Treasury wants to cut pensions tax break
Plainly the big story of the Budget will be the deterioration of Britain's public finances, with the government's borrowing needs exploding to record levels for peacetime.
But tacked on to that hair-raising tale will be a subsidiary story, which will be the public-spending cuts and tax rises required to bring the government's expenditure and revenue nearer to equality over the coming years (though we're only going to get chapter one of this epic).
That's why in the pensions industry, which benefits from tax breaks and is habitually a target when money is tight, there is a great deal of nervousness.
For years, many in the Treasury have taken the view that providing full tax relief on pension contributions to top-rate taxpayers is not a sensible use of scarce resources - and in the past few weeks, ministers and officials have been sending out signals that the moment may be nigh for reform.
So some kind of change to the tax breaks available to high earners on their pension contributions is under active consideration.
That said, the chancellor is unlikely to decide till the eve of Wednesday's Budget whether to abolish the right of all top-rate taxpayers to offset their 40% tax liability against what they put into their pension pots.
The reason for prevarication is that limiting tax relief to the 20% basic rate of tax would represent a substantial rise in the tax burden on many hundreds of thousands of people who don't think of themselves as rich.
It would bite, for example, on those earning just a bit more than £40,000 a year, including deputy head teachers and senior policemen. The cost for many of them of limiting the relief to 20% could be more than £500 a year, equivalent to a 1% rise in their tax rate.
Which is why the Tories would be certain to oppose it - and it's already clear from newspaper coverage that the Tories would have a following wind from commentary and coverage in much of the press.
So what would be the argument for abolishing the relief, other than that the government needs more revenue (abolition would raise more than £5bn a year, a non-trivial sum)?
Well the Treasury would say it's slightly odd that the biggest tax breaks on pension contributions go to that part of the population who are saving adequately for retirement, whereas the smallest tax incentives go to the vast majority who are not saving enough.
As a nation we're not putting aside sufficient amounts for retirement - and the greatest deficiency in saving is at the bottom end of the income scale (as you'd expect).
So some would say it's a bit rum that for every £5,000 put into a pension pot by a top-rate taxpayer there's a refund of £2,000, whereas the refund on the same contribution would be just £1,000 for a basic-rate taxpayer.
Is that fair - especially when there are more than 23m basic-rate taxpayers and less than 4m paying the top rate of 40%?
You'd think, from much media coverage, that the vast majority pay 40% tax, and would therefore be hurt by abolition of 40% relief. But that's not so.
That said, would reducing financial support for those who are making decent contributions do anything positive to fill the horrible hole in final-salary pension schemes or boost the meagre payments into defined-contribution plans?
Silly question.
If one of the biggest structural problems faced by the British economy (and those of most other rich countries) is the under-funded pension burden of millions who are living longer, does it make economic sense to withdraw one form of support from pension contributions, without providing other incentives to save?
The chancellor could go for a more modest reform, limiting full 40% relief to earnings up to £100,000 or so.
Which wouldn't raise as much for the Treasury, but there probably wouldn't be opposition from David Cameron's Tory party, because he has made a strategic decision that he can't be seen to be defending the interests of those on highest incomes.
The argument here will also go wider than just the future of our pensions.
There's also a debate about the relative sizes of the public and private sectors.
It's moot whether right now the consensus would be that the hole in the public finances should be filled predominantly by shrinking the state or by finding ways to increase tax revenues.
I'm 
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Robert,
What about the other side of the coin? What would be the reduction in Govt expenditure if final salary schemes were abolished for all public servants?
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As a 40% tax payer I think the higher rate tax relief should be abolished - its wrong.
The last 6/12 months should have shown us all that we must start concentrating on what is right rather than me,me,me.
Its no good us all complaining about FG pension then saying as higher rate taxpayers we should get proportionately more tax relief than lower rate taxpayers.
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#1 - I think it would be grossly unfair if not illegal to take away the rights of people to a final salary scheme that had been part of their earnings.
As far as stopping new entry this is where it becomes impossible for the Government because the final salary pensions they pay out today are funded by the pensions deductions made from public sector employees today - there is no stash of funds to pay these pensions. So if they ceased new enrrants or further contributions they would have a cash shortfall to find.
That is my understanding of the position anyway.
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Robert watch out for the get-out-clause for MPs.
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Or MPs voting to increase pension or allowances to cover ANY these increased taxes
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As one who benefits, albeit in a small way, from the 40% relief, I would have no issues with a lower relief value. In exchange I think it would only be fair that generous public sector pensions are also placed on a more affordable footing. Abolition of means testing on the basic state pension should also form part of the package.
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Changing top rate tax relief on pension contributions will merely encourage movement to salary sacrifice schemes where the employee take a notional drop in salary, the equivalent amount being paid by the employer directly into a pension scheme. Many employees already benefit from a boost of the associated NI contributions into their scheme, the same would be done with a loss of tax relief. Unless of course the chancellor would like to also tax employers pension contributions!
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For once, I am in full agreement with GRIMUPNORTH77.
As a higher-rate taxpayer who is currently pouring every spare penny into a personal pension plan, abolishing the higher-rate allowance would personally cost me about £4,000 per year. But in the current climate we all have to make sacrifices and this is one that I think we all ought to be prepared to make. Robert's argument that it is unfair on the millions who do not pay higher-rate tax is well-put and persuasive. There comes a point when you have to accept that taxes are too low - and I think we passed that point several years ago.
My only reservation is the ammunition that such a move would give to the right-wing press.
The argument for abolishing public sector final-salary schemes is less persuasive. I do not resent those in the public sector who have a guaranteed pension, as it is merely compensation for an entire working lifetime of low pay and generally poor conditions. I have worked (as a consultant) at many government and local government sites and can say with certainty that conditions are generally poor and that most staff are dedicated and hard-working.
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The attack on pensions in the long-term is madness. The original tax on pensions by Labour helped to destroy what was the best pension provision system in the Western world - that is a very widely held view. However, they can justify it because of the sad reality of the economic position they have led the country into.
As they limp to defeat, another tax raid would destroy what is now a weak and underfunded system.
Long-term this is of benefit to Labour. people who have no pension provision are dependent on the State to provide for them. A big state party like Labour therefore has appeal. Labour are playing dirty and disgusting politics as per usual on this.
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#3
I'm sure that final salary schemes have already been withdrawn for some private pensions. If this is illegal for the public sector it's always possible to change the law. With redardgs to it being unfair, aren't we all in this mess together?
Shouldn't some of the pain be shared by the public sector as well as the provate. We're all going to be paying this debt off for years so any means to reduce the burden should be looked at seriously.
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Robert,
Its not as simple as this. If the 40% tax relief goes then expect to see many more employers replace employee contributions to employer pension schemes with salary sacrifice arrangements - this is where the employee stops paying contributions but takes an equivalent pay cut with the employer then paying the contribution on behalf of the employee. The tax effect is just the same, but net effect to the employee and the employer is even greater as NI contributions are avoided. If all employers with pension arrangements were to do this Treasury could end up getting less overall , not more.
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My personal position is that I would reduce payments to personal pensions if the tax relief was cut. Tax will be paid from pension benefits. So why pay management fees to pension companies and annuity suppliers for no benefit?
If this happened on a large scale could it have a serious impact?
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Taxed on the way in or on the way out, someone should decide once and for all and leave it.
Either take the cut when the money goes into the fund or when the pension / annuity / lump sum is extracted, but it cannot be fair to tax twice ? The 40% tax "break" is not really a benefit, it is the lack of income tax on the money you are putting into a fund which you *will* be taxed on when you retire - and if the income you get is high enough, then you will pay the higher rate on that. Wish people would understand this - it's very simple really.
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The point of personal pensions is that they are on the same footing as a company scheme - that is, paid for out of untaxed income: so the issue of whether you are a 20% or 40% taxpayer is a red herring. As a tax payer at all you are still having to pay the National Insurance by the way..... The other point is that NI is just a Ponzi scheme (cf Bernard Madoff) and must, ultimately, go the same way - up that well-known creek. Don't bet on the government pension scheme living as long as you do.
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The last raid that this lot did on pensions took £5bn per year and where has that gone? All it did was help create and exacerbate the deficits in personal pensions.
Now the talk is to take another £5bn per year, waste that, and then complain that no-one is saving enough for the future.
Where is the sense in all of this?
Yes, a person on the higher rate does proportionately receive a higher refund, but they are also proportionately paying more in the first place.
So it looks like a stealthy tax that most people would not understand and so would not get coverage - just like the original robbery.
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Robert
I really cannot believe that this is getting pasted the "silly idea" stage. People get tax relief on their pension contributions because they later pay tax on their pensions if they live long enough. To do otherwise is double taxation.
If higher rate taxpayers are targeted all that will happen is that they will take a salary sacrifice and the company will put the money into the pot, saving NI contributions in the process.
What really needs to happen is the solid gold, final salary paid for by the taxpayer pensions of the MP's should revert to defined contribution and Public Sector pensions must be cut back. What is left of the productive, wealth creating sector of the British economy is being strangled by the public sector in particular the Treasury mandarins who are already exempt from this government's Pensions cap.
What Alistair Darling should be doing, if he has any loyalty to Britain is accept that ZANULabour are not going to win the next election and get his knife firmly into the whole of the public sector. Does he have the guts to do it?
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The Government needs to think very carefully about its plans over Pensions. It has a very large unfunded State Pension liability and unless there is a windfall discovery of gold, more oil, etc it will actually be unable to meet its current promises without further and considerable reduction in 'real' growth and will incentivise the able to emmigrate. To ensure creating a fund equivalent to that required to buy an annuity to provide the same terms and conditions in retirement as for a Civil Servant or indeed any State employee will require a far greater contribution from a private individual than to date. So a far greater amount should be allowed as an offset say 20% rather than the usual 10% and the State pension needs to be reduced and contributions incresased.
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Surely the main pension reform needs to be stopping final salary pension schemes for the public sector. These days it’s an absolute myth that those in the public sector get paid far less than those in the private sector. Sure, there are a few bigwigs in the private sector earning loads, but the average person isn’t.
Public sector employs are the non wealth generating part of the economy, although I accept they provide essential services. However, for this, they receive pretty much parity in terms of pay, more annual leave (usually), more “flexi time” and “training days”, and far greater job security. On top of that they ALSO get gold plated pensions at HUGE cost to the taxpayer in general.
Parity is needed in terms of pensions. Gold plated final salary schemes for the (now huge under Labour) public sector need to be scrapped. I can only imagine what a huge saving that would represent for the public purse. If they want to strike over it – let them – there is a recession on with half the private sector being made redundant, so plenty of people to fill their jobs of required.
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#8
'The argument for abolishing public sector final-salary schemes is less persuasive. I do not resent those in the public sector who have a guaranteed pension, as it is merely compensation for an entire working lifetime of low pay and generally poor conditions. I have worked (as a consultant) at many government and local government sites and can say with certainty that conditions are generally poor and that most staff are dedicated and hard-working.'
I'd agee with you about 10 - 15 years ago however since then there has been a drammatic increase in pay and conditions of those in public service. The pension and holiday arrangemeents for public servants used to be regarded as recompense for the (relatively) poor remuneration. This is no longer the case. The public sector is now regarded as a viable and attractive career path by all walks of life
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This government has regarded raiding our pensions as the biggest and most effective stealth tax - let's face it, most people haven't a clue about their pensions until they reach their mid-forties at the earliest and often not until their late fifties, if at all before retirement, so if the government raids their savings pot they are blissfully ignorant, only to wonder why their pension is so low when the evil day arrives.
It's not just taxes the government is using to raid our pensions - look at the rise in Lloyds and RBS' share prices, companies which used to be worth £200 billion plus to our pensions, and which will be viewed as having been picked up for a song by the government in due course.
For that matter the fund managers etc who manage pensions are also continuously raiding them with their high fees and dubious performance, not mention the boards of directors and senior management paying themselves many millions year after year from the coffers of the companies our funds largely own.
As pension savers and effective part owners of such companies we are given no say in how much fund managers and directors reward themselves, a system which suits the government as many of these people make large political donations either personally or through their organsations, and employ ex cabinet ministers.
The British public are highly unlikely to wake up and do something about large parts of their pensions effectively being stolen and so the gravy train will continue.
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Robert,
There is another dimension to this story.
The way pensions are currently taxed is on the basis of tax deferral. While savers who invest in pensions get tax relief on today's contributions, they will get taxed at the appropriate level when the benefits are taken up.
Presumably the plans under discussion only consider decreasing the tax relief on contribution, with no conrresponding offset in the taxation of the benefits in the future.
I think we are further cementing the prospect of much lower standards of living in our old age.
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As a 40% taxpayer making pension contributions, I would accept this reduction (proposed) as long as it was part of a fair package of expenditure cuts.
This government has a track record of talking tough but acting soft, so I have no confidence that the spending excesses will be curtailed.
I feel like a sitting target, working hard, providing for family and future, rather than just relying on the state for present and future support.
This is an ideal opportunity for an outgoing government to start on the road to a fair society based on personal responsibility rather than knee jerk reactions.
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Typical etatist socialism: leveling down rather than leveling up!
No wonder the country is slowly turning into a nation of beggars.
How about closing The Treasury down? We would all be rich beyond our wildest dreams. We could go out and spend on luxuries such as food, clothing and shelter.
I reckon Brown will bottle this like he has bottled everything else. It will lose him support amongst his principal client group; namely, the middle classes who get their tucker from sucking at the taxpayers' collective nipple.
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"So some would say it's a bit rum that for every £5,000 put into a pension pot by a top-rate taxpayer there's a refund of £2,000, whereas the refund on the same contribution would be just £1,000 for a basic-rate taxpayer."
This is nonsense. The top-rate taxpayer is simply being refunded the amount of tax that he/she would otherwise pay on that £5,000 just as the basic-rate taxpayer is being refunded the amount of tax that he/she would pay. To imply that the basic-rate taxpayer is somehow getting a raw deal by only getting back that which he would have paid or that the top-rate taxpayer is receiving a benefit is gibberish. Another way of stating your argument is that top-rate taxpayers pay a higher rate of tax and therefore should receive a lower rate of refund.
This is just another example of these blogs, together with Robert's TV analysis being used (i) as just another element of the government's spin machine and (ii) as a piece of market research to test public sentiment to something that the treasury mandarions are considering.
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If the chancellor wants to act on pensions, the first thing he should do is raise the retirement age for public sector workers to 65 (the same as everyone else) and tax them on their perk of an index-linked pension - something beyond the wildest dreams of private sector employees.
With so many recent pay rises pay in the public sector is no longer low. And don't forget the job security in these times of recession!
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It is not so easy to remove higher level tax breaks. Many firms are now operating salary sacrafice schemes and employee contributions can be shifted to the employer with an equivalent reduction in salary. If the government tried to tax employer contributions all hell would break loose because this would logically lead to taxing final salary schemes which are worth 20-40% of income. The biggest losers would be MPs, police, forces and civil servants - I dont think that they would go there.
Lower paid workers are losing out because of the shift from tax to NI - It would be better to aggregate this as tax and spread the tax load to wealthy pensioners and the like to pay for the higher relief to lower earners
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All this neatly sidesteps the elephant in the room - the pensions apartheid which exists between the public and most of the private sector.
If the chancellor was serious he could recoup billions by reining in public sector pensions and benefits.
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#8 – “I do not resent those in the public sector who have a guaranteed pension, as it is merely compensation for an entire working lifetime of low pay and generally poor conditions.”
I don’t know what kind of swanky office you might work in, but I can assure you many in the private sector are not working under superb conditions or with great pay. I’ve worked in both public sector (for 5 years) and the private sector (3 years now). Quite the opposite is common, as most private firms look to cut back on all sorts in an effort to reduce their cost base.
By comparison, most public sector positions have quite good pay deals under Labour. I know that people doing my job (engineering) in the private sector are on broadly the same pay, perhaps very slightly less, but for more annual leave, flexi time, final salary pension – the works. Oh…and a far nicer and less stressed office working environment.
My Wife works in the public sector. Her last annual pay rise was 9%. In the large private sector company I work for, the average pay rise across the board at Xmas was 0% - nothing. There is a recession on and pay rises were ruled out. That would NEVER happen in the public sector…..
Believe me - there is serious scope to play with public sector pensions before many public sector employees become "worse off" than their private sector counterparts.
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As often with your blogs Robert, the sting is in the tail.
The strategic issue is the size of the public sector. I find it interesting and frustrating that there's no political choice here. Where is the party offering us the chance to cut the public sector back and let us choose how to spend our money?
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There is another angle to this question that has not been considered yet. I am a practicing chartered tax adviser and have many retired clients who pay 40% tax on the pensions they receive. Should I tell my younger clients who are currently saving hard for a pension to continue to do so on the basis that they receive 20% tax relief now, only to be taxed at 40% in retirement? Where's the incentive in that?
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I have never understood why higher rate tax payers who are generally better able to fund for their retirement get a better deal on pension funding than basic rate tax payers. Personally I think they should both get the same amount of tax relief.
Equally the Government must address the issue of public funded pensions which are in my view unaffordable given that people are living longer and many of these schemes rely on future tax payers to pay them as some are totally unfunded.
How anyone can justify a pension of £110,000 a year to 49 year old ex policeman Bob Quick is staggering. To pay a pension of this amount for would need a pension fund of over £5,000,000 which is of course largely paid for by the tax payer. If he paid 11% of his salary of £160,000 then his last years personal contributions would only be £17,600 which after 40% tax relief woulcd cost him just £10,560. Even if his earnings were £160,000 for all the 30 years he had worked for the police he would have paid in only £528,000 (gross) and I suspect the reality is that his total contributions to his pension over those 30 year are more likely to be inh the region £250,000, so the tax payer would thus be funding £4,750,000 of is pension. In which case this is utter madness and an abuse of tax payers funds.
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Treating customers fairly, lol
The pensions Industry is on the verge of collapse! Squeezed between dithering ministers and and complete lack of confidence from Joe plumber. The writing is on the wall, what next gordo now that your credit card has reached its limit?
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HOW THE TAX SYSTEM WORKS Suppose that every day, ten men go out for beer and the bill for all tencomes to £100. If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay £1.The sixth would pay £3.The seventh would pay £7.The eighth would pay £12.The ninth would pay £18.The tenth man (the richest) would pay £59. So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by £20.' Drinks for the ten now cost just £80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the £20 windfall so that everyone would get his 'fair share?' They realized that £20 divided by six is £3.33. But if they subtracted that from everyone's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: The fifth man, like the first four, now paid nothing (100% savings).The sixth now paid £2 instead of £3 (33%savings).The seventh now pay £5 instead of £7 (28%savings).The eighth now paid £9 instead of £12 (25% savings).The ninth now paid £14 instead of £18 (22% savings).The tenth now paid £49 instead of £59 (16% savings). Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. 'I only got a pound out of the £20,' declared the sixth man. He pointed to the tenth man, 'but he got £10!' 'Yes, that's right,' exclaimed the fifth man. 'I only saved a pound, too. It's unfair that he got ten times more than I did' 'That's true!!' shouted the seventh man. 'Why should he get £10 back when I got only two? The wealthy get all the breaks' 'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor' The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill. And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier. David R. Kamerschen, Ph.D.Professor of Economics For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.
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If MP's had to contibute to their pension scheme as top rate tax payers there would be no chance of any tax grab getting through.
However as it doesn't affect them or the Sir Humphreys of this world I fully expect them to pass it. After all most of those earning high rate tax, and having to contribute to their pension already vote Conservative.
If this goes then surely the drawbridge has to be lifted up on not only public sector pensions but also MP's ones too.
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It appears that our Government invested in the banking industry at a time when share prices were at an all time low. Surely they should hang on until the share price recovers and the black holes will be filled.
Tax upon tax upon tax on the majority who are modest earners is not the answer because it can and is demoralising people and turning growing numbers away from gainful employment. Modest earners fight daily, weekly and monthly battles just to pay bills and feed and clothe ourselves. We are becoming 'Bill Battle Weary'.
Talk of Pensions black holes just doesn't worry people who are already being led to believe that it is better for us to have no savings in retirement, because the Government will just find a way of taking it off us and also since the government will house us, feed and clothe us anyway.
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Post 22. You, me and hundreds of thousands like us.
People who work hard for a living, follow the rules, keep our noses clean, get paid by PAYE only to get mugged as apparent docile cash cows by the current administration.
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Morning all.
Re: #3 GRIMUPNORTH77 - Sorry to say, but public sector final salary schemes are already subsidised via council tax to the tune of £4.1 billion a year (the shortfall on what is paid out versus the 6% contribution of salary).
Time to cut the losses and stop new entrants.
Re: #8 rbs-temp - as a former public sector worker myself (no I'm not bitter!) I don't recognise the "entire working life of low pay and generally poor conditions".
In 1996 I was doing a job very similar to my present one (middle management) and coincidently earned the same then as I do now. I also worked about 20 hours a week less than now, could have taken six months a year sick leave on full pay and six months on half pay and had 8 days more holiday a year. Oh, and I could have had a gold plated pension. Not all public sector workers are low paid!
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It is clear that the Government has got now to find ways of raising more cash from the fat cat public sector both by massively reducing pension perks to existing public sector employees and by reducing the payments made to public sector pensioners under final salary schemes. This might be very unpopular to all the jobsworths who inhabit the public sector. But there are now many people who are out of work who would be more than hapy to take their places. If action is not taken to remove the feather bedding that public employees and pensioners currently enjoy there is a real danger of an "us and them" schism developing where Labour becomes seen as the party supporting the public sector employee to the disbenefit of those who have to work for a living in the real economy.
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How's about taxing pensions yielding over £30k per year at 80%
This won't affect most pensioners, nor those desparately saving for a pension, but WILL affect those fat cats who have abused a taxbreak for such a saving. eg Fred Goodwin, and Whitehall bloaters.
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I agree with skynine.
When pensions are drawn they are taxable at marginal rates. Contributions should therefore get tax relief at marginal rates.
Let's not mess with this!
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Too narrow a focus. The problem is of tax take accross the spectrum of earners where low earners are paying too much and high earners to little. What is needed is a partial return to progressiveness in income tax - not a return to one for me and 19 for the taxman days but a position that is based at a smaller set of marginal rates beginning at £50K and topping out at £200K at 65% marginal rate and placing a cap on the amount of tax relief enjoyed by any higher rate taxpayer.
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Tax, waste, and let the future sort out the problems.
labour prudence?
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#33 - I think this needs to be turned into some sort of 'public awareness broadcast'. The BBC could screen it after Eastenders.
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Yet again the goverment (and indeed Robert) spin it that higher rate tax payers "receives more" tax relief.
I would phrase it that under the current system, the government doesn't steal any money (via taxation) out of pension contributions.
Their proposal is that they steal 20% of the contributions made by higher rate tax payers.
Stop stealing from people and start cutting back the wasteful expenditure!
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Robert,
Why limit debate on fairness to higher rate pensions contribution relief. The growing divergence between private and public sector pensions benefits is growing. There are a section of publicly employed workers who have gold plated schemes which are subsidized through general taxation to, some say, £16 billion per annum after deduction of employee contributions. Not only do some of these public pensions offer pensions based on final salary but are also index linked to make them inflation proof with early retirement combined. Whilst there may be equally generous arrangements in some private organisations, these are/should be self funded. So, why not treat these types of generous pension as 'benefits in kind' and tax them.How much could this raise? Seems fair to me. Then, give us transparency on the bill for publicly underwritten unfunded pensions.
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Post 31. I think you will find ex Assistance Commisioner Quick is far from alone in the generosity of his public sector pension.
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#24. romeBanana22 wrote:
"This is nonsense. The top-rate taxpayer is simply being refunded the amount of tax that he/she would otherwise pay on that ?5,000 just as the basic-rate taxpayer is being refunded the amount of tax that he/she would pay. To imply that the basic-rate taxpayer is somehow getting a raw deal by only getting back that which he would have paid or that the top-rate taxpayer is receiving a benefit is gibberish."
No, it is not gibberish (although, admittedly, it is open to different interpretations).
If a basic-rate taxpayer makes pension contributions of £10,000 per year he will receive tax relief of £2,000, whereas a higher-rate taxpayer (who, by definition, earns more) will receive £4,000 tax relief on payments of £10,000.
Thus, the better-off individual pays just £6,000 for something that costs the poorer individual £8,000.
I understand that this is an inevitable consequence of full tax relief on pension contributions, but where's the fairness?
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I can see both sides to the Public v Private sector debate above..
However as a Public sector worker, it is important to recognise that not all public sector employees are equal. Just like the private sector they have their fair share of fat cats who's benefits seem to way outweigh the value they add to society.
In ten years at my present company I would say the average pay increase was 3% per annum (no bonuses of course), so broadly inline with inflation. However this year like the majority of our private sector friends we will have NO pay increase.
Although I am fortunate enough to be in a final salary pension scheme, there will be no retiring at circa 50 years old like FG or Bob Quick.
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Another master piece from the Ministry of Spin. On budget day Dick Tirpin
will conduct another broad daylight smash and grab raid on those that were not reponsible for this mess or responsible for the "rescue plan" whilst those responsbile are troussering millions in rewards with the blessing of Gordo and his crew.
Now if at the time the bailouts were announced that the following coarse of action will also need to be taken had been made plain and up front then they would not have happened at all and Shred would not get his massive pension as RBS et al would have gone bust. leaving us to get on with our lives with the banks that were left and maybe some new ones.
of coarse there will be conjoring tricks golore until after the next election in an attempt to win the next election And they will have the BBC on there side too. well its already started.
Bod Quick was another fine example for reward for failure, and how much is he getting (wow) perhaps Mr R Peston can explain where all that money is comming from ?????
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#23. stanilic wrote:
"Typical etatist socialism: leveling down rather than leveling up!"
How is it possible to "level up" in a period of financial distress?
(And, even in good times, how would it be possible to "level up" in this particular instance? How can you give 40 percent tax relief on pension payments made by basic rate taxpayers?)
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At present, a couple who earn say £45,000 and £15,000 pay more tax than a couple who each earn £30,000. At least the two couples are treated similary in regards to their pension contributions. The new proposed measure would, however, further extend the inequality, but both couples need to save equally for their old age.
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What a blag.
Today the Chancellor told us how he thinks the recession will be over by Christmas.
Funny that - considering this recession is now worse than any since the war.
In the JK Galbraith book (The Great Crash) - the Harvard Institute of 'Dire-conomics' said for months after the intial crash:
"The recession is slowing"
"The depth of the recession is not as great as we feared"
"The signs of recovery are appearing (green shoots)"
"The worst is over"
"we can expect a recovery soon"
"The recovery should be starting any time now"
etc, etc, etc.
Basically - like Vince Cable said - THEY ARE ALL LYING - THEY CANNOT POSSIBLY KNOW HOW LONG THE RECESSION WILL LAST.
Is this acceptable? A Government that thinks a) it can spend it's way out of recession b) A Government that thinks it can lies it's way out of recession.
Recession is NOT a mind set, it's not a reflection of the 'confidence' of the people of the world. It is a mathematical inevitablilty and anyone who says differently IS A COMPLETE LIAR.
The Government thinks that if it can convince us that 'the worst is over' then we will go back to spending money we don't have and create more 'ficticious wealth' for industry to invest with and for speculators to speculate with.
....any guesses for where that will take us? - you don't have to be a financial genius to work that out.
Sorry to Hijack your riveting pension story Robert - but while you thoroughly investigate small features like this - the big picture is the ONLY one to concentrate on.
People forget that WWII nearly bankrupted this country (due to the high levels of National debt) - and it was only due to a large loan from the Yanks that we were able to rebuild through public spending on the welfare state / NHS.
Unfortunately the Yanks won't be lending anything at the moment.
Also there has been little coverage to where this is all going, much talk of businesses and banks but very little mention of the poor outlook which will certainly contain one or several of the following:
1 - Rising inflation which efectively makes everyone take a pay cut (and no - the Government cannot control it - despite their claims)
2 - Public spending cuts - pay cuts for teachers, civil servants, council employees etc. and well as limited investment in public services.
3 - Tax rises - mainly on the poorest as although unpopular the Government has already marked it's position in this by remarking that 'we mustn't tax the wealth creators heavily as it will stifle growth'
4 - Social unrest and strikes - which will further damage the Economy as the Government starts to loose control - especially when Unemployment benefit is slashed.
The public just doesn't get it - this has been coming for a long time. Why do you think so many terror laws were brought in after a single terrorist attack - even though the IRA bombed us much more frequently and we didn't need them then?
Why do you think the police are refining their 'kettling' technique?
Why do you think the American toops have been practising "Civil control" in the home towns of the States?
Why do you think no protests are allowed around parliment?
How long do you think it will be before the whole thing cracks?
Don't believe me? All over the world the pattern is the same, occupations in Brazil, Venezuala, France and even North London.
Don't think the media can be controlled? just remember the Prince (Harry?) going to Afghanistan and how long that was kept from the public.
Helmets on Comrades - the war of the classes is about to begin..
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#13 & #33
spot on...
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...oh and how the Government forget themselves - they forgot they have already used this lie before "Making £15m in efficiency savings"
Are these different to the efficiency savings Blair announced?
Does this mean they knew these in-efficiencies were already there - but did nothing about them until we went into recession?
....or is it just another pack of lies - hoping we're so stupid we can't remeber 2 years ago when they tried to pull the same trick.
The ONLY efficiency saving is to shut Government down and get rid of all the blood-sucking parasites that live in Westminster.
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@ 33.
Brilliant.
I fear attempting to explain the logic to those protestors who rioted and called for 'banker burning' might be an uphill struggle. If people do not have the intelligence to approach their concerns in a civilised manner, and indeed have no real idea who their rage is pointed at or even worse why, then they are unlikely to understand such basic economics, even if written in such a succinct fashion.
If the tax relief for high earners gets removed, the government will have to rely on the weak GBP to prevent a full scale brain drain.
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why don't Flash and Darling just sort the Public Sector Pensions and make it A Money Purchase scheme ? every other company is doing. Cos it will Lose votes ? I wont matter they arent going to get re-elected anyway so why not do the right thing and at least be remebered for something .
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Excellent point youhave5fingers at #33 - very well made too.
Another excellent point Andyicta at #30.
Let's not lose sight that pension contributions will be taxed when received as pension (save for the limited proportion allowed for a tax free lump sum). Hence, if I pay tax now at 20% on my higher earnings pension contributions and then again conceivably at 40% in the future on my pension, that's around a 55% effective tax rate, so why would I bother saving beyond a certain point?
That said, I don't understand why anyone would opt to pay into a personal pension scheme if the tax relief is only 20%. Whilst you save 20% tax on the contribution you will end up paying that tax rate when you draw it as income at a future point in time. All you will have achieved is tieing up your money for a very long period, possibly with never getting to utilisie it and along the way you will have paid some nasty fees and commissions, as well as more than likely have achieved a pretty poor return.
Naive to think that the whole point should be to encourage all tax payers to save for their retirement - otherwise we might as well all aim to throw ourselves at the mercy of the state system.
As for doing away with the public sector final salary schemes - yes I agree with those posting above that it is very unfair. And I thought it unfair when my former private sector employer pulled its final salary scheme 8 years ago too!
There's a lot going on right now that isn't fair - but hey, life's not fair! It will ulitmatly also be unfair that my children and just about everyone else's will in future years pay the price for those accruing public sector fixed salary pensions. At the very least the schemes should be closed to new members - it will then be for prospective public sector workers to make a choice between the state sector or the alleged "lucrative" private sector! Given the economic position - NOW is the time to close the schemes to new entrants!
All that said, this is academic as GB will never touch the public sector final salary schemes whilst he still deludes himself that he might have a sniff of retaining power.
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So lets be clear.
At present, money which we don't invest for a pension gets taxed twice: one when it is earned and once when it is spent. Money we do invest for a pension is taxed three times: once when the investment earns interest; once when the pension is paid; and once when it is spent.
Adding a fourth tax to pensions seems an odd way to encourage people to save for their retirement.
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Pensions, Insurance, Banking, Government the "No Confidence" tricksters. Time for the public sector to employ zero-based budgeting. Propose that the next time you raise your red handbag darling.
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Is there any incentive for staying in the UK?
My wife and I have worked all our lives and paid our taxes, myself at 40% I work min 60 hours a week and my wife works nights we are not rich we get 1.5% pay increase and our outgoings go up 3% its like trying to push water up hill. We have saved in pension schemes not wishing to rely on the state and have lost over £50K from our pension and £100K equity from our house following the crash. Now they want to tax our pension contributions we don't qualify for any hand outs why bother working?!
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Pension tax relief for contibutions should better be described as a "Tax Defferal".
No Tax for money in but full Tax on Pensions in payment.
I put most of my redundancy pay into my Pension Fund. I now pay 40% on the top slice of my Pension Income [including state pension].
Pensions are a way of deffering income until retirement and the tax mirrors this.
That strikes me as being a fair way to encourage savings and dealing with the tax issues.
Let us not get carried away by the excesses of a few so that we hurt the many.
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What about raising the income tax rate for people earning over say £100K ? This would raise revenue, hit those who in theory can afford it best, with the added benefit that those receiving large city bonuses would be affected.
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I'm disgusted to hear that this benefit for high earners was around anyway. But this is just the icing on the cake.
High earners also get the benefit of paying proportionally less National Insurance on the amount they earn, even more so the more they earn. If HM Government want to save money, how about:
Abolish National Insurance (and reorganise the NHS as below)
Income Tax of 25% for everyone up to £40k, 45% thereafter.
Public Servants and MPs to follow the same rules as everyone else.
There comes a time when ideals must change, with the change that happens as a culture develops or declines. The NHS cannot afford to continue as it is and must be cut down to size - while still providing services for all, rich or poor (but now more fairly funded as above). Non-essential procedures will have to be paid for out of an individual's pocket, though it is debatable which are and which aren't and further discussion would be needed.
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#52. writingsonthewall wrote:
"Recession is NOT a mind set, it's not a reflection of the 'confidence' of the people of the world. It is a mathematical inevitablilty and anyone who says differently IS A COMPLETE LIAR."
I disagree: recession is most certainly not a mathematical inevitability. But instead of accepting that I have a different point of view to you, you have already decided that my point of view makes me a COMPLETE LIAR. Is that how you approach a debate?
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No. 33. The tax system as you describe it doesn't factor in the large amount of money the rich spend on avoiding paying their 'fair share'.
So we're in a period where there is a shortage of funds for lending, and our solution to this is to tax people who provide funds for investment. Great.
This government has done very little other than rob pension funds over the past few years, the epitome of the buy-no-pay-later brigade.
If we don't encourage investment in pensions, people will look to alternative forms of investment that will provide them with a retirement fund - like buy-to-let property... and look where that got us.
The debate about higher rate tax payers benefitting from the higher deduction is pointless. Unless you impose communism, and expect everyone to be paid and taxed the same, there will always be winners and losers.
At some stage in the past, we thought it was a good idea to encourage everyone to invest in pensions, and gave them a tax incentive to do so. Let's just have the honesty to admit that in these tough times, our government is going to tax whatever is perceived as 'unfair' in order to dig itself out of it's self-generated sticky-brown-stuff.
The point about public sector pensions has been well made already, but personally I find it all rather offensive that there's a natural assumption that they should be retained, when the one thing this government has been very effective at is destroying the private sector equivalent.
The worst offenders are MPs. If they're worried about their perception, and restoring their credibility, then they should set an example for the rest of us, rather than lining their pockets with expenses and fact-cat pensions.
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Please remember that Local Govt employees do contribute to their pensions, into a pension fund which then pays the pensions. The contributions (from April 2009) are at a higher percentage of salary for higher earners, partly to mitigate the 40% tax effect. The employers put more into the pension pot that the employees do, and some might regard the extent to which this happens as unfair.
However, many (but increasingly few) PLCs have similar arrangements. I used to work in a PLC and the pay was better, the pension was MUCH better, and there was also a win/no-lose sharesave scheme, and several bonus schemes.
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#33 - Hmmm, no doubt a very entertaining read but I would hesitate to suggest there is a flaw - therefore I am either admitting I am very stupid OR I am ignorantly pointing out that your story has no clothes?
Let us add to the picture that to pay for this beer (and other things as well) the men earn £200 between them. Your conclusion presumes that once the richest man was beaten up and went away that everyone would not simply move up the job ladder to replace ie Fred Goodwin's assistant is now doing Fred Goodwins job but for a lot less money. By reapportioning the role of the richest among several not quite as rich you have a more equal spread of income, no super rich, but I am far far from convinced that somebody else could not have done FG job.
So in my solution it may be that of the 9 remaining only 3 are now too poor to afford their own beer and numbers 6,7,8 and 9 can afford to pay more for the beer coz their earnings have gone up.
It is very very rare for an individual to leave a well established company and for that company not to be able to continue without them.
Anyway I believe the people you suggest would leave are probably the super rich who are probably evading paying taxes anyway - most normal level high earners are not going to up sticks just because taxes go up a bit.
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"What would be the reduction in Govt expenditure if final salary schemes were abolished for all public servants?"
With civil servants being vilified by the media as overpaid loafers, when most of them earn less than they would for similar jobs in the private sector, the only incentive for joining is probably the benefits. Take those away and who wants to be a civil servant.
Many senior executives in the private sector have hugely favourable pension privileges (e.g Fred Goodwin) which their customers and junior staff indirectly fund. For some reason, people seem to find this more palatable than civil servants having good pensions....
And no, I am not a civil servant.
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I feel the need to make an important point about public sector pensions. They're not all the same. Those of us in local government schemes pay large contributions each month. And these contributions rose significantly not that long ago.
There is an employer contribution as well, but it's just deferred pay. Local government schemes, most of whos members are low paid, should not be lumped in with other more generous and unfunded schemes.
Can we please stop lumping all public sector pension arrangements together under one label?
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Robert:For the public to allow the Chancellor(of Ex.) to rob the pension funds once would seem like complacency. To allow the Chancellor(of Ex.) to rob the pension funds twice, would seem like either great sycophancy, or great foolishness.
So,is this Mr. Paines ''age of sycophancy'' ?? Next.......Celebrity Chancellor ??
Or, the foolocracy remains.
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#47 - RBStemp - I hate to quibble but this is exactly the nonsense that Preston is spouting. It does not "cost" the basic-rate taxpayer more. The pension contribution is paid out of gross income. Therefore, the basic rate taxpayer can choose either to pay his/her £10,000 into his/her pension or take £8,000 in cash. Equally, the top-rate taxpayer can choose to pay £10,000 into the pension or take his/her £6,000 in cash. Each has earnt £10k and therefore can pay £10k into the pension but if he/she wants to take cash then the top-rate taxpayer must take less.
The pension pay-out is not tax free in any case, the top-rate taxpayer pays 40% when the pension is drawn so assuming no appreciation on the principal, the basic rate taxpayer will be paid £8,000 of each £10,000 and the top-rate taxpayer £6,000 of each £10,000. So the relative refund is neutral. The correct way to look at it is that to receive £8,000 of principal back the basic-rate taxpayer has only to pay in £10,000 gross but the top-rate taxpayer has to pay in approx £13,300 gross.
Now if you want to amend the refund so that the net amount of every £10k gross that a top-rate taxpayer pays is £8k that is fine but you would need to adjust the return so that for that net £8k outlay the top-rate taxpayer received £8k principal return otherwise no sane top-rate taxpayer would pay into a pension to take what amounts to a 25% net hit on principal return.
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Robert:
For the voting public to allow the Chancellor (of Ex.) to rob the pension funds once, would seem like complacency. For the voting public to allow the Chancellor (of Ex.) to rob the pension funds twice would seem like great sycophancy, or great foolishness.
So, is it as Mr. T. Paine's would have it the ''age of sycophancy'' (and dearth of common sense).
Or, the foolocracy remains.
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Tax the prudent ~ support the profligate ~ exempt the hierarchy. Feed it Peston and see what happens ~ Standard NuLabour then.
Time to stop paying into my pension I think.
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#33 - sorry, but your tax explanation is a load of rubbish and only good for a 'pub conversation' at best.
When I tell you that man 10 is the richest because his forefathers sold slaves from Africa, and that men 9 and 8 inherited their money from their rich father who 'screwed over his business partner' to earn his fabulous wealth - or maybe the 7th man pays himself more that men 1-6 because he is able to do so as the workers in his business are paid less than the value they create.
Your isolated and specific example would only have relevance if all 10 men had earned their money by honest, self-less and fair means.
Also your little piece omits a couple of other 'events of reality' - namely the fact that most of the 'rich' pay proportinately less tax than the poor - I know this because I am rich and I pay less tax than if I were earning £26k a year.
Secondly you have brought out the ever tiresome argument of 'we need the rich so they invest wealth and creat jobs for us minions - otherwise they will go abroad'
Firstly you assume that the rich are going to invest it in something good for the people in general (and not their own self interest) - which is a bit of a parody as he only got his increased wealth after he (or his forefathers) acted in their self interest to begin with - and old habits die hard you know.
Secondly you assume that money is the ONLY motivator and it's clear you agree with this philosophy - but it's certainly not the case for everyone. If that had any truth to it then all the rich would be living in Panama, Brazil, Uruguay, UAE etc anf the UK would be bereft of wealth - and why aren't they? Well if you know anything about the Great Train Robbery you will know that the primary reason Buster Edwards came back from Brazil was due to the poor health care / security / public services and numerous other differences there were out there - despite the low tax regime he chose to come back to the rain sodden UK - even with it's higher tax regime and the likelyhood he would go to jail.
Imagine and alternative end to your story after they beat the rich man up and find the bill is too much to handle - THEY GIVE UP DRINKING, which results in a longer life, healthier and more balanced outlook and less depression - and maybe they will be sober long enough to realise that they don't need the materialistic trappings that they used to crave.
However what your story does prove clearly is that not everyone with a P.H.D. at the end of their name is clever and to make such an assumption is foolish.
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Sorry, Robert, for once I do not agree with your logic. If higher rate tax payers are denied full tax relief on pension contributions, then all public sector employees (including of course Treasury officials) should be taxed at 20% on the benefit in kind they receive from the notional contributions made towards their pensions - ie what would have to be paid if their pensions were actually funded, because their salaries would have to be much higher if they had to fund the pensions themselves.
With generous index linked final salary schemes that would be a very substantial tax rise indeed for many local and national officials.
By contract, to get a modest £24,000 pa pension, without index linking, a private sector employee needs to save a pot of at least £400,000 - no mean feat even for a modestly well paid employee.
The loss of tax relief at the full rate would make me think again about saving into inflexible schemes - better to save elsewhere and retain full control of ones asset, and save a lot of profesional fees into the bargain.
With public finances heading the way they are one wonders how long it will be before Gordon Brown decides that the only way to fill the hole is to require pension funds to lend all the money to him rather than say investing in China and Japan. Impossible? Don't bet on it - that is exactly what Argentina has done.
All of this will of course make the UK's future a whole lot worse but GB seems past caring about that.
It is time to be very afraid.
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Dear oh dear oh dear !
People really are feeling spiteful today !
And aiming at the wrong targets (again).
If People want better Pensions then they should campaign for Final Salary and Index linked (or annually reviewed) Pensions for all !
My understanding is the majority of the Public Sector have had Pay rises of less than two and a half percent for the last four years (with the excuse given that they had good Pensions so didn't deserve a Private Sector equivalent pay rise !)
Of course many of the loudest complainers don't need Pensions or indeed Jobs ! Having Private Incomes (rents dividends, directorships) they don't need a proper job at all !
Glasshouses all round what ?
See you all down the Golf course!
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#43 - Loftgroov
I think you have summed up the story there - by putting it on after East Enders.
When they have finished in their sub-alternate reality of Albert Square they can enter a sub-reality of the tax system and just like all good slaves they will thank their masters for being so generous to let them live on the meagre earnings they pay them.
....your comments do not do justice to your namesake as I am sure the great Loftgroover would be appalled at what you have suggested for his people.
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By the way, any expectation of Britain (or indeed the World) coming out of this recession (Depression) before 2012 is very optimistic.
Global trade is down nine percent this month, Eurozone manufacturing is down eighteen percent.
Consumer demand will continue to shrink as pay freezes (cost of living still rising) and unemployment continue.
People forget, wealth doesn't trickle down, it is created by selling massmarket goods to massmarket consumers. If they stop buying Profits stop being made, and the wealthy find themselves poor.
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At the end of the last debate, I pointed out, that we are, in the real physical world, very rich : BMW's and organic food all over the place etc but if the Financial world, which is meant to be a virtual representation of the Real world, shows we are on empty then I think it is preferable to take a bottle of tipex to the banks and change the numbers to match the reality rather than taking a wrecking ball to the BMW factories to get the reality to match the dodgy numbers. In post #592 glanafon replies to this by saying : Its supply and demand. The words demand and supply are used by economists to mean several different things frequently in the same sentence. Demand can mean what I want, what I want that I can pay for, and just plain money. The use of these multi-meaning words implies that the financial system is an accurate reflection of the real world. If this was the case then the use of ambiguous words like demand and supply that refer to the real and financial world interchangeably would be valid. But it is this very premise that I am challenging – re-stating the premise does not answer the challenge. Glanafon finishes with : It is not about running out of real things it is whether you can buy them. - Which I take to be that he agrees with me in my damming indictment of the financial systems inaccurate reflection of reality and that the only difference we have is that Glanafon just accepts it.
This lead us on to the present debate - Pensions. The first question, which I ask with my own Oliver Cromwell hat on, is why do we have grannies working and paying tax in the UK to fund the EU who fund the Spanish to pay young fit healthy teachers to spend 13 weeks summer holidays on the beach. The second question - hat off - is what is a pension in real i.e. non financial terms anyway. Pensions, and savings generally, are classically claimed to be a deal where I restrict my demand for consumption goods now so production can be diverted from producing consumption goods to investment goods (which get used to automate the future production of consumption goods) and my pension, my return on my savings/investment is a claim on future consumption goods. Well this only makes sense when we are at the production frontier, when one man to be taken off banana growing to build a bridge means less bananas for a short while. We have no such situation in reality. The present financial system once again does not reflect reality - it arguably reflects the reality of the pre-machine age in 15th Century Venice where most of its features were invented. My third question - again no hat - is given that for the past 20 + years the best brains in the UK, and frequently the World sat in offices in the City of London and New York doing what is now fairly well accepted to have been a complete waste of time, this means that physically - in reality, we have been able to afford to feed these people, BMW these people, fancy house and holiday these people without them adding anything in reality a) If we can afford this we can afford, in reality, a decent pension for our elderly b) Imagine the state of the real world had these best brains been engaged in something useful ? – So in conclusion if you hear we can’t afford… - ask “can we physically do it”, then ask what’s wrong with the financial system that says we can’t afford it financially when we can afford it physically. Then see the article on NEFS at www.worldnews.blog-city.com which is a first attempt to bring the financial system into the computerised production age.
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Post 63 I think you will find that Darling boosted the maximum earnings to pay NI by more than 5 times the increase in the tax allowance from this month. Quite a few mid earners will get a nasty shock when they see how much more NI they will be paying when they get the monthly pay slips next week.
This means more and more people will be paying 40% plus 11% NI. Yet again the upper limit has been raised by much more than the tax allowance ensuring more and more people pay a marginal tax rate of 51%.
Year after year more and more people are caught up in this 51% rate band.
One final point re your reform to the NHS this might encourage more employers to offer free private health care in lieu of salary like the salary forgoing schemes others have raised before for pensions. I would take a reduced salary for healthcare that allows me to jump the queue in your scenario. I imagine many others would do the same.
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The economic woes make for a great to review the complete tax & spending scenarios.
Public sector = private sector for pensions (all contribution defined)
MPs also contribution defined
Easier to make a decision on tax breaks on pensions
Easier to make a decision on NI tax levels
Simplify tax system = reduce headcount = save money
Most of the above entries fall into one of these areas
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The 1st Robert Preston blog for a while and i look at the FTSE and it's down 1.63%!!
A coincidence ??
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#67. GRIMUPNORTH77 Why do people only tolerate high pay for talent when it's sport or celebrity? Let's assume that Lewis Hamilton is the greatest earner in motor sports of British origin. When he 'goes away' under your scheme, we just pay all the other British racers more? I guess if we did that the racing teams would consider them overpaid relative to talent and not employ them.
My children like Wallace & Gromit at the moment. So have the Oscars in the past. Ah but under your scheme we don't need talent. Let's just pay his plasticine attendant a little more and let Nick go.
Whilst you're at it, let's hound James Dyson and give his pay to all the old engineers so we can have bags and dust back.
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Appreciate arguments on both sides regarding tax relief on pension contributions. As a high rate tax payer I'd be happy to contribute to my pension from gross or net income so long as that is remembered when I draw my pension.
As for final salary pensions for the public sector I can see that for many in the public sector saving for a pension whilst on a limited salary (for providing a public service) is not readily viable. However is
there some reason why the government could not cap the amount to be paid in pensions, say to 50k/year, to avoid the obscene pensions received by those in the public sector on private sector salaries?
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#68 "With civil servants being vilified by the media as overpaid loafers, when most of them earn less than they would for similar jobs in the private sector, the only incentive for joining is probably the benefits. Take those away and who wants to be a civil servant."
Don’t you believe it.
The Civil Servants I know (who work in the MoD) are more than happy to just keep below the radar, such is the lifestyle they lead - and these are not senior people in the organisation. They broadly get 30+ days leave a year, a final salary pension, flexi time, repreated team building days (last one was actually all off sailing in Weymouth for 3 whole days at taxpayer expense), a 37 hour week, hardly any of what I would deem pressure in their job, concrete job security... and all for slightly less pay than what they’d get in the private sector as an equivalent – and I do mean slightly.
For some bizarre reason people do comparisons with Fred Goodwin. He is hardly your average private sector worker.
Many public sector workers I know are enjoying a serious gravy train. Many don't even realise it, and just think that what they do is what working for a living actually is - but these are those who've probably not hard private sector careers.
For the record, my last private sector pay rise was 0%, my last bonus was £200 (whoopie!), my annual leave is only 23 days, I have to pay into a stock market linked personal pension, 12 co-workers have been made redundant due to the recession, and I've never had an away day ever......
So I can think of many MANY reasons to be a local authority worker or a Civil Servant!
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The lack of understanding shown is absurd and allows the Government to dress up a proposed tax rise as bringing 'fairness' to the system. the truth is that payments into a pension can be deducted from taxable earnings. The idea that this means a higher rate tax payer is 'getting' more is ridiculous. It just means the chancellor is not taking more.
Let's expand on that. Consider an employee who incurs £100 expenses on a business trip. He can deduct this from his taxable income. Is it seriously being proposed that it is 'unfair' that a higher rate tax payer will have £40 less tax to pay and a lower rate tax payer 'only' £20 less and that the higher rate taxpayer should have a restriction?
Let's go further. Let's have two self-employed truckers. One is a lower rate tax payer, one higher rate. They both incur £500 repairing their truck. Good grief, because the higher rate tax payer's profits are £500 less, he'll pay £200 less tax but the lower rate taxpayer (whose profits are reduced by the same £500) will 'only' pay £100 less tax. Are you suggesting a restriction to deductions for the self employed is 'fair' using the same priciples?
Hey let's go the whole way. SmallCo employs someone at a total cost of £25,000 a year, BigCo does the same. How unfair!!! BigCo's Corporation Tax bill is reduced by £7,000 but SmallCo's CT bill is 'only' reduced by £5,250. Should we restrict BigCo's deduction to compensate for this awful 'unfairness'?
Robert, you said "some would say it's a bit rum that for every £5,000 put into a pension pot by a top-rate taxpayer there's a refund of £2,000, whereas the refund on the same contribution would be just £1,000 for a basic-rate taxpayer."
I'd reply "Only if they wanted to expose their lack of understanding of the tax system"
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#55 Widebase - and anyone else making similar suggestions about protestors.
"If people do not have the intelligence to approach their concerns in a civilised manner, and indeed have no real idea who their rage is pointed at or even worse why, then they are unlikely to understand such basic economics, even if written in such a succinct fashion."
Oh - so undeerstanding Economics shows intelligence then does it?
So please explain to the dummies of the world why is it that ALL THE ECONOMISTS IN THE WORLD still cannot predict, stop or control the boom and bust cycle - and yet keep telling us they can? (and people like you keep believeing them - over and over again!)
If Economists are so intelligent - why do they continue to persist with a system that controls us rather than us controlling it (the market)?
If Economists are so clever - where are the answers?
You keep hoping that the 'clever men' know what they are talking about - in fact you had BETTER keep hoping that because the alternative for you will be disasterous.
Also I wish people would stop making this untrue assumption that high wages = high intelligence. I work with some of the highets paid people in the country and they are not what I would describe as 'intelligent men' - it's a myth and if you ever reach the top then you will discover this.
If this correlation were true then this whole recession would be a figment of your imagination as surely the 'rich and intelligent' would never have let this happen.
Finally - after implying protestors cannot understand such economic concepts simply serves to demonstrate you are a man of predjudice. Did you know the man who (allegedly) broke the window to RBS comes from a 'banking family' and is well versed in Economics - did you also know that as someone who works in the banking system (and has done for the last 14 years) - I was there on April 1st.
I am on the inside - I know what's really going on - and I know how the entire UK just got screwed over - sadly you are putting your faith in your predjudices and your Government. Neither of which are going to give you the answers.
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Peacetime?
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So we finally get down to the dirty work and tax rises are finally on the agenda. It has almost taken so long to come around that I'm perversely relieved we'll all be paying back some of the nations credit card and overdraft debt rather than constantly extending the limit. Playing with monopoly money can only get us so far.
Of course the high spending in the good times is conveniently forgotten, had we saved (as a nation) rather that spent c2001 onwards in a magnificent fashion, we perhaps wouldn't be quite as deep down the hole as we presently find ourselves.
So we're raising tax, or lowering tax relief...or both. Subjective 'fairness' is political rather than economic. Those who 'earn' more should pay more. Those who 'earn' more should receive less tax relief. This should not be controversial- there comes a point when taxing the poorer people in society is unsustainable, they/we do need to be incentivised to actually work if we're ever to get through this recession, lest we forget.
Bring in a 50% tax band, reduce pension relief for higher contributions on an earnings based system (so as to avoid disincentivising lower earners who are saving more proportionately for retirement), and put us out of our misery and put VAT back where it was, or higher- we all know that was a red herring anyway. Let's just get the pain over with, or at least acknowledge it is there and begin the treatment- enough with the analgesia.
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#64 RBS-temp
Yep I'm sad to say - either a liar, or a fool.
Enlighten me then, if it's all about confidence then why did it get shaken? What event in the world suddenly made the majority of people loose confidence in the credit system?
You've been listening to too much Brown-isms. There was no 'great storm' there was no 'wind from the West'.
It's simple - it's called OVERPRODUCTION and the market (and more specifically competition) - WILL ALWAYS LEAD TO IT. The way you can see Overproduction - it's called a recession or depression.
It's a bit hard to explain in this small space, but the Banks have just demonstrated over-production of credit.
They needed to increase market share, they needed to beat their rivals (rule number 1 of competition)
This INEVITABLY led to them lending to more and more risky people (for banks, lending money is their game)
The result was too much money was available and the price kept dropping and dropping as banks cut each others throats to be the biggest.
The result - one day the banks realised how much was lent out - and started calling it back - that's when confidence started to fall (with banks going bust) and people started reigning in their spending (because if banks are going bust - what chance does Joe Public have!)
The crisis CAUSES the lack of confidence - not the other way round.
Politicians like to tell you it's all about confidence - because they feel they can do something about that by making us all feel better.
Controlling the markets is something they admit they can't control - so they look to put the blame elsewhere.
The real danger is that they will convince people that's it's all OK and the public believe them (which is unlikely now) and go spending again. The ONLY purpose this will serve is to create a more unsustainable boom and an even worse crash in the future.
SIMPLE AND TRUE - just not taught much in schools I'm afraid - you have to find out for yourself. When RBS finally sack you (for their mistakes - not yours) then I suggest you get yourself down to the library and start reading....
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#67 - GrimupNorth
I agree (as I have stated below our comment) and I'm glad you made the point - but the REALLY SCARY PART is how many other people on this blog thought it was correct without really thinking about it very hard.
I could put it down to the presumption you're a northerner and therefore "am not taken for a fool easily" - but I don't think even regional variety is the reason for your insight.
This is how we are ruled - and it's exactly what the banks did. They made things sound SO COMPLICATED that nobody wanted to really find out what they were up to.
Using millions of Acronyms you can make people switch off and bury their heads in the sand - which is exactly how CDO tranches worked. I looked 'inside' one once and it took me 4 days and assistance from a math graduate to finally work out how they were constructed (and ultimately how they flawed)
I don't know how to solve this problem, but if it can be solved the the people of this country will understand what mugs they have been taken for all their lives and there will be significant and immediate change as a result.
Sadly, unless you can get Simon Cowell to sum it up in 3 words or less then most people simply don't have the attention span.
....maybe that was all part of the design.....
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#78 Supercalmdown
I couldn't agree more with 2012 being optomistic. However I am realistic and I can put a much more accurate slant on when we come out of recession.
....anytime between the time posted at the bottom of this message through to 16th March 2050.
Although the first part of the estimte is accurate, the second date is actually when I expect to die and selfishly I won't care if we're not out of recession by then!
....but apparently Darling has a 'special recssion clock' which has an alarm set for Christmas - and when the alarm goes off then we will be officially 'out of recession' - even if half the country no longer have jobs or houses.
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It is interesting that a number of 'contributors'(not all I am glad to say), are avocating stopping the Public Sector Pensions schemes, as though it was due to this pensions provison, that the Credit Crunch and subsequent recession have come about.
The more enlightend, have I would suggest, clearly explained their rationale for this course of action being the wrong one, and I thank them for their insight.
Having been a 'PUBLIC SERVANT' for over 30 years now , I have always contributed 6% of my pay into my Pension Scheme, and when the time comes I would like to get my 'differed pay' back.
I and my family, have over the years done without the things that some of my friends in their then 'higher paid' and 'Bonus Culture' private sector jobs were able to afford, at a time when things were going well for them.
I have never begrudged them their good fortune, likewise I do sympathise with anyone who has now lost such a job ( It happened to me back in the very early 70's), and I can assure you that the 'rank and file' public sector servants probably think the same.
Why ?
Because they are just like you, they work for a living, pay their taxes and national insurance etc.,try to provide a good service to the populace at large, and worry about their own job security.
When I (and they) do get round to retiring, then 'lucky us' our pensions will be taxed yet again. Which means that once again we PUBLIC SERVANTS will be contributing both directly and indirectly to both supporting the country's infra-stucture and the economy at large.
I'm not so sure that those 'Banking' and 'Big Business' 'fat cats' at the top of thier respective 'corporate trees', with their money stashed in the various 'Tax Havens' around the world will be paying their's though!
Abolishing Tax Relief on Pensions contributions for those earning in excess of 100K a year would get my vote. Likewise trying to abolish or change the Pubilc Sector Pension Scheme (where the average pension paid out is just over £3400 / per annumn), seems just a bit like saying: 'Well if I can't get any money back from the big boys, I'll just take it from the smaller kids'.
Stop having a go at the people who are just 'worker bees' and start asking, what and when, are those at the top of our Govt. going to do about getting back the 'big money' that has been 'extracted' by the people at the top of the ladder!
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Great, Brown and Darling have found yet another way to penalise those people who want to save for their future.
I am already getting almost no interest on my savings, and now they want me to pay tax on the money I pay into my pension fund. - even though I will get taxed again when I draw my pension.
I suppose the money to pay for Gordon's indexed linked final salary pension (not to mention the rest of the public sector pension bill) has to come from somewhere.
"If a basic-rate taxpayer makes pension contributions of ?10,000 per year he will receive tax relief of ?2,000, whereas a higher-rate taxpayer (who, by definition, earns more) will receive ?4,000 tax relief on payments of ?10,000."
However, that 4,000 is just money that has already been taken from the higher rate tax payer.
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Shame the Chancellor is thinking of going down this route as it hardly encourages people to save for their retirement. The 40% tax relief is the only way most of middle britain can hope to save a retirement pot sufficient to provide a basic living (and we aren't talking a millionares lifestyle as those of you who have looked at annuity tables will know - Man aged 65 non-smoker gets about £7k a year for every 100k saved). If the middle classes don't have decent retirement incomes (proving tax revenues) there will be increasing strain on tax credits along with a significantly aged population over the next few decades. It will encourage middle class qualified professionals to relocate elsewhere as the tax free pension entitlement is one of the few financial attractions to retain these employment mobile people in this country.
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Hmm, even the IMF believe cutting Gov't spending will only prolong the Depression !
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romeBanana22 #24 - Unhappily I have come to the same conclusion that you have regarding Mr Peston's "thought process". I have been giving him the benefit of the doubt for ages. I no longer have any doubt.
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It would be nice to hear some Politicians using non Thatcherite dogma, just for a change.
Monetarism is not the only way !
And in fact it isn't the way to deal with this Depression.
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The thing the govt should do is to make the retirement age rise automatically with life expectancy so people get an average retirement of say 10 to 15 years. If you live to 50 you can expect to live to 89 so pension age should be about 75. Putting pension age up 10 years would move a huge amount of contingent liabilities off the govt's books and make it a much better credit risk. How can an average person expect to spend more years in childhood/education/retirement than they do working? Especially since the baby boomer generation is heading for retirement so there are more old people than young ones.
I don't think for a moment they will have the nerve to do this though. What they are much more likely to do is handle the necessary downsizing in the civil service through early retirement of people in their 50s - a really brilliant way of making things worse.
The other thing we are going to need is immigration of young productive people to flatten out the age profile of the population.
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Actually because of the way the tax system works this may result in Govt losing out.
As a basic tax payer if I put £6000 my pension the pension gets tax relief of £1500 so all tax is deferred.
If I am a higher rate tax payer and put in £6000 I/pension scheme does not get £4000 in tax relief but £3000 (£6000 grossed up by 20% twice) so I actually pay £1000 in tax this year.
By sacrificing salary not only do I save the whole 40% tax bill but ther is NI savings as well so the Govt loses this and the £1000 they would have got from just putting salary into the pension.
But labour have form where pensions are concerned. They clearly do not believe it is right to have private pensions because they have spend most of the time, stealth taxing them and imposing regulations such that for private companies the law virtually requires the pension scheme to be closed at the first available opportunity
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yes, higher rate tax relief on pensions should be scrapped - no brainer
and yes, advantageous schemes in the Public Sector should also be scrapped - we have a dangerous Apartheid developing between public and private sector, as regards pensions - needs to be addressed
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# 33 youhave5fingers
The author of this amusing lesson in economics is:-
DAVID R. KAMERSCHEN... a Distinguished Professor of Economics. youhave5fingers has added that at the bottom of his blog, but obviously lots of you are missing the authors name.
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79. GlenisDevereux wrote:
"At the end of the last debate, I pointed out, that we are, in the real physical world, very rich : BMW's and organic food all over the place etc but if the Financial world, which is meant to be a virtual representation of the Real world, shows we are on empty..."
I think you'll find the word is "were", as in "we were rich".
The BMWs will outlast the financial system, as a BMW takes 10 years to fall apart. The snag is, the BMWs were purchased with tomorrow's earnings (yesterday's bank loan). As the BMWs age, consumers will not be able to replace them with new cars. As consumers' earnings turn out to be less than they thought, the BMWs will get repossessed. At that point, the world you see from your window will then match the reality of today's banking system....
Unfortunately, unemployment will keep increasing for 5 years.
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#83 Thank you for picking an example that perfectly illustrates my point.
1) If Lewis Hamilton was not driving his car somebody else would be and I am sure there are lots of drivers out there as good as Lewis who have simply not had the opportunity - Anthony Davidson for example who is also British.
If Lewis Hamilton retired from the sport would there be no-one to replace him??
2) Lewis Hamilton may be fantastically well paid but he 'lives' in Switzerland to avoid paying UK tax - a classic example of the super rich being tax evaders. Unless you are the lowest tax paying country in the world then there will always be places the super rich go to avoid paying tax OR they don't care about tax because they are so wealthy they don't have to because what they have left is enough so Nick Park and James Dyson may fall into either of these camps but a change in tax upwards will not effect that strategy.
I suspect that Lewis Hamilton is not old enough to have his own strategy about where he lives and it is his financially obsessed advisors that have moved him to Switzerland.
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#83 - who says 'we' find it acceptable that Lewis Hamilton + other sports stars get paid what they do?
If you take what GlenisDeveraux said in #79 - sports wages is simply an exponent of how far away from reality the financial system has gone.
LH gets paid lots of money because wealthy people want to pay lots of money to watch him or sponsor him as they believe (wrongly) that they can share in his success.
Unfortunately most of those people were little Madoff's and the money was never really there (it hadn't been earnt yet) as they were earning money on the 'future speculation of production' - which with hindsight we know isn't going to be as good as expected.
It's also very dangerous to mix sporting concepts (where competition is valid because winning and loosing doesn't matter that much) to competition in the real world (Where the result does matter - a lot)
If you want a good example of this - then look at football. How many clubs will 'loose' this season because they are badly managed financially (Southampton) which has no bearing on the skill of the manager or the players.
If Southampton go down because they play poorly - they will be upset but will get over it and still have a chance to get back up next year.
If they collapse financially then all the staff will loose their jobs, there will be no coming back up and further connected jobs will be lost in Southampton itself - and that's no laughing matter.
...but if you listen to 'Old Brownie and all his predecessors - they will swear blind that it's better to do it private sector - like metronet, like the utilities, like the Royal mail....
...and the public keep believing this same old inconsistent lie proving that you can fool most of the people....all of the time...
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60 wrote: Is there any incentive for staying in the UK?
The weather?
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This is just the start – Baby face Brown and his moll Darling will need to make many more daring raids if they are to pay for their big bank job.
And Tax is all they know how to do!
Unless they change the culture of the public sector they will never deliver savings on the scale needed. The question is have they ever delivered savings identified, such as those identified in the Gershon review and then agreed in the last spending review SR07 and we are already on the next review. I would suggest that they did not.
Turkeys voting for Christmas comes into mind.
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this must be neu labours kick them when they are down policy.
to be honest this greedy bunch of mp's and their backroom mob have bleed this ecconomy dry and now the taxpaying public have to suffer.
cutting mp's pay etc may well reduce this countries defficit over night.
but our government will squeeze the drinking, smoking, elderly, car driver public then continue to waste millions hosting non-effective meetings and traveling all over the world self promoting themselves.
sadly the public realy has no say in what happens anymore even a general election will not resolve the issues, our country needs a shake up in parliment to root out those who are there just to line their own pockets.
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OK, so let's see some fairness.
If a public sector pension were directly proportional to the contributions that the pensioner had put in, just like the private sector, then we would be getting somewhere.
It is hard to see what more damage pickpocket Brown could do to private pension plans, but this removal of 40% relief would kill them stone dead.
The smart thing to do now is to save nothing, run up enormous debts, make no pension provision, and preferably work only for cash; the workers and savers will always bail you out if need be.
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#90. writingsonthewall wrote:
"#64 RBS-temp
Yep I'm sad to say - either a liar, or a fool."
If you insist that anyone who disagrees with you is either a liar or a fool then there really is nothing to be gained from debating the issues with you.
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On a slightly different topic (but touching on Pensions), wouldn't it be interesting if Company Shares where traded at Prices that reflected the actual Net Asset Values of the Companies ?
Rather than the whatever the Market will pay, speculative valuations ?
Then the Companies with few assets would pay higher Dividends (which would reflect the risk).
Obviously Patents and inellectual property would have a standardised accounting value (perhaps amortised if the Patent was considered time sensitive).
It might take the casino out of the Stockmarket and bring some more practical scientific approaches instead.....
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People also forget that Money in its original form is purely symbolic of the Authority to take and use resources (physical and service).
This is why we have a picture of the Queen on our Notes, a reminder of the final Authority underwhich the 'Money' is authorised.
Of course at various times people have glamorised money as more than it is, and have ascribed to it an intrinsic value it does not have.
It only has value when exchanged (as a Vouchsafe to a transaction that would otherwise be barter).
The Thatcherite monetarist fear of Inflation, drummed into people for the last thirty or so years, hampers the use of Authority to reorganise and control resources.
Money was never originally intended to sit in Bank Accounts permanently gathering interest.
The intention was that it would be exchanged, for real goods, land, buildings, things that were/are physically real as well as economically useful.
Offer a Medieval peasant a million pounds and he or she would be out buying a fief, cattle, chickens, pigs etc, etc.
Give a modern worker a million pounds and they will sit and look at it expecting to work never again in their lifetime, and expecting it to magicaly appreciate in value with no effort on their part !
Of course Medieval merchants used to form Companies and take Shares in various trade missions. But these things could be quite risky and they would lose their shirts as often as make a big profit.
People should stop obssessing about the Value of their Luncheon vouchers ( I mean their money) and should consider useful and genuine occupations and business investments for their money (I don't mean PLC Shares).
One thing this crisis has shown is that those people who can be independant are going to be the ones least affected by the changes to come.
If nothing else plant a vegetable garden.
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Maybe this recession will make the millions of Petite Bourgoisie 'middle class' realise that when it comes to the crunch there are only 2 classes in society - they're already moaning about the state of the job centre (for many it's their first time) and their pensions (well think yourself lucky you have one to loose) and the expected increase in taxes on the middle classes (well you didn't think the Government is going to antagonise the very rich, or the very poor - both of whom can create much damage for them for different reasons).
No, this recession will remind the middle classes that they are NOT a special member of the ruling class, they are not 'elite working class'. Some people need to stop believing their own gasseous emissions and get a reality check. YOU CAN'T WIN THE GAME OF CAPITALISM.
Unfortunately most of us were not present when the game was started and the rules drawn up.
....and yet so many people find such great comfort in their mis-guided beliefs.
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Tha public sector pension scheme is the biggest Ponzi scheme of them all....not one penny of the hundreds of billions extracted from public servants has been kept aside or invested in anything at all.
If you remove the tax benefit at this side of retirement, you will not get the big tax payments at the other side of retirement.You will also completely clobber the whole financial services industry yet again.
What is needed instead from Labour is a return to Core Values for Core Services.....look at all the stupidly named job vacancies in the public sector....lets not recruit any more disability or racial discriminatioon or women's welfare quango staff.Let's stop wasting money on pathetic green loony rave measures. Let's go back to having the streets swept, burglars locked up , drug dealers jailed and an end to public subsidy of alcoholics and drug addicts.Let's put a 100k cap on anybody working for the BBC! Let's not give MPS a penny in expenses and a basic 100k with no extras.Let's stop paying London weighting to all of the metropolitan scroungers subsidised by the provinces.
Let's scrap family tax credit and get people doing overtime.
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40% tax payers are still going to pay 40% tax on their pension when it is redeemed in retirement, so why should they be taxed twice? This is the reason their is tax relief on pensions.
Services should be cut as we can't afford them. Thank you Labour.
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deliminister - I hear you:
"sadly the public realy has no say in what happens anymore even a general election will not resolve the issues"
...the next step.....revolution..
Sadly many people don't share your view and still believe that this can all be solved with the same old talking, lies and waffle or beter still, a good old change of Government (to a lighter shade of pale). They always go with the perceived majority - not wishing to rock the boat - even to the point they will defend the very thing that will eventually enslave them.
These people are what I call 'the afraid' - they will hide at home and hope it all goes away without having to do anything, putting their faith in politicans (again) who fail them every time - but they fear the alternatives more and they are happy to live as slaves as long as they get some form of freedom.
The others are the warriors - they put themselves in the face of police brutality to defend what is right for all humans, they face down bogus laws designed to curtail the public's right. They are not afraid - they will lead us out of the dark.
I will die a free man rather than live as a slave.
P.s. if you're wondering what slavery I'm talking about - who do you think will be tied into working from cradle to grave to pay off this HUGE pulic debt? Mickey Mouse? Donald Duck? Spiderman? Fairies?
- we all know it will be US - working to 75 will be commonplace in 10 years time.
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Mesage 50 rbs_temp
Levelling up is a good principal as it saves grinding the faces of the poor. That should be a concern.
You mention these are hard times. Indeed, they are and we know whose fault that is so why should anyone have to pay any more for what is not their fault. When are we going to see the bankers in No1 dock at the Old Bailey?
Yes, I am demanding the impossible and I expect it now!
What we needs is a Bankers Revolution so we can all have pensions like Fred Goodwin! Given the coming inflation this government will cause we might all have pensions like Fred Goodwin but the money will be worth as little as a Zimbabwean dollar.
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@111 - Supercalmdown "wouldn't it be interesting if Company Shares where traded at Prices that reflected the actual Net Asset Values of the Companies ?"
Unfortunately the companies would only find ways of inflating Net Asset Values. At one time I was close enough to see what was happening at Worldcom. It is what they appeared to be doing. Retrospective Capitalising of Opex and "acquiring" assets doesn't appear to be too big a trick for accountants. The 3rd biggest telephone company in London, where they earned 60% of their worldwide income, became the largest telco in the World in terms of stock valuation. I suspect that some of the assets they acquired were somewhat dubious. Where have I heard that before?
When it comes to fleecing investors / stock holders, if there's a will there's a way.
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Post 105. Re the Madoff's sponsoring Lewis Hamilton where did you get that from?
McLaren's main sponsors are Vodafone (i.e. you and I and our inflated mobile phone bills); banking group Santander (including its UK subsidiaries Abbey, Alliance & Leicester & Bradford & Bingley) and Johnnie Walker Scotch. In other words he is mostly paid for by the average man & woman and banking client across the World.
Mercedes obviously do it to try sell more cars.
He is of course the man number 10 in the earlier analogy and has indeed gone abroad to live to save on tax.
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110 RB_temp.
I am not calling you a liar or a fool because I disagre with you - but that there is no basis for your claim.
I asked you what international event that 'destroyed confidence' occurred?
I am still as confident as I was last year, the year before and the year before that - as I am sure most of the people in the world are.
My problem is that you have picked up on a 'sound byte' which tries to stick the cause of the recession on a single concept that can be understood by all and more importantly be controlled by the people.
It is absolute hogwash - there is no such thing, there was no event that occurred. There's not even such a theme of 'confidence' in Economics (and it matters not if it's Marxist or Monetarist) - it's complete political rubbish.
What you expect us to believe is that one sunny day last September the world 'lost confidence' and hey ho the reccession came.
Don't take my word for it - educate yourself and come back to me and tell me if I'm wrong.
Surely you must conceed that if it really was confidence that caused the reccession then it would be simple to resolve it - we should all get drunk to produce confidence in abundance - and hey ho the reccession will be over!
The confidence lost is a twisted version used by the politicians of the confidence businesses loose when they realise all their 'this boom will never end' was OVER confidence.
Marx said it
Mises said it
...and with his laws of motion....Newton said it.
Capitalism will always result in booms and busts getting bigger and more severe over time (I think Mises put it down as every 80 years).
It's no secret - but you wouldn't think that with the way 'Super Gordon' and 'Dangerous Darling' speak.
The way they talk this is the first time this has ever happened and it's all some American's fault (but not saying which one so they don't cause a rift).
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#112 supercalmdown
I agree again (twice in one day - must be a record)
Those who will suffer most are those who have nothing to contribute to society except their perceived wealth.
Remember that saying from the Bible - "The meek shall inherit the Earth"
....well maybe this is coming to pass as the meek are the ones who can survive with all but nothing, whereas the rest are going to really suffer badly.
I'm already on the Veg growing and I have my escape plan ready for when the state tries to take forced control and comes round to our houses with dawn raids for potential terrorists (you'll notice terrorism is legally defined as actions against the STATE, and not the PEOPLE)
I may be wrong of course - but if I'm wrong I just look foolish, however if I don't prepare and I am right - I will be dead.
I'll take my chances with looking foolish thanks.
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@112 Supercalmdown:
Couldn't agree more, especially when I read your views on the modern day millions.
P.S. Our vegetable garden is also coming along nicely :0)
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# 63 I am afraid your simplifying measures would result in a large hole in the government's finances.
Higher rate of 40% kicks in at taxable income of £34,800, employee NIC at 11% is charged up to £40,040, and at 1% thereafter and employer's NIC is payable at 12.8% on all of this.
So, if you abolish NIC, and replace it with 25% and 45% tax bands, you will reduce effective tax rates from 43.8% to 25% for those earning up to £34,800, from 63.8% to 25% for the incremental earnings between £34,801 to £40,040 and from 53.8% to 45% for the incremental earnings over £40,040.
Yep, we do all pay that much tax already!!! And yep, the incremental rate for those earning between £35k and £40k is eyewatering!!!
I suppose if NIC was done away with and it was all called income tax, more people would at least appreciate the income taxes burden we are all already paying. No chance of that then.
I can sympathise though that it may seem odd that incremental rates for higher rate taxpayers is 53.8% whilst the incremental rate for those earning below £35,000 is only 10% lower at 43.8%.
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It is probably a good time for a reform of the pension allowance system all round. Generally there should be encouragement for people to save. High earners are to some extent dealt with by the cap on pension pots.
There should be no retrospective measures. It is unfair to move the goalposts once people have decided to invest in their pensions, or work on the basis that they formed part of their benefits. Index linked pensions for those in the public sector that have been accrued to date should be preserved.
Going forward, however, the private and public sectors should be brought into line (not forgetting MP's). This would mean that public sector workers would have similar treatment to everyone else in respect of benefits attributable to future work. The resultant long term savings in public expenditure should be enormous.
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Just to add my views in case anyone is still reading.
I'm a life long Labour supporter and a higher rate tax payer. I save a large chunk of my pay because I want to have some change of actually being able to retire one day. I have never had, nor will I ever have access to any form of final salary pension.
I am already deeply worried about the potential leveling down impact of the compulsory saving schemes and what this will do to company contributions. I am also upset about the loss of tax relief on dividends in pension funds. However, this would pale into insignificance next to any attempt to remove or limit tax relief on contributions. If this ludicrous idea actually is in the budget it will be the death of Labour - I for one would certainly not vote for them again and I stongly believe comments on here saying people will not notice are naive, this would be such a betrayal to the people who actually voted them into government that this party would never win back power.
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The Private sector, en masse almost entirely phased out final salary schemes years ago because they threatened to overwhelm businesses.
The Public Sector evidently decided not to because they had a seemingly bottomless pit of tax payers money to call upon whenever funds needed to be replenished.
It's time all Public Sector spending is examined in great detail. What do we the people want our government to spend our money on in the task of running our country properly and with the Fiduciary duty expected of any Director in a private company.
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Oh my!
40K a year and they don't think they are rich!
Might not be on par with some of our bankers, but compared to the average salary in this country, anyone on that salary just doesn't know they are born!
The life, the fun I could have, the places I could go with that dosh, the HIV/TB orphans I could put through school with that! All those malaria nets!
Suppose with only 40K it wouldn't be realistic to have one of those expensive things called a telly showing those kids in Ghana today ....
And to those top tax payers who are all for the cut in tax relief, Bravo.
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Robert,
The disappointment you express about 'people not saving enough for their pensions', well that's very simple and not likely to change much over the next few years.
CURRENT INTEREST RATES ON SAVINGS AT 0.5 TO 2% LESS TAX.
Everything has been done to make the two or three or four property chancers/buyers and personal debtors very comfortable, interest rates will not change by any significane to encourage savers, there are too many of the electorate in big time debt for many years to come.
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@87
Interesting - so putting things through windows is now the method of making one's point, as preferred by the intelligent individual is it? Obviously the harder I work, the more tax I pay and the less damage to society and the tax payers' property I look to do, the more stupid I must become.
Maybe he walked away feeling like a big man and having made his point, and to the 5 people around him who were not members of the press maybe he was and did, but not to me.
Agreed there are some in the financial sector who have blagged their way to positions of authority, and high wage doesn't always translate to high intelligence, but these people are usually quickly rumbled. Also you could be the most academically brilliant mind and still be incapable of managing your way out of a paper bag. Its worth mentioning that this is no different from any walk of life, including those strolling through the corridors of Westminster today.
But I would offer that this is not a crisis caused by these people, this is a crisis caused by the people who borrowed beyond their means - maybe economists, maybe not, but clearly without the intelligence to question what they were doing.
So, a system that we control rather than the free market route – and how would you propose we elect the people to control it? – and how would you ensure that these people have the skill set to understand, implement, run and police such a system? – what qualifications would they require to show they had the ‘intelligence’ (by any interpretation of the word) to do so?
Regarding your final point, for the record, I would like to hear and understand where the answers are going to come from in your world....
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Either we all get paid exactly the same amount of money regardless of what your job is, or, we just accept that some people will get a higher wage and are taxed more for the priviledge.
What is fair? I would say if the government wants to raise additional tax revenue then everyone's tax burden should be increased proportionally to what they pay at the moment?
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The whole argument is immaterial. There's a huge deficit to be filled.The money isn't going to come from those with precious little disposable income is it now ? So, the only question really is HOW it comes from the one's who do have some excess disposable income.Typically it will come about through 'indirectly' 'taxing' that group.Pensions contribution and tax relief meet that criteria and that's al there is to it.No right and no wrong ,just the question of pragmatically achieving the goal of filling in the deficit hole.
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#115. Biased&Blinkered wrote:
"40% tax payers are still going to pay 40% tax on their pension when it is redeemed in retirement, so why should they be taxed twice? This is the reason their is tax relief on pensions."
Not correct.
You will only pay 40% tax on your pension if it exceeds the higher-rate threshold - and even then you will only pay 40% tax on that portion that does exceed the threshold.
I doubt that there are many 40% tax payers who will receive a pension so great that they also pay 40% tax on that.
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#120. writingsonthewall wrote:
"110 RB_temp.
I am not calling you a liar or a fool because I disagre with you - but that there is no basis for your claim.
I asked you what international event that 'destroyed confidence' occurred?"
If you read back over what has been written in this blog you will see that I merely disgreed with your assertion that a recession is "mathematically inevitable".
My own opinion is that there is no single cause of a recession, but that loss of confidence can sometimes be sufficient to bring one about, and in this case has almost certainly made it worse.
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The tax concession is simply deferred taxation. Pensioners pay tax on both state and private pensions. Will the chancellor reduce higher rate taxation for pensioners if he cuts tax relief for contributions, or will there be even less incentive to save for old age?
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Please remember pension contributions receive tax relief at marginal rates so those earning just over the 40% income tax threshold dont lose out/or benefit as much as they think.
For those lucky enough to be 40% taxpayers its is almost certain that the vast majority will be basic rate payers when they retire ( just crunch the numbers) so they get 40% relief now and are likely to be taxed at 20% (if nothing changes)on their pensions.
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#115. Biased&Blinkered wrote:
"Services should be cut as we can't afford them."
I agree that we cannot currently afford all the public services we have, let alone the ones we'd like to have, but the answer is not to cut them - the answer is to raise taxes to the point where we can afford them.
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A very wise footballer once said 'You cannot run faster than the ball..'.
However fit you are, someone can always kick the ball more quickly than you can run, so one has to be 'smart' about where to run.
And in the economy you can always spend more money than you take in.
None of this scraping around for yet more tax revenue will make a blind bit of difference until they start slashing the public spending bill.
Companies are used to having to make year-on-year efficiency savings.
Even ITV are having to cut back hugely in a different advertising market.
When will the public sector be forced into such a regime ?
The BBC could have won friends just by making a 'token gesture' and not increasing the licence fee for a year, but was unable to do so. This is going to be a very expensive mistake come the next election.
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Poast 112. Supercalmdown. Like a few others I agree 100% with your thoughts and explanation re money an incredibly lucid and easily understandable summarisation.
I will go and lie down in a dark room now.
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MrTweedy in #103 said :
The snag is, the BMWs were purchased with tomorrow's earnings (yesterday's bank loan)... The problem with this reply is that it uses words like purchased, earnings, and bank loan - these are words that refer to financial things. The whole point of what I am saying is the financial system - which is just a bunch of numbers - does not properly reflect reality.
In real, non financial terms, the BMW was all paid for with the time of the workers away from their leisure, the metal, the brains, the factory time etc... the moment it rolled off the production line. If the Financial system reflected this then it would show that we are rich. Wealth is real things, money is not wealth it is a claim on Wealth - if they were both in sync then you could excusably use the terms interchangeably. My whole point is they are ridiculously out of sync. If you want to know if we are really poor then imagine there was what Peston has been at pains to point out on several occasions : that if there is to be a recovery then there needs to be a rise in asset prices - i.e. imagine if we had a Peston financial bubble - an new Tulip Bulb thing. With all the extra money splashing about can people go to BMW and say : Here is money we want a BMW. If The BMW people say no we are really poor - we have run out of BMW making stuff then we are really poor. But If they say, which I think they will say, : You paye'm - we'll make 'em, then we really are rich and it's just the financial system thats rubbish and needs fixing - I suggest using something like NEFS www.worldnews.blog-city.com
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Robert, I know some disagree, but I think that you are usually relatively neutral in your blog. However, this is a tad biased towards the Labour view I would suggest. You can't talk of abolishing relief for higher rate taxpayers, yielding £5B when the unfunded shortfall in the public sector pensions fund is £100Bs. Regardless of what is done to tax relief this time round it is inevitable that the public sector will have to relinquish some or even most of it's vastly superior pension benefits. The alternative to this would completely cripple the private sector even if it could fund the public pension requirement at all. Yes, it will be very messy but there is no choice. To fiddle around with £5B is pointless when it is tiny compared to the looming public sector pension problem. I also seem to recall that public sector pay is now averaging above private, that the job security is superior and early retirement the norm. If pain is to be felt it should be from within the public sector- and not just the funny money efficiency savings..
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Cut higher rate tax relief ???????????
Maybe if some sensible ceiling is introduced, such as £100K.
However the OUTRAGE is the GARGANTUAN INEQUITIES between private and public sector pensions.
Private sector pension pots have on average been decimated by 40 % over the last 18 months.
Public sector pensions are completely immune to this and what do they share in this cataclysmic drop - precisely ZIP.
The facts have been put forward many times before - if 2 people are on the same salary in the public and private sector, then the average defined contribution private sector person would need to be paid 40% more in their salary to receive exactly the same pension benefits as a public sector employee.
And this is before factoring into account any decimation of the private sector pot, such as has happened over the last 18 months.
If you factored that into account, then we are very close to the point where someone in the private sector, on an average defined contribution scheme, would need to be paid DOUBLE !!!! that of the same salaried person in the public sector for them to have the same pension benefits on retirement.
It is completely outrageous.
And MPs benefit the most from this.
UTTERLY UTTERLY INEQUITABLE.
And it has to change.
Also if you remove the higher rate tax relief, why would anyone save for a pension ????
Tax relief of 20% is met with a 20% tax charge when the pension is taken.
In addition, annuities will yield less and less in the future as longevity increases.
Incompetent insurance companies will rip your pension with charges as well.
And once you put your money into an annuity, it is gone from your estate forever.
SO WHY ON EARTH WOULD ANYONE SAVE IN A PENSION WRAPPER ????
No wonder masses of private sector employees are enraged with this government.
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Why is everyone getting at the humble government worker. I have just officially retired and have received a pesnsion from the Local Government Scheme, for which I contributed 6 percent of my salary for over 20 years. My pension is roughly equivalent to my state pension and nothing to write home about. Neither was my salary in the public sector comparable to outside. My equivalent in the civil service pension scheme may never have paid a contribution as such, but as far as I am aware this was taken into consideration in their payscale and the salary in the civil service is relatively lower to that in local government. If you want to talk about things being unfair, this is something else for you. My husband died at the age of 58 from the stress of fighting a claim for industrial accident insurance over 3 years. When I eventually settled direct with the insurance company the government took back every penny of benefit he was paid in the 3 years. At the same time they paid me a widow's pension, but did you know it is only paid for 52 weeks? After that I got nothing! Now I have just received my own state pension, which has been reduced by 35 pounds a week because I opted out for the local government scheme and I am receiving only approx 15 pounds a week in respect of my husband's 40 plus years of contributions. If I were still living in UK I would find it difficult to make ends meet despite being an ex public sector worker and it is only the fact that we moved abroad that for me the cost of living has stayed relatively low, although I would add that here in Portugal taxation is even higher and the current exchange rate does not help. Everyone is suffering why play public sector/private sector. Their are fat cats on both sides and there always will be.
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I have just bought Robert Peston's book, 'Who Runs Britain?' It is quite hard work, but well worth the effort. I believe it is part of our civic duty to keep abreast of what is happening to our money, so that we don't allow unscrupulous so called experts to rule our lives and
get away with murder, as they have done until recently. Economics is not that hard. Read Robert Peston.
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Robert
I am sorry but as a professional in the pensions industry you've shown your complete ignorance of final-salary schemes here. How exactly would the reduction in the tax relief for high-earner contributions affect final salary schemes? 80% or more of the contributions are made by the company and even if member contributions are made, these are compulsory and so the members would simply get taxed more rather than less contributions being paid into the Schemes.
The only part of final-salary schemes that would be trully affected are AVC (additional variable contributions) and these play no role at all in pension fund deficits as they are for all intents and purposes (often small) DC pots.
Please do your homework.
By the bye, public sector pension schemes are at least twice as generous as most private sector schemes, and that is after the "cost saving measures" that were recently introduced. These of course do not have nearly as much risk involved either as they are backed by the government and not a private institution/Pension Protection Fund.
It will come as no surprise to anyone that the changes made to PCSPS were nothing more than an expensive stunt.
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Grimupnorth @#2 Spot on.
For those threatening to leave the UK, I say go ahead, the last few months have taught you nothing - still as greedy as ever, all self, self and more self, this country and its people would be better off without the likes of you anyway.
Youhave5fingers, who would you rather be? the rich man who has enough to be able to afford to buy a drink? or the poor man who has to hold his hand out?. Some people start out at a disadvantage in life - born into poverty, is that their fault?
When I go shopping I pay the same price as the super wealthy for my bread.
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GORDY'S LEGACY?
BUST BUST BUST & THE LIKES OF DEREK DRAPER & THE GANG!
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66..Please remember that Local Govt employees do contribute to their pensions, into a pension fund which then pays the pensions.
Remember that if you are a public sector employee, you are paid for by the private sector. The fact that you have some money deducted for your pensions, means that you received a little less of our (the private sectors) money.
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this is just a smokescreen, all that is being done is to keep some people happy enough to vote in the next election, the whole way we do everything needs to be changed, papering over the cracks will not make any long term difference
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It's pay back time - it couldn't last forever. You had your fancy cars, big houses, luxury goods, fat bonuses and expensive foriegn holidays - you even managed to buy the poor man a drink here and there!.
Those days are gone and quite rightly so. Your greed sucked the rest of us dry.
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If the Chancellor robs pension funds again, this will nail home the message that saving for retirement is a pointless waste of time. With a smaller and smaller working population having to pay for a steadily increasing retired population, the Government needs those working now to provide for their future retirement. But robbing pensions funds will just send entirely the opposite message. Incidentally, reducing interest rates to one-half of one per cent has nothing to boost the economy but has robbed those living on interest from savings of vital income. I was brought up to avoid debt but today's youngsters are encouraged into debt while still getting their education! It's all wrong!
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I used to work in the private sector but recently moved to the public sector - and took a large pay cut in the process. The majority of public sector employees are poorly paid compared equivalent jobs in the private sector - the pension schemes are the one area which help to reduce to deficit. When times are good, no-one cares about public sector employees. Now there is a recession, all of a sudden the media make out we're the fat cats with the gold plated pensions.
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136 rbs_temp
''I agree that we cannot currently afford all the public services we have, let alone the ones we'd like to have, but the answer is not to cut them - the answer is to raise taxes to the point where we can afford them.''
I did think twice before posting about this, but total tax take is 46 pence on the pound, has been for a long time. This is pretty much the case across developed EU countries. That ignores ingenious instruments like PPP and PFI etc which are off account but coming home to roost, ie back on account, and stuff like the lottery, small beer relatively speaking but every bit helps. It also ignores the fact PSBR items like infrastructure have been privatised simply to get them off public accounts, you still pay at 10+ percent higher because you have to have them, and the sharehoplder wants a divi that wasnt there before. If total tax take rises too high we become uncompetitive as a country, all things being equal. Health care keeps rising in the face of expanding, and high cost medical intervention. So apart from means testing we are probably near the tax buffers. If the economy has dropped 4 percent as a step discontinuity then public spending has to drop 4 percent at some point. The bubble being done and gone and unlikely to return. That is on top of the increased welfare costs due to the impact of the recession. Its between a rock and a hard place. You can expect means testing and stealth cutting of services, the more hidden the better. What else is there. so the issue cannot be about cutting, it is about what is cut. Personally I think there are a lot of naff public spending projects that can be cut, and will be cut because they cannot be justified, and should have never been justified.
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Tax expenditure not income.
20% VAT to include processed food
No Income Tax
No tax on savings or dividends
No NI
Reduce public spending by half
Make it illegal for Government to propose an unbalanced budget
No Government borrowing - ever
Only Gold and Silver as money
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I agree with Glanafon, to get the public services we seem to think we deserve, wehave to be prepared to pay for them. And when I say we, I mean the rich as well as we 'not so rich.' A couple of years ago, I got hauled over the coals over filling in my self assessmenttax form incorrectly, making a difference of about £20.00 on the amount I had to pay. I was told this was considered a 'very serious omission' on my part which made me liable to prosecution which would be 'forgiven' on this ocassion How does that square with the 'legal' tax dodging which goes on in the higher tax bracket fraternity?
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#129
Thank you for you comments.
Firstly - whilst I don't condone the acions of the protestor who smashed the window - I defend his right to do so. People forget that this bank is now owned by taxpayers - it's the people's bank (and more importantly and distcinctly NOT the Governments).
If the people want to smash up their own property to show their anger - I am quite happy for them to do so.
Your point regarding the skils vs wages argument is not my experience. In the financial world people get jobs because of who they know - not what they know. They also tend to come from backgrounds who have had advantages (like pivate education followed by Higher education) - which, believe it or not is not the case for all intelligent people.
...and as for getting found out - HA, Did Fred the Shred get found out? No, he retired quickly before he was 'found out'. Most people simply move on from their previous place before they get 'found out' - if only you knew some of the waste of space people I have worked with.
I'm afraid you may have mis-understood me, I don't blame the crsis on the people (bankers, politicans or otherwise), but on the SYSTEM. This is what the system of Capitalism does, time and time again. The politicians will blame ANYTHING but the system for this, as a change to the system would be catastrophic for them.
I don't have specific views on how it should be done, but I know there are many better ways than the current Democracy. Try looking up Athenian democracy - or maybe a system where all decisions are made locally - like a federation an only national issues (like defence) are fulfilled by the organising of federate states ( and not simply taking money for Central Government to spend as IT SEES FIT - like starting wars not in the national interest in chase of fictional WMD's).
Some of these systems have heir faults - but I believe the intelligenc of the Human race is a collective one (that's why the audience always get's the question right on who wants to be a millionaire!).
The idea that the current leaders are intelligent is laughable. I know a lot about Economics and I haven't restricted myself to any particular political agenda (from Marx to Friedman) - and whenever I see a politican talking about the subject I cannot believe they actually say some of the things they do - they are so far from the truth. That's when I start getting scared, if they are that stupid (or that devious) to come out with some of the rubbish they do - WHAT ELSE ARE THEY TRYING TO HIDE??
Finally, only the people have the answers about the new world an how it should look - not me alone. One thing I can assure you is that the rich and powerful minority are NOT looking at changing this system because it benefits them too much - even though we continue to have Economic crisis's like this one.
All I want people to do is ask questions - look at history - look at how the same story was played out in 1929 - and what was the outcome of that?
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As with any New Labour tax rise this is an attack on me a slightly higher than average salary, family man who owns his house. I am more than happy to pay more than my fair share to provide an education to our young people, free healthcare and public security. However i would point out that I already pay a greater proportion of my earnings in tax than someone who pays tax at the standard rate (I do not object to this) why should i be penalised again if i choose to try to provide for my own retirement without having to rely on the state for hand outs in later life. By the way this will leave more of the public pot to help those who have been less fortunate. If all final salary schemes within the public sector were abolished and they were forced to subscribe for money purchase schemes we would soon see how much support that this short sighted proposal would attain.
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RBS_temp #133
I can understand pefectly why you might think that, but what I am trying to tell you is that it's simply not true.
If crashes were caused by 'perfect storms' where a combination of factors contrived to cause it - then they would be much more intermitent, much more random as any of these could combine to create the conditions at any time.
The reality is that boom is ALWAYS followed by bust - you can look at the Economic history of any capitalist country and the pattern is there - even the right wing Economists admit this - there is no debate. They argue that they can 'control it' and make the busts a 'soft landing' with monetary policy.
There is also a correlation between lengths of booms and the seriousness of the bust that follows.
It's no accident - it's the anarchic naure of Capitalism. It controls us - not the other way round. It over inflates, and then it bursts, and then the Government panics, starts doing hings like 'print money' and they start the next boom, bigger and better than the last.
If you're still not convinced then ask yourself which people are always saying the opposite to what I have stated here?
The answer is the politicians.
Even though you don't know me, have neve met me, and no nohing about me, there is a very good chance I am less of a liar than a polician.
Start keeping tabs on all these 'brilliant minds' who keep predicting when the reccession will end - and see how many are completely wrong once you have the benefit of hindsight.
I am awake - come an join me - it's not pretty mind you - but at least I can see what's coming and I an prepare.
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As a payer of higher rate tax and also an adviser to others I do frankly believe there should be a limit either of (say) £100,000 for tax relief but that would complicate matters and create a bubble. Far better to limit pension tax relief to basic rate (currently 20%) for all, add national Insurance to employer and employee contributions and have over a 5 year time scale a reduced national Insurance rate for employers so they are not hurt too much at present times. Then the playing field would be more level for employer contributions (@ corporation tax rates) and employee at 20% (or basic rate). Over 5 years this could raise substantial sums and then at the end the private/employer pensions would be fairer and level. Lets us think things through and not just play stupid politics.
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I would not be affected by these measures since I'm not British.
However, the public policy implications of reducing the amount of money in pension plans at a time when they are incurring large losses in the stock market may indicate that this is not a good idea.
A large part of the current problems are due to the fact that people were spending too much and saving too little. Savings are invested in something and some of it finds it way into productive use in providing investment capital for companies. Savings held in pension plans are invested significantly in infrastructure projects in the stock market facilitating investment by companies.
In Canada at least pensions are taxed when they are taken out as income - the tax is merely deferred, not eliminated. Taxes are paid on the entire amount of the income which includes income from those investments. I do not know the British tax system, but in Canada dividend income includes a tax credit to account for the taxes the companies pay. Capital gains are taxed at half the rate of regular income. However money coming from the pension plan is all taxed as income and does not include these tax breaks. This raises the effective tax rate on pension income.
So the revenue implications are actually quite complex. Taxing part of the pension plan contributions will certainly raise revenue now, possibly at the expense of lowering it later. Society get into the mess it's in partly as a result of short-term thinking. Revenue today, but possibly reductions in revenues in longer-term and reductions in the flow of investment capital. Pension plans by their nature have to be patient money and take a longer-term view than the typical hedge fund or mutual fund.
Balanced against this is the real or perceived social inequities involved with giving tax breaks in a graduated tax system.
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Private pensions have already been raided by Goondog Trillionaire Brown and private pensions are an easy target for tax fetish meglamania. Hopefully, someone will remember that private pensions are not index linked like public sector pensions and are not guaranteed.
The higher rate 40% tax break has never made much sense and needs reform for a sliding scale or something fairer rel;ative to amount and time invested but I think that more flexibility is needed in the budget and encourage people to save and have more choice over the use of pension funds with regard to existing mortgages and e.g. pension mortgages could be expanded to good effect in the budget. This would allow pension savers more options in organising their finances/ assets towards their retirement.
Every single GB pound invested in a UK pension and to be invested direct in UK companies is worth how many going to a bank in bail out? £5? £50? £100?
How many day's till the general election - Have we got a countdown clock somewhere? I'd like to be outside No 10 Downing Street with a loud haler when Goondog packs up & leaves and I'll give him a real good 'Little England' earbashing - Hopefully, I won't get attacked by the law when doing so!
Smash the banks - It's not too late!
However, there's not much point writing about what needs doing other than just get a change of government.
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Thoughts here:
1. Some thought needs to be given to the motivational aspect here. A 40% earner might well cut their working week or retire/semi-retire now rather than pay 20% tax into pension plus 20% or far more tax out of it. And that person leaving his job won't necessarily create a vacancy for somebody else. Really these are the people the Country needs to pull us out of recession and fund essential services, rather than playing more rounds of golf. Maybe some way of redirecting of pension investments into the UK rather than having international scope would be a better way of dealing with this.
2. This will basically sound the death knell for decent pensions and people who are still working will use Limited Companies or other methods to invest their cash in place of the pension.
There are other disadvantages with pensions already, viz. the upper limits and extra tax on income taken above those limits, which risk being breached with incipient inflation and downgrading of the limits in the past few months.
3. Then we have Mandelson and Brown were on TV earlier peddling bilge about the UK being ready to become a great manufacturing nation again, and why shouldn't the sector receive the same support as it does in other Countries? Indeed, why shouldn't it, and why didn't it for the past 12 years? Sadly, when we are years behind the competition in all types of specialist engineering, renewables, healthcare, pharma industries, and have lived for years with too strong a currency, you cannot just spout a few weasel words and hope everything will be fine. A massive devaluation, increased training and awareness, and adequate motivation MIGHT, just MIGHT, make this sector work again in 10-20 years time.
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Some interesting comments on this topic above.
But this debate brings me back to a point that I have struggled with for many years.
Some facts. We live on a planet will rapidly dwindling natural resources and a booming population, growth which is fuelled at both ends by increasing birth rates in developing countries and increased longevity in developed ones.
I wish I had the numbers to hand, and would love to know them. But I don't. What proportion of UK Govt tax take and funding (and GDP) goes to support healthcare to extend the life of the aged and pension payments to support them when the healthcare is successful?
Isn't it time we took a step back and considered whether this apparent article of faith (we must continue life of the - economically - unproductive) - the real elephant in the room - is really the right way for Govts and economies to go? Now is a time when the world is reappraising it's priorities. I strongly believe this is a question that should on the table. Vote winner or not.
By the way, I am old.
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Re #33
HOW THE TAX SYSTEM WORKS – THE SEQUEL
Part Two – HOW THE ECONOMY WORKS
The first four chaps are called Steve, Uri (token non-indigenous worker), Colin and Kevin. They are farm labourers. They grow stuff and pick it for people to eat. They each get paid 95 pounds a week so are not required to pay any tax or national insurance contributions. They all work for the fifth chap, Eric, who manages the farm they work on. Eric is paid 104 pounds per week, to reflect his responsibilities. Because he earns so much, he is obliged to pay 1 pound per week in National Insurance tax. The sixth chap is Ron. He used to be a farm worker, but is now too old to contribute much. Last year he decided to borrow heavily from the bank and set up a service business. He now leases a tractor and trailer unit and has a contract with Eric on the farm. He is doing quite well, making 122 pounds a week, but is worried about how he can make the repayments to his banker. The 3 pounds a week he is forced to pay in National Insurance tax is not helping him.
Stephen, a tax collector, has recently befriended all six of them. Stephen earns 136 pounds a week and is quite happy to pay 4.60 in Tax and 2.40 in National Insurance on this income. As he sees it, this is going to pay his index-linked pension when he retires next year, aged 55. He is not so happy about his real role, which is to gather information about Eric and Ron who are under suspicion of tax evasion. Stephen has introduced the group to his friend, Robert. Roberts job is to inform the workers about the economy, a job he finds rather amusing. He gets paid 153 pounds a week for it and only occasionally grumbles about the 6.40 Tax and 5.60 National Insurance he is forced to contribute.
Robert has two good friends, Humphrey and Fred. They often drop a word in his ear, making his job a no-brainer. Humphrey and Fred are very important people and have both been knighted for their services to the economy. Sir Humphrey runs the Treasury, for which he receives 172 pounds a week and pays back just 6.40 in Tax and 5.60 in National Insurance. Like Stephen, Humphrey sees this as a reasonable deal in view of the enormous index-linked pension he will soon be drawing. Anyway, money worries do not exist for Sir Humphrey because his good friend Sir Fred has already promised him a lucrative non-executive role with his bank after he retires. Sir Fred earns by far the most. He is paid 304 pounds a week and generously contributes 23 pounds a week in Tax and another 36 pounds in National Insurance tax. Sir Fred tries hard to keep quiet about his share options, pension pot and all his other benefits in kind so as not to annoy the workers.
(NOTE from continuity: These figures conform to the story in Part 1).
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I note the predictable attacks on the soft-target civil service pensions, but we should not forget that the private sector tends only to complain when times are tough and it needs something to attack. Rarely are complaints heard when times are good; rarely in good times are there queues of private sector staff clamouring to give up their bonuses for a life as a civil servant; rarely does the private sector come to the support of low-paid public sector workers. Civil servants don't begrudge high pay and bonuses in the private secor when times are good; please let's be fair and not use civil service pensions as an easy punch-bag to divert attention from the real issues: too much easy credit, now too little; poor regulation of the financial industry; greed and possibly worse amongst bankers and others; government lacking in courage and focused on short-termism.
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Pension tax relief is not a rebate, it's deferred tax. You pay it as the pension pays you.
So why should anyone pay into a pension at 20% tax relief, thus tying up all that money in an inflexible form, subject to management charges and the whim of future governments?
This proposed measure has potential to kill off private pensions entirely, especially once the media notice how useless they are. Without pensions, who's going to invest in UK PLC? The law of unintended consequences from this points to our biggest and best - from BP to Tesco to Vodafone - starved of investment, and eventually needing their own bailouts.
We're in this mess precisely because a broken tax regime made property ownership and (worse) speculation immensely more profitable than working or investing in the productive economy. Now we're discussing proposals to widen that crushing anomaly.
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#157
If you want to understand where rbs temp is coming from his post at No.8 is informative. He is pouring every penny he has into a personal pension plan! prtobably has been for years!!
That explains his robust optimism aka Gordon brown style....denial.
No offence rbs temp I quite enjoy the banter with you actually but dont throw good money after bad!
I agree with post #1 about the civil service pensions, the unaffordable elephant in the financial room nobody will take on because government is so big now anybody who did would face strikes / national disruption etc etc.
We all know the nation can not support final salary pensions for 25 years or more post retirement in an aging population which imports 40% of its food, now imports its energy and sellls...ermmmm financial services!!!
We cant talk about that in government..too tricky quick..make like an ostrich...the conservatives will follow.
Sorry guys we can not afford you pensions and early retirement, it is ineviatable, the math simply does not stack up. Pensions were divised for people to rest for the last 5 or 10 years of their life not 25 years!! as is now the common experience. It would be nice i agree if it were actually possible!!!
The whole system is bonkers, the emperor is walking around naked, has been for years!!!
Totally nuts, ridiculous, a herd of elephants are in the room wearing tutus.
The men in white coats have arrived for me...thank goodness, i can get back to some sanity in the company of those who bank their heads against the wall and talk angrily to invisible people long into the night. Anybody who is sane should be doing that.
Jericoa
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I would like to point out that the British Army has been involved in two conflicts in Irag and Afghanistan. Eventhough there has been a major withdrawl from Basra we still have a considerable number of troops and ancilliary support in these two countries. So to make reference to peace time seems a bit extreme. Yes, the taxpayer has had to bail out a considerable number of tax avoiders, so maybe the Budget will include the reclaiming of taxes on all earnings made in the United kingdom. Outlaw non-payment of tax, whether termed the illegal evasion or the so called clever avoidance - it is all non-payment of tax.
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164 Ecstatic_Eric
''I note the predictable attacks on the soft-target civil service pensions, but we should not forget that the private sector tends only to complain when times are tough and it needs something to attack. Rarely are complaints heard when times are good.''
Apart from the financial sector, which is minority employer, and literally a few years of browns bubble which did not affect everyone, I am afraid I cannot recall any of these good private sector times in general. How else can you account for the fact that in real terms the income per head of population in the UK has dropped for decades. With respect to the financial sector most are not on high salaries and jobs have been shipped abroad, eg processing and call centres. Meanwhile right or wrong it is reported that 1/3 of local authority income, ie community/poll tax plus central government money is going to prop up local authority employee pensions shortfall. My advice to anybody, including my kids, is get hold of highly paid job and or a protected public sector pension if you can. Even back in the days of Thatcher it was recognised that major pension problems were brewing. With the best will in the world the figures look difficult long term.
But I dont think your problem is the public, it will be government of any colour, hungry to raid any fat purse they can get hold of.
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....if the government want to save money, maybe reducing the huge number of civil servants with their copper bottomed pensions, paid to micro manage the rest of us. We have a huge public sector, an army of feckless on benefits, uneducated, unemployable, costing a fortune becos no politician has the guts to really get to grips with it. There are things that could be done other than make life even more costly and difficult for the few who have anything about them. So what do they do, keep squeezing the minority who actually create wealth. Any incentive for 'getting on' is rapidly diminishing. The uk costs a fortune to live in and has little to recommend it yet we are taxed to death and there is no creative thinking by government except tax tax tax. In 3 weeks I leave the uk for a new life in N.Z. Thank god, I cant wait to get there. Im taking my money, before the government gets it and getting out. Good luck to the rest of you!!!!!!
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Here we go again. 1997 was the greatest robbery in peacetime (until the Credit Crunch) of £5bn a year into the collective savings pot of the citizens of UK plc. 2009 and now (thanks to crunch) the UK taxpayer is not only bailing out the feckless in the City (and its close environs) but now also saying to us "there, there, now go and pay more into your retirement pot for less returns".
Jeez. Things are really tough. I think many people might decide to cash in their pension pots now (those lucky enough to do so) before the rules change on April 5, 2010, even with terrible annuity rates. What's the alternative?
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#155. writingsonthewall wrote:
"Firstly - whilst I don't condone the acions of the protestor who smashed the window - I defend his right to do so. People forget that this bank is now owned by taxpayers - it's the people's bank (and more importantly and distcinctly NOT the Governments).
If the people want to smash up their own property to show their anger - I am quite happy for them to do so."
It seems to me that, despite your protestations, you most certainly do condone the actions of those protesters. In fact, you have said that you are "happy" for them to behave the way they did.
The bank is NOT owned by taxpayers; the government merely owns a majority of the shares. The bank is NOT the property of the people. And, even if it were, the people do not have the right to smash it up. Would you condone similar actions by a group of angry taxpayers who smashed up a hospital?
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#166. Jericoa wrote:
"If you want to understand where rbs temp is coming from his post at No.8 is informative. He is pouring every penny he has into a personal pension plan! prtobably has been for years!!
That explains his robust optimism aka Gordon brown style....denial.
No offence rbs temp I quite enjoy the banter with you actually but dont throw good money after bad!"
Your logic escapes me. Are you saying it's a bad thing to save money in a personal pension plan? And why would the fact that I do so lead me to agree with the arguments in favour of abolishing higher-rate tax relief?
You may consider me optimistic, or in denial, but the simple fact is that there is no alternative but to save for retirement. Under the current tax regime my monthly investment of £1000 immediately becomes £1,667 - and using that money to buy equities at today's low prices offers excellent opportunities for very high returns and a very comfortable retirement at the end of it.
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HOW THE TAX SYSTEM WORKS – THE SEQUEL
Part Two – HOW THE ECONOMY WORKS
The first four chaps are called Steve, Uri (token non-indigenous worker), Colin and Kevin. They are farm labourers. They grow stuff and pick it for people to eat. They each get paid 95 pounds a week so are not required to pay any tax or national insurance contributions. They all work for the fifth chap, Eric, who manages the farm they work on. Eric is paid 104 pounds per week, to reflect his responsibilities. Because he earns so much, he is obliged to pay 1 pound per week in National Insurance tax. The sixth chap is Ron. He used to be a farm worker, but is now too old to contribute much. Last year he decided to borrow heavily from the bank and set up a service business. He now leases a tractor and trailer unit and has a contract with Eric on the farm. He is doing quite well, making 122 pounds a week, but is worried about how he can make the repayments to his banker. The 3 pounds a week he is forced to pay in National Insurance tax is not helping him.
Stephen, a tax collector, has recently befriended all six of them. Stephen earns 136 pounds a week and is quite happy to pay 4.60 in Tax and 2.40 in National Insurance on this income. As he sees it, this is going to pay his index-linked pension when he retires next year, aged 55. He is not so happy about his real role, which is to gather information about Eric and Ron who are under suspicion of tax evasion. Stephen has introduced the group to his friend, Robert. Roberts job is to inform the workers about the economy, a job he finds rather amusing. He gets paid 153 pounds a week for it and only occasionally grumbles about the 6.40 Tax and 5.60 National Insurance he is forced to contribute.
Robert has two good friends, Humphrey and Fred. They often drop a word in his ear, making his job a no-brainer. Humphrey and Fred are very important people and have both been knighted for their services to the economy. Sir Humphrey runs the Treasury, for which he receives 172 pounds a week and pays back just 6.40 in Tax and 5.60 in National Insurance. Like Stephen, Humphrey sees this as a reasonable deal in view of the enormous index-linked pension he will soon be drawing. Anyway, money worries do not exist for Sir Humphrey because his good friend Sir Fred has already promised him a lucrative non-executive role with his bank after he retires. Sir Fred earns by far the most. He is paid 304 pounds a week and generously contributes 23 pounds a week in Tax and another 36 pounds in National Insurance tax. Sir Fred tries hard to keep quiet about his share options, pension pot and all his other benefits in kind so as not to annoy the workers.
(NOTE from continuity: These figures conform to the story in Part 1).
Re #33 and #163
HOW THE TAX SYSTEM WORKS – THE SEQUEL
Part Three – HOW THE ECONOMY MIGHT WORK
Steve, Uri, Colin, Kevin, Eric and Ron walk into the White Bear. Landlord, Thomas Paine greets them as he racks up their beers and pops an ashtray in front of them. Stephen rushes in and offers to buy the round. Gizza a job, he says to Eric, with a smile. Eyeing the ashtray, he says, I guess you have all heard that the coercive, intrusive, corrupt government has gone. Just saw Robert on the news. Apparently, Sir Fred was spotted boarding his jet, bound for the Caymans. There is a rumour that Sir Humphrey is with him. No more taxes, no more government, and no more jobs for me. A tear drops into Stephens beer.
Don’t blub Stephen, says Eric. What about Thomas. We all owe him for last nights beer and without Sir Humphrey, Sir Fred and Roberts contributions, how can we possibly continue to support his establishment. We are all doomed. Certainly we need such enlightened rich folk to organise things for us. I wish I hadn’t hit him so hard, and Uri, there was no need to break his window now was there?
The mood of the group becomes pensive. Thomas quickly racks up another round. Its on the house lads, Im not being forced to pay my business rates anymore so lets forget about last nights bill. Just listen to me for a second. First of all, the beer is now cheap, Ive knocked off the excise duty and the VAT. Ive knocked off the business rates, the licence fee, the cost of licence compliance and of course Ive knocked off all the taxes I had to pay. Its now only 30p a pint. For all six of you, the weekly beer bill is down to 10 pounds and I still make a profit. Wheeee!
Steve, Uri, Colin, Kevin, Eric, Ron, How much are you saving on indirect taxes? How much were you paying in bank interest? By my reckoning you are all sooooo far ahead of the game. Stephen, sorry you are unemployed but maybe you could take some time out. Think about what you might usefully do. Hey, my cellar needs tidying. How about it?
Ron looks up. But that is deflationary, Thomas. We don’t know how to deal with that.
Thomas looks at him quizzically. What is important Ron? As long as you have carrots in your fields to eat and beer to drink, what does the price matter? Hey, eventually we might deflate everything to zero cost and feed the world for free. Some guy in Venus, Florida is already working on the mechanics.
Anyway, your numbers don’t stack up, adds Eric. The rest look on dumbfounded. They didn’t teach economics too well at school.
Between us we only earn 606 pounds a week says Eric, looking at his team. Robert, Humphrey and Fred cost us 629 a week, let alone the cost of Stephen. How does that work? Err….. government borrowing, says Stephen. Your kids pay it, he adds and promptly disappears to the loo.
Look guys, says Thomas, all the money you were getting went to pay for those guys, Stephen got his wages and his pension, Robert got his licence fee, Sir Humphrey got his salary, his pension and all that influence could buy and Sir Fred got the cream. Where did the carrots come from? Are there any less carrots in the field today? What happens if you just carry on as usual? Ill tell you what happens, there will be just as many carrots as there were yesterday. The only difference is that you get to keep them all. Anyway, postage to the Caymens is just too expensive to send any more to Sir Humphrey and Sir Fred. Its commonsense lads. Drink up.
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The Chancellor. we are told.is fcusing on waste so why does he and the financial Press not focus on the BILLIONS of hard earned taxpayers pounds currently being needlessly wasted repossessing the homes of hard working famillies where the mortgages are under Government control with all the misery caused?This has already been identified in a report by getthepropertymarketgoing.com asattached. ACTION:- DIRECT ACTION TO STOP REPOSSESSIONS
By rapidly underpinning/ stabilising the current market by pressuring the government to provide direct assistance/support to individuals who are genuinely having problems meeting their mortgage payments and are about to be repossessed. We appreciate a perfectly legitimate case can be made against such action by those who do not currently have problems paying their mortgage or do not have a mortgage but this can be dealt by the government taking a direct equity stake in the property. The current situation where the government either directly or through local government is forced to provide accommodation/support after repossession is not only financially inefficient, but economic madness, costing billions of pounds, particularly as the government through the banks will shortly be responsible for a very large percentage of those very same mortgages. Recent information supplied by our members show properties now being repossessed are worth an average of 170,000 pounds at 2007 values and are subject to an average mortgage of 150,000 pounds. These are now being sold at auction for just under 90,000 pounds resulting in an immediate loss to the lenders (very likely to be the government ie the taxpayer) of 60,000+ pounds. This loss, plus interest lost during the period before completed sale and the cost of providing alternative accommodation for the family removed from their repossessed home increases the total immediate loss to an average 70,375 pounds to the taxpayer. Had the government taken on the mortgage and an equity stake in the property, the mortgage could have been funded for up to eight and a half years before spending the immediate 70,375 pound loss thus avoiding repossession. The government would, at a suitable time, be able to remove support probably many years before the eight and a half year period and, with its equity stake intact, eventually reduce its losses to zero saving instead of spending billions of pounds, indeed it may even make a small profit whilst enabling the family to stay together and reduce the glut of repossessed properties coming onto and further undermining the market. Further analysis would indicate the same property would have cost on average 130,000 pounds to build including land and we believe it is absolute madness to allow properties to be sold at auction some 40,000 pounds less than they would cost to produce, whilst the government and local authorities seek housing for the people being made homeless in the current crisis. We see absolutely no point in removing people from perfectly good, well constructed, well insulated, housing stock and putting them in less well constructed and less well insulated housing whilst the previous well maintained property is allowed to deteriorate, pulling down the values of surrounding properties. This has already happened in America with large estates being vandalised and ruined and, it is beginning to happen in the U.K.
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I cannot think of a more self defeating proposal than to remove tax relief at the higher rate.
- A serious inequality will result between people providing for themselves through a money purchase scheme and people on final salary schemes.
- Final salary schemes are normally paid for mainly by the employer. Unless this becomes a benefit in kind members have a serious advantage over people in money purchase schemes
- Example. Local government scheme. Employee contribution rates are around 6%. The benefit is worth around 40% of salary, so the employee is only paying around 1/6th of the benefit. If taxed as a benefit in kind (as it should if higher rate relief is removed), anyone earning over around £30K would be paying higher rate tax.
One further point that has not been explored. In the last 12 years the government has clobbered people providing for their own pensions - e.g. removing dividend tax credits. They are introducing a POLITICAL risk into pensions saving. Forget reliefs and allowances - who in their right mind will invest in a pension if some time down the line the government changes the rules?
All I can say Brown and Darling - think VERY CAREFULLY ABOUT WHAT YOU ARE GOING TO DO !!!!
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To all those claiming to tax on contributions and then tax on annuity payments when you are retired is 'double dipping on the tax take', you are forgetting the tax also paid on the 'investment returns' that Brown introduced in 1997. So in reality we would be paying tax 3 times on the same monies.
I believe a straight consumption tax to pay for all layers of Government is vastly overdue and much needed. Why should we have to assess ourselves for tax using an ever more complex process, simple answer is that tax law is to bulky and so complex it benefits only those where it is financially worthwhile chasing every hole in the laws with a tax specialist because the amount he saves exceeds his wages. For most of us this is impractical and places us at a disadvantage.
So, use VAT, everyone pays it, the more you earn, the more you spend and the more tax you pay. Simple. No need for Accountants, Auditors, Inland Revenue, Contributions Agency, Council Tax collectors .. You name it, other than Customs and Excise collecting VAT on sales and imports, you have all that duplication erased.
Instantly you are decreasing the costs on U.K plc and giving it an international competitive advantage.
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All this talk about the public sector and private sector pensions, from what we can see for the last 20 years most people in the U.K have been employed by the government, either directly or indirectly, a lot of the so called private sector PLC's are dependant on government contracts. Building house's and selling them to each other at ever increasing prices is not the way to create real wealth, until U.K can produce something it can sell to the rest of the world, everyones living standards will continue to decline
If the inbalance between Public and Private sector is not fixed soon
nobody will have pension worth talking about
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Hmmm, with Food prices going up by 8 percent (or more in some cases) it is no wonder Tesco has done well.
We just have to hope they don't start buying dodgy Mortgages when their banking operation gets off the ground !
And that they do not start bowing to Gov't pressure to do risky business.
Tesco has a final Salary Pension Scheme and a generous Sharesave scheme .......
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Ok, put everyone on the same footing. Scrap civil service and local government pension schemes for new joiners and pay all the public sector workers what they could expect to earn in the private sector. I know plenty of local government workers who only stay in the job, especially married ladies, because of the prospect of their "superior" pension. Many are now disenchanted, because the retirement age has been raised to 60, instead of 60/65 and for new joiners there is no longer a lump sum. It is my guess that many people will leave public sector jobs over the next few years. They have put up with low pay, poor conditions and new bosses brought in from the private sector, who have been made redundant, had a carrot put under their noses and after causing havoc for about a year trying to bring their private sector ways into the public sector, without a clue what they are doing, return to the private sector, spouting that people in local government are impossible to work with. However think of the public sector as the worker ants. You cannot do without them and they deserve some perks, even if they have to work 30 years to get them.
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There is likely to be a small rise in the tax take of pension contributions for 40% taxpayers, either at the savings end or the payout end, mostly the pensions targetted will be the likes of the Fred Goodwins of this world as this will make good PR (an election is coming)
Possible of new tax band for the super rich (45/50 percent)
Tax avoidance loopholes will be closed (popular with ordinary hardworking families)
Some kind of economic stimuli will be announced (re-announced or even re-re-announced) that does not directly target the banks but the general economy such as tax credits for R&D in green things, tax holidays for builders, possibly VAT reduction on home improvements (particularly green ones)
Scaling back of some non-essential public works (in the longer term) to pay for it.
Government employees (both national and local), state pensioners and the low paid will see their first paypackets rise this month as these are based on the inflation rate in autumn last year.
Most of these people would not vote tory as the voters believe that the tories would target this expenditure immediately.
(probably change date from November to April so that next years rise is 0)
This will be in effect an election budget, think not what the budget will do for you but what the budget will do for the electability of the current government.
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"If People want better Pensions then they should campaign for Final Salary and Index linked (or annually reviewed) Pensions for all !"
The problem with that is that index linked final salary pensions require either
1. 10% annual growth on the stockmarket, and an average lifespan of not much more than 70.
or
2. A limitless reserve of cash to prop them up (commonly known as income tax or council tax).
They are just not viable in the current economic climate. If something is not done about the public sector pensions, they will bankrupt the entire country (assuming Gordon doesn't get there first).
"My understanding is the majority of the Public Sector have had Pay rises of less than two and a half percent for the last four years (with the excuse given that they had good Pensions so didn't deserve a Private Sector equivalent pay rise !)"
Which is probably still higher than the average cost of living payrise in the private sector. In fact many parts of the private sector are being asked to take a pay cut.
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181:
Pensions are only unaffordable as you put it, because the part of company costs that would have paid for the Pensions has been appropriated by Company Directors to be extra Shareholder profit.
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But of course if Companies funded their Pensioners properly (as in many cases they used to) the Company profits would be half what they are now.
Global trade (down nine percent) of course means that false exchange rates and poverty pay, undermines the ability of ethically run businesses to pay and look after their staff properly.
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Of course many less ethical and more profit motivated companies, are happy to cut costs by cancelling their Employees Pension Schemes (look how many are now closed to new members of staff), and of course to give their Directors big bonuses as an incentive for so doing.
The old British Telecom for example has one of the best funded Pension Funds. So it is possible.
Of course Private Sector incompetence and profiteering means that Private Sector Pensions have been severely hit over the last few years.
Unfortunately, most Company Directors would rather have a new Yacht than fuly fund a Pension Plan for their own Employees !
Mind you, the last one I spoke to one moaning that his Companies turnover was down thirty four percent from last year.
I said well why don't you take less out for yourself and re invest the money as a cushion against further falls , and he just said no , I 'd rather spend it now !
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@173
This works….in a world where you are happy just eating carrots.
Of course, as soon as you fancy having some roast potatoes with your Sunday lunch, you’re going to need someone who is willing to give up some of their potatoes for some of your carrots. Leaving the practicalities aside for a moment, this then leads to the issue of personal preference. Some people might hold the potato as the king of vegetables for its superior versatility, where others might find it boring and flavourless when held against the mighty carrot.
Nobody’s tastes are the same, people will derive different levels of pleasure from eating different things, and therefore attribute different levels of ‘value’ to each vegetable. So what you need is a mechanism to sort all this out – a market.
You then need someone to organise the market so that on a Saturday morning everyone knows when to turn up, where, what they can bring etc. If I was a particularly shy carrot grower, I might also want to employ someone, for the cost of a couple of carrots, to trade my carrots on my behalf, because I think he’ll get more potatoes for my carrots than I would. He might even be an ex-potato grower who knows when the best potatoes are around and who to go to.
You then need someone to make sure that people are just painting parsnips orange and passing them off as carrots – this would be the job of the Farm Sellers Authority (FSA), but you would want to make sure that this group is well organised and aware of what is going on in the market, otherwise you are going to run into trouble, possibly even a full scale carrot crunch. You especially want to make sure that this is well run, because the only way you’ll fund it is to take a piece of vegetables off everyone and put it in the FSA pot.
The growers obviously make this market, without them there are no vegetables. However, you need the other parties to make it work. You need a strong FSA to police the whole market, without that you’ll find yourself in the soup.
You also, however, need for the growers to understand they can’t turn up to the market with a couple of carrots and expect to walk away with a tonne of spuds, even if they promise they’ll settle up with more carrots next week. It just doesn’t work that way.
Alternative: we all just eat carrots.
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In fact, I firmly believe large Companies should be required by law, to set aside a certain proportion of their Profits (before Tax) to provide for their Employees Pensions.
Say twenty percent of Gross profit.
These Funds would be Invested in the various Capital Markets, spread across a mixture of Company Shares and Gov't Gilts.
In that were done, Pensions would be affordable.
Of course the Yacht building industry and second homes market would suffer, but what is more important?
Yachts and second homes for a few, or decent Pensions for the many ?
Similar ideas did exist back in the 1950's and 1960's.
Maybe I should go into Politics !
That would be a Brave new world (or scary new world for some)
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Leaving aside semantics of who is paying/getting tax on what now or in the future... this is all about ANOTHER assault on our pensions by Labour, and us paying for their ghastly mishandling of the economy. Gordon was not generous with someones else's money, he was scattercash with ours. Remember this come ballot time.
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174,
Your assumptions on how to fix the housing market by stopping repossession are based on the premise that the money actually existed in the first place. The fact is that when a house is repossessed and subsequently sold (at a paper loss), the original debt is destroyed.
How so I hear you say?
The 90,000 auction price represents money already in circulation, the debtor (the guy that owes the other 60,000) is made bankrupt and the debt (paper loss) is written off.
My point is that the money never existed as it was created from nothing, meanwhile the debtor (who may have paid the mortgage for say 5 years or more) has paid real money (that existed in the economy back to the bank).
In short sir, the whole gig is a scam, a ponzi scheme.
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I see Peston is acting as lead man for the labour party again
Whereas the real story is labour bankrupting the country with a £180 billion budget deficit this year and for the foreseeable future
His spin, lets rip off more of peoples hard earned pensions because they must be fatcats to have a pension in the first place musnt they
PS the 6 million public sector workers on the biggest pensions of all wont be effected in the sleightest of course
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#189 openside50
As this is probably going to be an election budget, look at the numbers.
In the last general election ~26million votes were cast of which Labour gathered just over 9million of them.
Given the turnout was ~60percent, then about 3.5million public sector workers cast their vote.
As most of these will fear a tory backlash on their pay,conditions and pensions so they will mostly vote Labour.
Labour won with only 9 and a bit million votes, so they only need another 5 and a bit million votes to be re-elected.
Add in those on benefits, low wages etc. and I'm sure that GB and crew can convince themselves they have a chance of winning, all it needs is a bit of imagination and figure fiddling in the budget to pull it off.
More carrots anyone ?
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Pension tax relief encourages people to save for the future. This is a good thing and should not be discouraged. I can see some motivation for replacing the lower and upper bands with an average that applies to everyone (thus taking away some incentive to high earners and adding it to low earners who are probably not saving enough) but just taking the money away from high earners is adding disincentive to the system without adding any incentive elsewhere.
If the government wants to raise net money and do it from the high earners, do it by the addition of an extra tax band (ie 45 or 50% over a certain level of earnings). Or do it by putting a tax on multiple homes or cars. Or in any of a myriad of other ways. But don't do it by penalising people who are putting money by for their futures.
If the government wants to give the Tories an even bigger majority after the next election it's going the right way about doing it.
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I see the grouching about public sector pensions is as vicious as ever.
I don't work in the public sector; for years, I have justified my relatively high pay on the grounds that I am being rewarded for my exposure to risk. I've accepted that public sector workers, having accepted relatively low pay (as the penalty for their security and also as a reflection of their sheer altruism), are compensated by being offered a pension which should mean that they won't live out their old age in abject poverty. Given my higher pay, I was in a position to save towards my old age.
Given that I was so smug about my courageous willingness to brave the risks of the free market economy, I would be ashamed to start bitching about those pensions now that things have gone bad. I would be even more ashamed to ask the nation's nurses and state school teachers, who have spent years doing jobs I haven't got the nerve or heart to do, to subsidise me now. Their pensions were part of the deal when they signed on.
I know, of course, that there are too many managers and administrators in several public services - but that is a rather different question.
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As I work in "tax management" I am delighted every time some one suggests an extra band of tax - you are guaranteeing me a lucrative future because the rich will not pay it. History shows: top rate tax went down from 83% to 60%, tax take from rich went up. Top rate tax went down from 60% to 40% tax take from rich went up. Govt are arguing that increasing top rate from 40-45% will increase tax take, well it should be interesting to find out, my guess is it will reduce the tax take because there are just so many ways of saving tax.
Govt spends more than 45% of GDP (in some parts of the country 70% of their economy is derived from govt which apparantly is more than in communist russia). This is insane. To be competitive govt should be spending (during normal times) under 40% of gdp and preferable around 35%. Putting it crudely that means govt spending has to reduce by 20-25% of its current level. That is not just trimmming the edge and improving effeciency that means there are aspects of govt that should be eliminated completely as inappropriate. You could start be chopping out 75% of DTI (or DBERR as I think it is now called) as it has never been anything other than a waste of time.
Some taxes need to go down not up. Corporation tax at 28% is way too high when OECD average is 25%, we need to reduce the corporation tax to no more than 25%. NI needs a complete overhaul and for employees merged into income tax (which should allow us to get rid of a few more civil servants). Bring the income tax threshold up to £10,000 (liberal proposal I think) which would be good for lower paid.
But of course none of this will happen. Govt will continue to spend (our structural defecit is about 3% of GDP in good economic times thanks to Lab), for the simple reason there is an election coming and they want to guarantee the public sector vote.
By the way public sector pensions are completely indefensible. I know you contribute but you do so at a far lower rate than private sector. You should be on the same money purchase schemes as the rest of us but you can have a good industrial dispute about the appropriate level of employer contributions. If you put in 6% then govt should put in 6-10%
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#171 rbs_temp.
Yes - if the public want to smash up a hospital then that's their business.
However it would never happen because hospitals don't profit from your efforts to purchase a property to live in, they don't take money from the Government at 0.5% and lend it to you at 6%.
Hospitals haven't played any part in the destruction of the Economy - in fact Hospitals generally heal paople and are seen as good things.
....and you should ask the remaining shareholders of RBS who actually owns the bank as at their last shareholder meeting there was clear anger towards the board and calls for them to go - and yet they still remain intact because the major shareholder (the Government) is calling the shots and doesn't want to rock the boat.
There are 2 financial worlds at the moment, the real one and the one the media and Government are trying to portray.
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Please note - THE BRAIN DRAIN is a myth.
In 169 Porsche1974 is leaving the country.
From my previous encounters he works in finance (probably a trader) and has a very bad understanding of Economics based around his refusal to look at anything other than 'the surface'.
I say this is a good thing, let all the rich no-gooders leave the country and we'll be left with people who can actually produce things and not simply 'gamble'.
good luck in NZ mate - I'm sure you'll be fine - and remember not to come back
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Dear 147.
As I said, I used to work in a PLC (private Sector) and I work almost as hard now, for 65% of the remuneration (after bonuses /profitshare / sharesave, AND PENSION etc). The reason I chose Local Govt was for job security.
I am painfully aware that my income comes from taxes, and that these are mostly, in the first instance, generated by the private sector. However, if it wasn't for Local Govt and central govt, funded by taxes, other service providers would need to be paid. They might provide the services more efficiently, and they might not. The RBS and HBOS were private sector, and they seem to have run themselves rather badly, so the private sector is not a paragon of economic and business virtue. And, remember that the taxpayers had to bail out the banks (private sector). So, we probably need both private and public sectors.
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Robert's numbers are wrong, but then he probably belongs to a gold-plated final salary pension scheme and doesn't need to worry about it. It works like this. If you pay tax at 20%, and you put £5000 into a pension scheme, the government puts £1250 (not £1000) into the scheme, being 20% of the gross amount of £6250. (You get no refund). If you pay tax at 40%, the government still puts in £1250, and you get a tax refund of a further £1250.
There are two real cons at work here.
The first is that you get taxed on the pension income when you take it. Imagine saving money in a bank account, and then being told when you withdraw it that you have to pay tax on it?
The second is that for most people, who contribute to employer schemes (unlike the BBC scheme most of these are the unguaranteed "defined contributions" schemes) there is no choice but to contribute via a fund run by the chaps in the City with the red braces and the Porches - and the salary and bonuses of these guys is completely unaffected by the recent banking scandals.
And, of course, we all have to guarantee the civil service, teachers, NHS and local authority schemes through our taxes, even though very few of the rest of us, who are paying for them, have any prospect of our pension schemes coming up with much at all.
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The Government and the Treasury make some ludicrous presumptions being:
1)That the British public will not see through their claim that tax relief on pensions for 40% taxpayers is unfair.Labour invented it some years back BECAUSE it was fair and it certainly isn' a "loophole " that the LibDems claim being exploited by clever accountants for their wealthy client.It's law made up by this Government.
2)I would frankly be amazed if anybody is investing in these schemes any way.With the current state of the Stock Market,with no indications of any growth or healthy dividends in equities ,what the point in putting your hard earned money into these schemes for no returns.
So their figure of £5 billion saving is a figment of their imaginations and will never be realised.
They would be much better off coming up with an aggressive Saving scheme with a good rate of return that would allow individual to buy out the taxpayers in the State owned banks and hence enjoy the growth that the politicians promise us.
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"" rbs_temp wrote:
#24. romeBanana22 wrote:
"This is nonsense. The top-rate taxpayer is simply being refunded the amount of tax that he/she would otherwise pay on that ?5,000 just as the basic-rate taxpayer is being refunded the amount of tax that he/she would pay. To imply that the basic-rate taxpayer is somehow getting a raw deal by only getting back that which he would have paid or that the top-rate taxpayer is receiving a benefit is gibberish."
No, it is not gibberish (although, admittedly, it is open to different interpretations).
If a basic-rate taxpayer makes pension contributions of ?10,000 per year he will receive tax relief of ?2,000, whereas a higher-rate taxpayer (who, by definition, earns more) will receive ?4,000 tax relief on payments of ?10,000.
Thus, the better-off individual pays just ?6,000 for something that costs the poorer individual ?8,000.
I understand that this is an inevitable consequence of full tax relief on pension contributions, but where's the fairness?
""
:-) but paying 40% tax is also unfair - if we all paid the same rate of tax we would all get the same relief :-)
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> with the government's borrowing needs exploding to record levels
> for peacetime.
I didn't realise the current period qualified as "peacetime".
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192:''''''''I see the grouching about public sector pensions is as vicious as ever.
I don't work in the public sector; for years, I have justified my relatively high pay on the grounds that I am being rewarded for my exposure to risk. I've accepted that public sector workers, having accepted relatively low pay (as the penalty for their security and also as a reflection of their sheer altruism), are compensated by being offered a pension which should mean that they won't live out their old age in abject poverty. '''''''''''''''
cant let you get away with that one, public sector workers getting relatively low pay????????
the average public sector wage is higher than the average private sector workers wage and has been for years
throw in the job security, the longer holidays, the increased number days days taken off for sickness, the much earlier retirement age and the gold plated index linked pension on top and quite frankly it looks like they are taking the pee
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"If a basic-rate taxpayer makes pension contributions of ?10,000 per year he will receive tax relief of ?2,000, whereas a higher-rate taxpayer (who, by definition, earns more) will receive ?4,000 tax relief on payments of ?10,000.
Thus, the better-off individual pays just ?6,000 for something that costs the poorer individual ?8,000.
I understand that this is an inevitable consequence of full tax relief on pension contributions, but where's the fairness?"
You are fudnamentally missing the point. Both people are paying 10k. It's just that for the higher rate taxpayer, the taxman is 'not' taking more from him than he would from the lower rate taxpayer.
But let's have a closer look.
Lets do three things. First turn it on its head. If they don't pay into a pension the lower rate tax payer keeps 8,000 and the higher rate tax-payer only keeps 6,000. He is 2,000 worse off. Where's the fairness in that?
Second, suppose they are self employed and instead of a pension we are talking about repairing a broken shop window for 1,000. Both the higher rate and lower rate taxpayer will have 1,000 less profits so the higher rate taxpayer will pay 400 less tax that year and the lower rate taxpayer will 'only' pay 200 less tax. Are you seriously saying that that is unfair? That the tax relief on repairing the window should be restricted?
Third, let's assume this 'loophole' is closed and that Mr A on 40k and Mr B on 100k are nearing retirement and decide (as is allowed under pension rules) to put the whole of their salary into a pension. To simplify, let's assume no personal allowances and a lower rate tax band of 40k.
Mr A puts all his salary into a pension, tax due is 8k (40@20%) but he gets 8k tax relief (40@20%). Net tax due = Nil. What about Mr B? He has no money left as he has prudently put it into his pension. His tax bill is 32k (40@20% + 60@40%). Because he has been 'exploiting' this so called 'loophole' he finds his tax relief is restricted to 20k (100@20%). So with no money left, he finds he still has 12k tax to pay.
Could you please, slowly and carefully, explain why that is 'fair'?
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