their wealth so that they owned nothing tmw and either spend it all today or ensure someone else (children/companies) own everything.  I cannot understand why this makes sense.  The holy grail would surely be that everyone was diligent enough (paid enough also presumably) to save/invest enough to take care of themselves, without the help of the state, in their retirement.  Last thing we want to do is punish those that have done the "right" thing for the rest of us by removing their dependency on others for their latter life care costs.

This a classical control problem.  If you tax the elderly you might get a tax windfall now, but you can simultaneously be sure of changing the retirement savings behavior of future generations in the process.  Ex:  If I were told I was going to have pay large taxes on my wealth in retirement I would consider putting my house in trust owned by children (a perfectly legal thing to do) on condition that I have a legal right to remain until my death.  If that was subsequently made illegal I would promptly not buy a house in the first place in my own name and would instead buy it in my children's name. etc etc etc.  You can change the current means of meeting their objective now "pass on my wealth to future generations", but you cannot change the underlying objective.  I am still going to want to pass my wealth onto future generations and I am still going to seek out means to do that.  If you close every legal means of meeting the objective then you will drive money offshore - fact.

neilh - on 08 May 2018
In reply to Stew99:

Its not that simple to put your house in a trust and also misses the point.In the last few years of your life it is more likely that you will end up in a nursing or care home. So where do your children get the money from to pay for your care? Simple answer, they sell your house to fund it.So it becomes pointless to use a trust.

One of the issues that the resolute foundation is trying to address is that there will a large number of adults retiring and a smaller younger group who will be having to pay higher taxes to fund the older generation.

This is a significant issue for the generations.

elsewhere on 08 May 2018
In reply to LastBoyScout:

It's just money, you can't say it's old enough to be no longer taxed*.

If somebody uses money I spent ten years or a hundred transactions ago that's no reason for the taxation of that transaction now to be any different.

If those hundred transaction are taxed at 20% the government will have received & spent/deposited 100% of the money twenty times. 

If you go through enough iterations the money will have been though every part of the economy multiple times so the government has got 100% (more than once) as have the supermarkets/banks/airlines/butchers/bakers & candlestick makers.

It makes no sense to add up the tiny proportion that is candlestick buying in every transaction as it adds up to infinity if you wait for a long enough time and a large enough number of transactions.

Similarly it makes no sense to add up the significant proportion that is tax in every transaction as it adds up to infinity if you wait for a long enough time and a large enough number of transaction

*you can finance government expenditure by printing money but hello hyperinflation!

Stew99 on 08 May 2018
In reply to neilh:

  It is simple to put a house in trust (my fathers house is in trust - I own it and he has a legal right to remain in it until his death.  I cannot sell it until he passes even if he needs to go into care.)

I agree with you 100% though.  Totally valid issue and good to talk about it.

My point is that:

A)  Do not take from the old.  If we do start taking from the old then we will change their behavior in such away that the next generation of the old will have organized their wealth in such a way that we will have nothing to take from them.  Not to mention I, personally, see it as immoral to take from someone that which they have earned.  (And I appreciate some will have different opinions of what is valid "earnings" and what is not)

B)  Don't give free hand outs to the younger generations while simultaneously charging them for their education, taxing them on what earnings they do have and stopping them getting on the housing ladder.  Relieve them of the costs of getting a leg up in life first and avoid free hand outs.

I think we are in agreement that the issue is valid.  We are, maybe, in disagreement about what to do about it.

jkarran - on 08 May 2018
In reply to baron:

> There seems to be a misconception that pensioners have had an easy life and now sit on vast sums of money in terms of assets like houses and index linked pensions.

> While this is true for some I would suggest that many pensioners are not in this position and barely get by.

I know you understand averages and progressive taxation.

> There is also the case that taxing people removes the incentive for them to save which is what they should be doing.

Debatable.

> Young people might need help but taxing old people isn't a fair way of providing that help.

It is if the older generation have had and still have advantages simply no longer available to the young. The consequences of breaking that bond of trust between generations will be catastrophic for the old, not the young.

jk

neilh - on 08 May 2018
In reply to Stew99:

I think you will find that the trust is a waste of time if your father goes into care. You will need access to cash to pay for a reasonable standard of care. So you will sell the house. 

The state makes a minor contribution and you will simply need the money to pay for the care. 

Or else you fund it yourself. 

 

Post edited at 14:51
neilh - on 08 May 2018
In reply to Stew99:

I also assume that you do not live at your parents house. In which case the local authority are entitled to say the trust is a con and a means of avoiding you paying  care costs. 

And the awkward truth is that is what it is.

 

baron - on 08 May 2018
In reply to jkarran:

I'm too old to really understand the pressures that young people are under.

I do have two nephews, one is 29 and the other is 25.

Both work at major supermarkets as shelf stackers or whatever the correct term is.

Both live at home.

One is very careful with his money, hardly goes out and saves like mad.

The younger one is happy to spend his money on going out and holidays to the USA.

Both own their own cars.

The older one has managed to save over £20,000 which is more than enough money for a deposit on a house on Merseyside.

So neither are exactly struggling and neither are in debt.

Maybe not going to uni has helped them financially.

Both of them are better off financially than I was at their age.

Both have benefited from the support of their parents and grandparents.

They don't need a handout.

I do understand that not all young people are in the same situation.

My mother is 82 and pays tax on her income above her personal allowance.

She can look forward to paying for her care, should she need it, till just about all her assets have gone.

She realises this and is trying to spend some of her hard esrned money.

Unfortunately you can't spend too much or you're considered to have made yourself poor which is apparently not allowed.

Her feckless brother can look forward to the state supporting him since he's spent any money he's earned.

Things can be tough for the young and the old.

 

 

2
jkarran - on 08 May 2018
In reply to baron:

> I'm too old to really understand the pressures that young people are under.

But... I've an anecdote that allows me to dismiss the findings of rigorous academic work.

> I do have two nephews, one is 29 and the other is 25.

> The older one has managed to save over £20,000 which is more than enough money for a deposit on a house on Merseyside.

Good for him.

> Maybe not going to uni has helped them financially.

Perhaps, perhaps not. Career progression prospects from shelf stacking tend not to be stellar. Good for them for getting a job but if they stick with it it'll pay the same in a decade as it does now. In two decades they'll be replaced by robots.

> Both of them are better off financially than I was at their age. Both have benefited from the support of their parents and grandparents.

Right... the things not everyone has access to, family suport and money, the things a state bent on ensuring equality of opportunity needs to address for those that don't

> They don't need a handout.

Good.

> I do understand that not all young people are in the same situation.

Bingo.

> My mother is 82 and pays tax on her income above her personal allowance. She can look forward to paying for her care, should she need it, till just about all her assets have gone.

As can you nephews, they will however be paying far more for the care of your mother's generation and yours than you or she did for the those before them. That is absolutely fine while ever they trust similar services and protections will be afforded to them in their old age and that those receiving services contribute as they are able to. For decades now that trust has been stretched and stretched and stretched as drawbridges were pulled up behind the comfortable. For many it has broken and that is very much your problem, not theirs, they're still young, they can adjust, they can afford and access insurance.

> Things can be tough for the young and the old.

Do you seriously think I don't realise that?

jk

Post edited at 15:22
2
Toccata on 08 May 2018
In reply to Stew99:

I understand your take on the elderly as it's very much the way I used to think. Unfortunately I don't see it working for society despite the obvious benefits to the individuals. It simply isn't fair that the less well off are punished because housing is controlled by the wealthy. If you are wealthy you should be happy that not only will your children be very well off on your death but that many other children will also have their lives improved by your success in life.

How to bring it in? To be fair you'd have to do it bit by bit but certainly swapping stamp duty from buy to sell (deducting what was paid on buy for those who paid stamp duty) would be easy. The level of this tax can be phased upwards allowing people to plan financially (inflation-deducted, 10% capital gains to 2025, 20% from 2030, 30% from 2035 etc). For those who have large inheritance from house sales should look upon it as the windfall that it is and a modest contribution to social housing is part of that windfall.

Death duty will never be popular but actually affects only the vocal few. I would come down hard on the avoiding schemes (which, ethically, are evasion). Placing assets in trust would be difficult to stop but I'd make sure that any money that comes out of them is subjected to the aforementioned levels of tax. Money going off shore is the old argument that I really don't believe anymore. We can trace money around the globe with relative ease and any money coming back onshore would be taxed. Additionally you would be subject to UK tax rules regardless of where you live (the US seems to manage this fine). I'd make the system very transparent by setting up a social development fund that high rate tax payers can contribute voluntarily to which would come with death duty exemptions to make it overall beneficial for long term contributors. Thus social responsibility is given prominence, the idea of a death tax is diminished, the well off need to consider society in financial planning and you could chose to be named on contributors lists. Etc etc (this isn't a manifesto).

We can't keep going on with the self-centeredness of financial planning in the UK. It's time the well-off started seeing social equality as a responsibility not a problem to be avoided. 

Stew99 on 08 May 2018
In reply to neilh:

My grand parents passed their property to my parents this way.  My mother has already passed with the property in trust and my father will pass one day too (god forbid). 

But I'm glad you're here contributing to this conversation. 

"And the awkward truth is that is what it is."

jkarran - on 08 May 2018
In reply to baron:

Sorry, unnecessarily curt. It's scorchio here, the heat has made me tetchier than usual.

jk

baron - on 08 May 2018
In reply to jkarran:

I was actually just about to post a really sarcastic response to your previous post.

I'm glad that I didn't.  

Eric9Points - on 08 May 2018
In reply to David Cohen:

Can someone remind me why you need a 10 or 15% deposit to buy a house these days?

For years you needed no deposit at all and the lender might also pay your legal fees.

I'm just wondering why the costs of being young are so high these days.

Stew99 on 08 May 2018
In reply to Toccata:

I think we might actually be in agreement on lots of things you've said. 

I agree that this is a societal problem that is getting worse and needs to be fixed.  I think we only disagree on how to solve it/where the money should come from.

Please correct me if I have this wrong - but your solution is to have the elderly give up what they have earned?  I think the system is rigged to make it impossible for the younger generations to get going.  My solution is to leave the elderly with what they have and instead to give the young a leg up by means of stopping taxing them so hard, charging them for education and making it so difficult for them to get on the housing ladder.  (open to any other ideas too)

I think I'd be quite okay with things like free tertiary education (per Scotland), no tax at all while in education (rebate them their VAT for example), and increased contribution to the Help To Buy Isa to development a meaningful deposit.  I'd be happy with all of those.  I just don't agree we should pay for them by taking from the elderly.

Consider this:  If you took a point in time snapshot and gave every 25yr old today, means test if it you want, £10,000 and then took a snapshot when they reach 68 (current retirement age) - they wouldn't all be equal.  Even correcting for starting position in life/opportunity etc .. you would find that some would have saved and some would spent it all.  You can't get them all to 68 and say "well hold on.  I know we gave you all £10,000 to start with but some of you have spent the lot and some of you have invested it all.  Those that invested it will need to give half to those that spent all of theirs."   If I was told that if I saved now for my retirement while my neighbor spent all his/her that I'd have to give him/her half of mine later ... do you think I would continue to save or do you think I would go out and spend it? 

Taking from one group to give to another is a recipe for short term gain now until the other group work out what is going on and adjust their behavior accordingly.  The rules in any control system affect the behavior of the group  ... and not in the way people usually think they will.  If you tell future generations "we're going to take everything you own by the time you're 85 (for whatever reason - give to youth or invest in fine art)" ... most people will plan to have got rid of all their assets before the state is able to take them off them.  Let's imagine ... they just start taking their family on expensive holidays each year. Why not!  They might as well - either they take their family on holiday of the state will take their assets from them.

Might be worth a conversation about the Laffer Curve and optimal taxation:  https://www.investopedia.com/terms/l/laffercurve.asp  Optimal tax != 100% i.e. everything you earn going to the state.  When that has been tried (communism?) people stop working.  Same can be applied here - if people know they are going to loose everything to the state ... then they will stop accumulating in the first place.  Optimal tax theory then suggests that if this happened then over all tax take would reduce ... and we would have less $$ over all for services. That would be bad for everyone and worst for the most deprived in society.  Optimizing tax take (and hence maximum $$ for services) means implementing the policies that maximize revenue.  Those policies will not always be popular (like how to set the top rate of tax.  Set it too high and the over all tax take falls ironically ...)

"We can't keep going on with the self-centeredness of financial planning in the UK."  Interesting ... I read this sentence and agreed whole heartedly and thought "people need to be responsible and save/invest for their future".  Clearly not what you meant.  You think savers are self-centered by saving and wanting to then pass their saving down to their children.  I think that those that don't save for their own future (never mind wanting to pass it down) are self-centered by expecting the state to pick up the tab later.

 

Cheers.

mrphilipoldham - on 08 May 2018
In reply to Pete Dangerous:

..or have fewer people, therefore more demand for workers and consequently higher wages. Paid for by producing a decent quality cake at £2 rather than a cheap nasty one at £1. The race to the bottom in price and quality leads to worsening lives for all. Cheap immigrant labour only serves to exacerbate the problem.  Until we all refuse to buy the cheap crap pumped out by the 'big brands' and resort to spending that bit more away from established outlets, nothing will change. I like to think I'm doing my bit by shopping at Aldi rather than Tesco, but realistically even that's a poor effort.

1
stevieb - on 08 May 2018
In reply to Eric9Points:

Financial stability rules were tightened.

Mortgages without deposit/low deposit have been heavily implicated in the last two crashes (2008 crash was largely US mortgages and financial instruments based on them). If the property doesn’t cover the defaulted debt on a large enough scale, then the banks are in trouble. 

As far as I know, ‘no deposit’ mortgages have only really been available a couple of times in history (both in the last 35 years).

If the occupier has put a 10%+ deposit, then there is some room for a price fall before the bank gets hit and also the occupier loses out if he hands the keys back and walks away. 

Toccata on 08 May 2018
In reply to Stew99:

Nice post and thanks for taking the time to reply in detail.

The thrust of my argument is wealth distribution, not targeting one group such as the elderly. Unimpeded flow of assets from one generation to another is one of many mechanisms that impedes social mobility. A child inheriting their parents' property portfolio tax free perpetuates a system preventing the less well off from getting to a position to buy their own house (high rents prevent saving and high house prices limit affordability), as just one example. Buying a house carries the cost of mortgage interest, stamp duty etc but inheriting one would appear to be free so housing becomes controlled by an ever smaller pool of well off individuals. I just can't see this as being a good thing.

As for asset disposal, would that not be a good thing? How do we get money from the rich into the economy? I'm not a fan of a direct wealth tax so looking at 'easy earnings' such as housing market booms and inheritance makes sense. People do need to save for their future but they can only do so when they can afford to live and have some spare cash. 

 

Eric9Points - on 08 May 2018
In reply to stevieb:

I understand all that but would we really be putting the economy in danger if deposits were abolished or reduced to say 1%. I'm not sure we would be doing anything hazardous providing the understanding was that tighter controls on lending may be quickly introduced if the economy looked like overheating.

Further, a massive house building program would bring down rental costs further helping millenials.

Tuition fees in England are too high. A few years ago it only cost £9k per year to go to Oxbridge. It now costs that to study comparative wankology at the University of Crapcaster and everywhere else in between.

3
stevieb - on 08 May 2018
In reply to Eric9Points:

> I understand all that but would we really be putting the economy in danger if deposits were abolished or reduced to say 1%. I'm not sure we would be doing anything hazardous providing the understanding was that tighter controls on lending may be quickly introduced if the economy looked like overheating. 

Even if it was made easier, I don’t think any major lender would be offering very many mortgages below 5% deposit in the current climate. 

> Further, a massive house building program would bring down rental costs further helping millenials.

this is a different point, but a house building program would make low deposit mortgages even less likely. 

 

David Cohen - on 08 May 2018
In reply to the discussion in general:

Taxing assets (LVT etc) on the grounds of ownership (rather than transfer) is a very bad idea, imagine you own asset A worth £1000, it provides no income but carries a tax liaility of £100 per year.  Therefore after a short period of time it becomes worthless, indeed as soon as the asset value tax is applied it loses all value.

LVT restricts development, growth, innovation etc. 

Let's say LVT is intended to replace Council Tax, if this is a straight swap then it raises no additional taxes. For LVT to raise significant revenues it would need to be significantly greater than council tax.

The average council tax (band c, is roughly £1500 for the sake of argument) so let us say they want to increase that to raise an additional 20% this would increase the average tax to £1800 c. .75% of the average house.  Of course not all houses are average, in many areas (particularly the deprived areas) average house prices are £100k. At .75% this would mean a reduction in CT/ LVT of about 50%. 

Student fees are a red herring, at £30k per year the difference between no student debt and student debt (plan 1) £80 per month, (plan 2) about £50 per month.

I am also perplexed by this current theme of 'wanting fairness' I just don't get it.

5
David Cohen - on 08 May 2018
In reply to Eric9Points:

It used to be c.20%, calculated on a x.2.5 multiple of husband's income only and at interest rates on average 7%. Young people (outside London and a few other hot spots) don't know how good they have it today.

3
Skip - on 08 May 2018
In reply to David Cohen:

 

> I am also perplexed by this current theme of 'wanting fairness' I just don't get it.

No surprise there

David Cohen - on 08 May 2018
In reply to Skip:

Well, try and explain what you mean by 'fairness' and how it will be achieved, I suggest that you cannot.

Dr.S at work - on 08 May 2018
In reply to David Cohen:

In Sweden house owners pay 1.5% on 75% of the estimated value of the property they own. I’m not clear how applying this tax has rendered the property worthless.

 

if that tax was applied on the UK’s 6 trillion pounds of housing stock then it could yield 68 billion a year - that should sort the NHS and Social care whilst leaving some kopeks for a few more SSN’s...... 

1
David Cohen - on 08 May 2018
In reply to Dr.S at work:

I think that you wilfully miss my points.

Point one is that if you introduce LVT as a replacement for CT (as arguably CT has a flavour of LVT) then the results are in many ways negative unintended consequences unless you abolish local taxation and local democracy.

LVT reduces 'good' investment.  Let us say you own a brown field site. It has a value of £1m and LVT is 1%, i.e. £10k p.a. You want to develop the land and turn it into socially affordable housing.  This will cost £20m and take 3 years before the first house is ready to occupy (at which point you can transfer the liability to the occupier) The value of the land increases from £1m to £100m at the point of approval of the scheme.

This means that your LVT increases from £10k p.a. to £1m p.a. and increases the cost of development by £3m or c. 15%, with the costs of borrowing and presumably being unable to pass on additional costs this would probably prevent the scheme for getting 'green lit'.

Now if you instead of developing socially affordable healthcare use the land as a dump for toxic waste the value diminishes to £100k resulting in LVT of £1k, bring forward revenue streams immediately.

Then there is the issue of incidental development. Let us say I own a farm. I pay £100k LVT per year.  The government builds a new road which reduces my transport costs by £10k per year but the nominal increase in the value of my asset results in a LVT increase of above £10k  which = a greater cost than benefit.

 

 

bouldery bits - on 08 May 2018
In reply to David Cohen:

Everyone's house just went up 10k In value!

 

Result. 

 

 

elsewhere on 08 May 2018
In reply to David Cohen:

Yes I've have my free university education and Mortgage interest relief at source (MIRAS) thanks but that won't stop me whinging about millennials feeling entitled as I look forward to my triple lock state pension.

Post edited at 19:15
Eric9Points - on 08 May 2018
In reply to David Cohen:

> It used to be c.20%, calculated on a x.2.5 multiple of husband's income only and at interest rates on average 7%. Young people (outside London and a few other hot spots) don't know how good they have it today.

A very long time ago.

0% was the norm for years. I bought two houses on 0% and got another 4% on top of the 100% to pay my legal fees the last one in 1997. IIRC things stayed pretty much like that until the run up to the credit crunch when banks were giving 110% if you wanted it.

Dr.S at work - on 08 May 2018
In reply to David Cohen

I did not miss your points, I gave an example of a scheme in action in another country.

I think the possible impact on development costs is a good one, but it should be easy to sidestep by having a period of grace on new developments during which the original tax rate is still employed - in Sweden for example new properties are exempt from the tax for the first 5 years.

Im not suggesting this tax replaces council tax, anybody renting for instance would not need to pay it. I’d prefer that councils were funded by a local income tax.

summo on 08 May 2018
In reply to Dr.S at work:

> In Sweden house owners pay 1.5% on 75% of the estimated value of the property they own. I’m not clear how applying this tax has rendered the property worthless.

Not strictly correct. See below from the 2018 guidelines. The threshold has crept up from 7400kr in 2016, but that's only roughly £35. It also doesn't apply to all types of property. 

"Local goverment charge on real estate

If you own a detached or semi-detached house in Sweden you will have to pay a local government charge. A local government charge of 0.75 per cent of the tax assessment value will be levied on ownership of real estate, but with a maximum of SEK 7 812 per year. The local government charge will be paid for the whole income year by the registered owner at the beginning of the year"

Plus, given that in rural sweden £100k could easily get you a 4 bed detached house with a big garden. And the tax values are always way lower than market value, most people aren't paying very much property tax at all. And even less a proportion of income than I suspect you might be implying. It is certainly irrelevant when folk decide what and where to buy. Flats etc are much lower rates , second homes / cabins / summer stunas... are often excluded (a huge number of folk have these)

Also the Swedish tax authorities can't be bothered with taxing small scale landlords, so the first 50000kr (£4500ish) of any gross rental income is tax free. 

So in essence, comparing tax & housing between the two countries, is chalk and cheese. 

> if that tax was applied on the UK’s 6 trillion pounds of housing stock then it could yield 68 billion a year - that should sort the NHS and Social care whilst leaving some kopeks for a few more SSN’s...... 

See above. You can't correlate. Plus despite different taxes here, you still pay per visit to the doctors etc.. 

Post edited at 19:56
wintertree - on 08 May 2018
In reply to Eric9Points:

> It now costs that to study comparative wankology at the University of Crapcaster and everywhere else in between.

Althogh a CW student isn’t likely to go on to earn enough to ever pay a single penny of their loan back, so actually they get their degree for free with absolutely no personal consequences from their eventually cancelled “debt”.

They and many other students missold degrees will receive their education curtesy off, well, erm, actually that bomb hadn’t landed yet but it’ll probably be the taxpayer.

 

wintertree - on 08 May 2018
In reply to David Cohen:

I abhor any tax or benefit with a sudden threshold (in £ or years or postcode).  When taxes and benefits are not smooth and/or do not have smooth differentials at all points you create an ugly system with inherent gross unfairness and large incentives to cheat, or to self-limit career progression/earnings (counter productive for the state is identified elsewhere).  The current parallel and incongruent “PAYE” and “NI” branded bands are bad enough, before considering the linked interest free savings allowances.

Apart from mathematical ugliness, it doesn’t seem very sensible.  The fundamental  problem seems largely to be that housing costs are - in the south anyway - totally divorced from both the intrinsic cost of housing and from earnings.

I’d rather see house prices deflated over time through more aggressive planning, government social house building, incentivised relocation of jobs northwards and punitive taxation on non-housing association private rentals and long term empty houses.

The effect is similar - taking wealth from the typically older owners of over inflated properties and giving it to typically younger buyers through reduced prices.  

I’d like to think that by removing a gross distortion from the economy instead of adding one, that ultimately this is more sustainable, fair and self correcting.  Whereas that £20,000 (per couple) is either going on hookers and blow, or is feeding the distorted housing market monster.

Treat the cause not the symptoms.

Post edited at 20:42
David Cohen - on 08 May 2018
In reply to Dr.S at work:

Local income tax is an interesting idea and not without merit, but it does carry with it significant risks.

Imagine you have two authorities which border each other, one charges a lIT of 6% one charges 12%. At lower incomes this makes little difference (as opposed to CT) but at higher incomes there would be a push factor to move to the lower tax area.  This would mean an increase in the tax rate to compensate and increase the push away to the lower tax area (increasing property prices in the process).

We observe with the Community Charge / Poll Tax how well intention policies can have disastrous results and one (of many) lessons to be learned from that is that what appears to be 'a good thing' is generally more complex than it first appears.

arthurwellsley - on 08 May 2018

The National Insurance Act 1911 and the 1948 Department of National Insurance, were always based on the premise that if you paid your stamp (and in 1911 you literally got a stamp -like a postage stamp, on a piece of cardboard) throughout your working life, then afterwards you would be fully entitled to care from the welfare state.

 

If full free care for the elderly is being removed, do they get their National Insurance payments refunded? Will they get interest on their re-payments?

 

David Cohen - on 08 May 2018
In reply to arthurwellsley:

NI is a misnomer, it is simply another form of tax as benefits are not contingent on contributions.

My wife doesn't get child benefit (I earn too much) should I get a rebate or accept that being a higher rate tax payer means paying more?

The answer is I accept paying more (but only bloody just )

neilh - on 08 May 2018
In reply to Stew99:

The issues in care costs have moved on and you will find that local authorities will now question trusts. 

My father looked at this and his solicitor pointed out it is now becoming a waste of time to plan like this. A few years ago it was different.

the question you need to ask is if your father goes into a care home. Who pays?and do you really understand all  the implications.

put it this way you might be surprised.

 Out of interestDo you know the cost of care where you live and how much the state will contribute?

Stew99 on 08 May 2018
In reply to Toccata:

Evening!

I think we might be in agreement on much of this again. 

Personally I think the social contract is broken in both directions.  Our elderly population are hoarding all the assets and our youth population doesn't want to (or can't?) pay for the care costs of our elderly.  Fixing both problems together might make this problem easier to find a solution to.  The OP referenced the article in the papers today which only appears to address the problem in one direction.

I would be willing to concede a increase in tax on the assets of the elderly in return for the condition that their latter life care was guaranteed free of cost (on assumption that have fully paid of national insurance etc .. obviously) and at a minimum standard way above the current standard of state funded care.  To me it almost appears obvious that the elderly must hoard all the assets for fear of being left with either massive care costs in the later years or being forced to relay on our desperately woeful state funded care.  Can we blame them for that?  What other choice do they have?  Remove the need to worry about their care costs (incentive) in later life and we would remove the need to own heaps of assets.  Why hold onto a massive house that is 4 bedrooms too big for you if you know you're sorted for the rest of your life.  You might as well just sell it on and downsize.  In theory you wouldn't care about achieving top $$  for it ... as you would not be dependent on that asset anymore.  A house would become something to bring up the kids in ... rather than your security in later life.  The status quo creates an incentive to hoard assets.  I'd be happy to see the incentive removed.

I can't help but feel like these two problems are intertwined.  And I can't help but feel like most youths (clearly I am speaking for all youths. ) don't feel any responsibility to the elderly.  If neither party feels an obligation to the other ... then we won't be able stop the elderly spending their life acquiring assets in the knowledge that they are going to be dependent upon those assets in the final stages of their life.

Re: Inheritance.  You were correct in your earlier post ... it affects a very very small part of the population (and arguably in many cases only those that failed to adequately plan for it). And you are right that it is a blocker to social mobility.  But it doesn't remove the innate desire for a parent to want to provide for, and in some cases pass down to, their children.  I don't believe we can legislate our way out of this.  At the extremes of the argument where all transfers of immovable assets (houses) and intangible assets (cash/stocks & shares) were banned a parent could buy gold bullion, bury them in the back garden and leave a treasure map to their next generation to go get them.  What you propose is a blocking of the currently least friction means of passing down your wealth.  If we block that ... they will simply pick the next least friction means off the list and do that.  Either way ... the passing of assets from one generation to the next has happened since the beginning of humanity (I cannot prove that ) and the desire to continue to do so will be there, IMO, forever.  Perhaps the real problem we are dealing with today is the fact that a whole industry has spun up around it and we're getting too good at it.  Too your point - too much money moving in pools that are closed the rest of the population.

Good UKC debate ... love it!

Cheers

Dr.S at work - on 08 May 2018
In reply to David Cohen:

> Local income tax is an interesting idea and not without merit, but it does carry with it significant risks.

> Imagine you have two authorities which border each other, one charges a lIT of 6% one charges 12%. At lower incomes this makes little difference (as opposed to CT) but at higher incomes there would be a push factor to move to the lower tax area.  This would mean an increase in the tax rate to compensate and increase the push away to the lower tax area (increasing property prices in the process).

> We observe with the Community Charge / Poll Tax how well intention policies can have disastrous results and one (of many) lessons to be learned from that is that what appears to be 'a good thing' is generally more complex than it first appears.

Oh indeed, there are no systems free of flaws or risks, and the devil is in the detail. Fundamentally though, we need to raise more tax in an equitable fashion, the growth in wealth and the decrease in wealth based taxes in the U.K. are a problem that needs resolving.

 

Dr.S at work - on 08 May 2018
In reply to summo:

I’m biased by my mate with a big house in danderyd who whinges about the taxes all the time!

summo on 09 May 2018
In reply to Dr.S at work:

> I’m biased by my mate with a big house in danderyd who whinges about the taxes all the time!

Well they should not be paying more then 0.75% of its taxable value, with an annual limit of 7800kr. We have a farm etc  numerous buildings and don't pay anything like the figures you are suggesting. 

The biggest tax take in sweden is matched income tax payments by the employer. They pay what their worker pays. 

Dr.S at work - on 09 May 2018
In reply to summo:

I expect he pays the right amount, I just looked the numbers up on a website which is clearly cobblers!

summo on 09 May 2018
In reply to Dr.S at work:

> I expect he pays the right amount, I just looked the numbers up on a website which is clearly cobblers!

It might well have been 1.5 previously. Let's hope he makes good use of his 5000kr annual tax allowance increase for any home repairs or maintenance.

David Cohen - on 09 May 2018
In reply to Dr.S at work:

Agreed, let's tax the Doctors :0)

Fundamentally given a flat base line in demand we should need less tax as public services become more efficient and investment returns on infrastructure improve.

Take car tax, I just taxed my car, it took 1 minute.  I remember having to go queue at the post office after spending an hour looking for the papers.

Most of the direct interactions between the citizen and the state can be radiclly improved, whether it is payment of council tax by direct debit, benefits and taxes assessed and paid electronically (I can remember my mother having a book of vouchers for child benefit what ever it was called then) the making of appointments in the NHS (why you cannot be offered an appointment online, confirm etc is beyond me (I will be pleased to be corrected on the NHS point))

 

Bjartur i Sumarhus on 09 May 2018
In reply to David Cohen:

A guy on the radio pointed out that pensioners already have a planned state retirement delayed by 2 years from 65 to 67 staggered over the next 8 years.

At £125.95 a week currently, that is £13,098.80 taken away from old people, so no need to tax them some more, it's already planned to be taken. 

 

 

 

Big Ger - on 09 May 2018
In reply to David Cohen:

Just think of all the second hand cars, new phones and Xbox, and trips to Ibiza that young people could buy with that £10K.

That would surely sort out their probs.

Anyone saving over their lifetime to make sure their kids are provided for is a mug!

4
arthurwellsley - on 13 May 2018
In reply to David Cohen:

You are wrong I am afraid twice;

(a) the Acts are very clear, and benefits are contingent on contributions. If you do not have a full stamp for example you do not get a full pension, and

(b) Child Benefit is a non-means tested benefit and you and your wife are entitled to it even if you earn millions of pounds per year.

Eric9Points - on 13 May 2018
In reply to stevieb:

> Even if it was made easier, I don’t think any major lender would be offering very many mortgages below 5% deposit in the current climate. 

A reduction of 5% on a £150K mortgage is £7.5K which comes quite close to the £10K gift that is proposed. Of course this money is paid back not gifted but would allow more younger people to buy their homes.


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