Who are the rich?

If we are going to develop a better approach to taxing the better off, we first have to decide who is better off. One of the most difficult issues which tax policy has to face is the relationship between capital assets and income.  How do we feel about people who are asset rich but income poor, or people who are income rich but capital poor?

Let us look at some difficult examples.

Mrs Hardup  is a widow living in a one bedroom flat in what is now Chelsea – it used to  be Fulham. She lives on a state pension, with no savings or private pensions to top up what the state provides. She and her  husband bought the flat in the 1960s when it was much cheaper, and paid off the mortgage. Doing that got in the way of other savings.  The flat  is worth £1.2 million today.

Mrs Lucky lives in a Council bungalow on her state pension, but has recently won £1.2 million on the lottery. She has so far put it into cautious investments. She might live for another 20 years, so she could draw down and spend more than £60,000 a year depending on how well she invests the money. Alternatively she could buy herself a property, remove the rent  bill and pay herself a bit less.

Mrs Hardup decides to sell her Chelsea  flat, move  and  buy a small detached property near her daughter in Bolton for £200,00, leaving her £1 million to invest to provide her with an income well above the national average.

Mr Feckless retires early, sells his £1.5m southern counties executive house, buys a £500,000 smaller property, and spends three years on expensive cruises,  buying luxury cars and other consumption, using up much of his spare £1m.

Mr Prudent retires with a good  pension of £35,000 a year, and continues living in his £1.5m southern executive home. He is surprised by the choices of his former  neighbour, Mr Feckless.

Mr Whirlwind is in the prime of life and earns £150,000 a year. His income has risen quickly recently, and he has been too busy to get round to buying a home of his own. He pays a lot out in rent for the smart new property he has recently taken on, eats out most days and takes expensive holidays. He has few assets.

Do we have views on which of these, if any, is rich? Do people have moral preferences over who should pay more?  Should we tax income more, because it is available to be paid to the government as it comes in? Should we tax assets more, to make people reorganise their assets?

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118 Comments

  1. Lifelogic
    Posted April 12, 2017 at 5:48 am | Permalink

    You say:- Mr Prudent retires with a good pension of £35,000 a year, and continues living in his £1.5m southern executive home.

    Not very prudent at all given that he will have to pay about £480K in inheritance tax on death plus they new probate IHT II tax on top and for his own long term care. The tax system actively system encourages Mr Feckless in his behavour. Go on a cruise and the government will pay 40%+ of the costs of it – so why not, lets order another bottle of champagne.

    If someone lives in a small flat with a small income then whether the flat is worth £1M or just £50K makes little difference to them unless they want to move & most elderly people rarely want to move late in life. It just means the local shops are probably a bit more pricey in the rich area.

    I can see no justification as to why some people should get subsidised state housing for life and others in a similar financial position do not and are thus much poorer. Surely all rented housing should charge the market rent, with some help for the few who for medical or other sound reasons really cannot afford it? Subsidised housing is just unfair competition for other more efficient landlords anyway. Just as state schools, state hospitals are unfair competition for any private provision. Let us have a level playing field freedom and choice. The competition authority never addresses unfair competition by the state sector!

    Consumption taxes are the best tax, turnover taxes at up to 15% on houses are absurdly damaging as is progressive income tax and inheritance tax. Why bother to work to earn an extra £10,000 if you have to pay 45% income tax on it and then another 40% of the balance IHT when you pass it on to your children? The children then spend it and pay another £20 VAT in the process. So they end up with £180o of value for your £10,000 of work the government having taken £8,200 of it. Plus of course the employers NI of about £1300.

    The UK is absurdly over taxed, it make everyone poorer and is hugely damaging. It kills jobs, productivity and the tax base. But May and Hammond clearly love big government, tax complexity, government waste and endless damaging red tape. This over what would actually work and grow the tax base.

  2. Lifelogic
    Posted April 12, 2017 at 6:00 am | Permalink

    Mrs Lucky with he £1.2 Million should come to me and we would almost certainly make about a 10% return on the capital (after tax) giving her nearly £180K PA to rub along on – for her remaining 20 years. £60K assumes no return on capital at all – it is just spending the capital! Then again the banks currently do give you a negative return due to the absurd policy of this government and a lack of competition in the sector.

    The tax systems is certainly telling her to spend it (or give it to children quickly) as otherwise the state will grab it off he to pay her for he care costs and IHT. Do not be prudent be feckless is the message from the current tax system.

    • eeyore
      Posted April 12, 2017 at 2:54 pm | Permalink

      LL – £60,000pa is, as you know, the gross income from £1.2m invested at 5% – say in insurance shares. Can you really get her 10%? I say, you’re not Bernie Madoff by any chance?

      But of course you’re right. When prudence is punished and folly rewarded, when even JR runs asset taxes up the flagpole to see who salutes, Mrs Lucky should just have a high old time while she can. As the philosopher Nicholson advised, “Spend spend spend!”

      In the meantime HMG (or Mr Feckless as it should really be called) relies on us to be decent chaps who continue to behave responsibly. Shameless!

      Reply I was letting her spend the capital!

      • Lifelogic
        Posted April 12, 2017 at 7:42 pm | Permalink

        Yes looking back my personal investments in property and other trading companies have made a return of over 15% (after tax) for well over 30 years.

        Just buy a property with potential for perhaps £500K (using bank lending of say £350K) and £150K of your money then sell for say £900K (after improvements and costs of say £150K) and you have turned £300k of capital into £700K over perhaps 2 years. A return of 52% PA before tax. Structure the tax well too.

        Not that hard at all, just buy low add value and sell high, gear your capital with borrowing (sensibly). It is hardly rocket science.

        True the absurd stamp duty rates now do not help.

        • Lifelogic
          Posted April 12, 2017 at 7:46 pm | Permalink

          Or do the same by buying a trading company and adding value to it. Lots of good ones for sale if you look hard as lots of people want to retire for all sorts of reasons.

          • Lifelogic
            Posted April 12, 2017 at 7:48 pm | Permalink

            The main reason is the hassle they get from the government (or health reasons).

      • Lifelogic
        Posted April 13, 2017 at 3:42 am | Permalink

        Or use the generous SEIS or EIS tax breaks, where applicable, to get that sort of tax free return.

  3. Anonymous
    Posted April 12, 2017 at 6:02 am | Permalink

    All I can say is that all of those examples is beyond my wildest dreams. You speak as though these are pretty normal figures. I hope they aren’t.

    I’m beginning to feel inadequate.

    (My wealth is probably a third of the worst case in those examples yet the Daily Mail thinks I’m overpaid.)

    Every one of those people is rich if you want my honest opinion but I don’t really want to see them hit very hard.

    I’ll tell you what. All those rich socialists. How about we suggest they voluntarily pay a 60% rate otherwise they shut up.

    • Simon Platt
      Posted April 12, 2017 at 11:45 am | Permalink

      Yes, those numbers are very large aren’t they? I suppose they are chosen to be extreme, though.

    • Lifelogic
      Posted April 12, 2017 at 4:25 pm | Permalink

      A pension pot levelling tax on all state sector, gold plated pensions to bring them down the average private pension pot in the rather more productive private sector. This is about the only tax increase I would support. Up to about 100% of EU pensions would be fair.

  4. Posted April 12, 2017 at 6:20 am | Permalink

    I make a point of going on Labour blogs. “The rich” to them are the same as “the Tories” – bad, greedy people who have got rich by soaking the poor. They deserve all they get when Labour come to power. They are the people who wear top hats and have servants to look after them. They drive Rolls Royces. And they are the kind of people who eject poor people at Christmas onto the streets. Bankers. Etonians. Squire Nasty who does fox hunting.
    The working class is everyone who votes Labour. This includes all the people who the Mail shows up – the people who run the NHS on massive salaries – people who claim all the benefits they can lay hold of – single mothers with their kiddies (but not their polyandrous “partners”) – Labour politicians. These “working class people” are the Spartans who rule the helots.
    So I do not think that common sense is going to break through any time soon. Left wing people seem to think in cliches, like the religious people they denigrate, and you are not going to change that.

  5. Jerry
    Posted April 12, 2017 at 6:21 am | Permalink

    I’m not sure that Mr Feckless is so feckless, he probably invested in a property on the up and still has the option to cash-in on both his property (as Mrs Hardup has) and sell his collection of expensive cars. having bought wisely one cars whose values are likely to rise, just as any investment can. Basically his only feckless behaviour is going on ‘expensive cruises’, but even then he might not be so feckless if he takes winter cruises, by the time the cost of living is considered, food, heat and lighting etc. He might even employ a (live-in) house keeper.

    Of course the question you are really asking is who pays or has paid the more tax, my guess on the sparse information we have been given would be either Mrs Lucky or Mr Whirlwind (with perhaps Mr Feckless running a close Third). Apart from direct tax they have also paid much indirect tax whilst driving the wealth creation in the economy via their outlandish spending. I bet Mr & Mrs Lucky used to have a new car every couple or so years, also keeping up with all the latest retail trends, and of course did/do not receive any income tax allowance towards a mortgage, being unmarried Mr Whirlwind receives no tax advantage for his non existent children and thus likely pays maximum income tax.

  6. formula57
    Posted April 12, 2017 at 6:23 am | Permalink

    There are of course two sound principles, being let people do as they wish with their own money (and hence not fashion tax policy to penalize some behaviours) and let tax fall where it can be met without the taxpayers having to re-arrange their affairs.

    It is also proper to note the further obvious point that however the tax regime is set-up, it will often cause changes in taxpayers’ behaviour over what they might have done otherwise and some of those changes may well not assist society.

    As for the people in the examples, some are very well-off but as for being rich when defined as being beyond ever having to concern themselves with money, I am hestitant to pronounce any are so.

    • Simon Platt
      Posted April 12, 2017 at 11:47 am | Permalink

      I agree with that (“Do people have moral preferences over who should pay more?” is the wrong question to ask), except that I don’t hesitate to say that I think they’re all rich.

  7. Andy Marlot
    Posted April 12, 2017 at 6:48 am | Permalink

    None of them are rich. They are marginally less poor than the rest of us. How about you just cut the immensely wasteful government which would allow people to keep their own money without the threat of government violence? Do away with the army of useless bureaucrats infesting every government department. The only function of most of them is to shuffle paper to each other or monitor and tax the productive. What actual good do they do? How many government programs have any positive effect? Living standards have declined for many years, disguised by women going out to work, easy credit, electronic gadgets and endless propaganda. Most people do not remember the time when a single wage could house, feed and provide for a whole family. That decline is because of government and it’s pointless programs and policies. When it comes to officialdom less is always more.

    • Phil
      Posted April 12, 2017 at 12:01 pm | Permalink

      Very good points. A household with one earner who is just into the top decile with their salary will be in the lower half of household incomes. (That’s counting employer’s NI which is a below-the-belt con).

      The tax and benefits system continues to be changed to discourage stay at home parents. Coupled with this, Gove’s education changes seem to make less room for treating kids as individuals, who may develop at different rates or decide PPE at Oxford is not their apotheosis of educational achievement.

      A related problem is the absurd cost of housing. If houses were cheaper, all of these problems would be more tractable.

      • Narrow shoulders
        Posted April 13, 2017 at 11:43 am | Permalink

        The single earner family does not feature in government planing for diversity and control reasons.

    • Hope
      Posted April 12, 2017 at 5:31 pm | Permalink

      How about the 80/20 split Osborne promised us? 80 percent spending g cuts and 20 percent taxation. JR, how did this plan/promise work out over the last seven years? Hammond appears to have kicked into the long grass of never never land and wants to tax the self employed strivers until their pips squeak! On the other hand the govt turns it back on local authority employees earnings which Cameron told us would not exceed the PM. How did this work out? Any chance of the minister getting a grip with wasteful spending of councils, capping pay, making them all unitary authorities of a similar size to save us the taxpayer money? No more selective additional add on increases for services singled out that form part of ordinary council budgets?

      • Lifelogic
        Posted April 13, 2017 at 3:39 am | Permalink

        A promise from a politician (especially Osborne) is clearly worthless. He did not even keep his £1 M million IHT threshold promise and now we even have the new IHT2 probate tax on top from the dire Hammond. The man who (clearly with May’s approval) wanted to mug the self employed with huge NI increases and smash their Manifesto promise of 2015 into tiny pieces. Such is what you get with politicians especially PPE and Geography graduates it seems.

      • Narrow Shoulders
        Posted April 13, 2017 at 6:55 am | Permalink

         Hammond appears to have kicked into the long grass of never never land and wants to tax the self employed strivers until their pips squeak!

        I see the outrage over (the reversed) taxing the self employed self declarers of tax is ongoing. How about similar outpouring of sympathy for those on Class A NI whose upper earnings threshold has risen from £43,000 to £45,000 whose tax charge is a similar £240.

        Deafening silence on this subject. The middle is there to be milked after all.

  8. Narrow Shoulders
    Posted April 12, 2017 at 7:03 am | Permalink

    Interesting examples Mr Redwood. Aside from being better off than me, none of the above are rich. None of them should attract more tax than is currently due.

    Mrs Lucky should no longer be eligible to live in her council flat or at least pay a proper commercial rate. Mrs Hard up can choose to cash in her asset if she wishes more income.

    It is Mr Feckless’ money, he can do what he wishes with it. Is his approach not what the government’s new pension policy is about.

    It appears all the above have declared and paid tax on all their income and not used spurious reliefs so I have no truck with any of them.

    • Lifelogic
      Posted April 13, 2017 at 3:47 am | Permalink

      Indeed all council flats should clearly charge the market rate to people who can afford them. Why should some get subsidised housing and others not?

  9. Sir Joe Soap
    Posted April 12, 2017 at 7:04 am | Permalink

    At the level of each of these a fixed tax of around £20k P.a. maximum should cover the needs of the state. The state then needs to change its aspirations to this type of reasonable amount. Possibly a small Vat, say at Swiss levels of 8pc could also apply on some luxury items.

    • Hope
      Posted April 12, 2017 at 5:38 pm | Permalink

      How do the Americans manage with such low taxation compared to us? Federal and state taxes appear for lower than all the stealth taxes of VAT and tax added onto everything we spend on. The income tax rate, together with NI, is a sham. It is only a fraction of the taxes we are hammered with. Yet, the Tory Govt ministers openly lie to suggest they are low tax conservatives!

      • Lifelogic
        Posted April 13, 2017 at 12:45 pm | Permalink

        Indeed and they are too high in the USA too. Lets have Hong Kong’s 15% income tax please. 25% of GDP is more than enough for the rather little of any use government actually does.

  10. Sir Joe Soap
    Posted April 12, 2017 at 7:06 am | Permalink

    The definition of rich is a completely separate issue. Probably when you can treat money as a game rather than a means to live on?

  11. Narrow Shoulders
    Posted April 12, 2017 at 7:11 am | Permalink

    Still no outcry about the raising of the Upper earnings limit for NI from 43K to 45K that came in on 6 April.

    The effect of this is to take £240 off all earners over £45K. The same amount as that which provoked outrage when targeted at the self employed in the last budget.

    Will no one defend middle England? Or are we deemed the rich and so an acceptable target?

    • Narrow Shoulders
      Posted April 12, 2017 at 7:35 am | Permalink

      Forced to pay extra NI as well as contributing to the workplace pension scheme which will eventually replace the state pension from which our NI contributions should be taken.

    • acorn
      Posted April 12, 2017 at 4:21 pm | Permalink

      NS, you have to stop thinking of NI as something that actually pays for something specific, it doesn’t. It is just Income Tax by another name to fool the proletariat. Nobody has actually paid into a state pension fund with NI contributions, because no such fund exists.

      This fiscal year, income tax is forecast to suck in £175 billion. NI is slated to suck in £131 billion; 75% of the value of income tax. BTW, you can fool all the people, all of the time, if you are the government.

      • Narrow Shoulders
        Posted April 12, 2017 at 6:16 pm | Permalink

        @acorn

        Correct, my post registers my rage rather than any misunderstanding.

        While the tax is called NI there is an expectation of some kind of return from paying this more “worthy” tax.

        I am unsure if anyone is fooled. Most of us are just captive.

      • getahead
        Posted April 12, 2017 at 6:49 pm | Permalink

        Acorn, if you don’t pay NI, you don’t get a state pension. So despite what you say, and I agree with it, there is a link.

        • Lifelogic
          Posted April 13, 2017 at 7:45 pm | Permalink

          True, but you just get about the same in benefits instead.

      • Lifelogic
        Posted April 12, 2017 at 7:56 pm | Permalink

        It is just Income Tax by another name to fool the proletariat.

        Indeed it is and split into employer and employee to fool them further. So 24%NI (combined), 20% income tax, up to 45% income tax, 20% vat, council tax, fuel duty circa 80%, alcohol duty 80%, road tax, tv tax, stamp duty 15%, CT tax 20%. IHT 40%, probate tax, bus lane tax of school for a day tax ……. what more do they want, blood clearly?

      • libertarian
        Posted April 13, 2017 at 7:38 pm | Permalink

        acorn

        Spot on, correct

  12. alan jutson
    Posted April 12, 2017 at 7:15 am | Permalink

    Only with Mrs Hardup or Mrs Lucky have you explained the background to their so called “wealth”

    Thus other than Mrs Lucky, should we assume that all have gained their so called “wealth” through earned income, on which they have paid tax, if so the key decision which has made them wealthy (other than Mr Whirlwind) was to purchase a home early in their life.

    Should the fact that you have purchased your home in years past (and possibly worked hard for it by forgoing other pleasures) mean you are deemed wealthy ?

    I do not believe that a single primary residence/family home, should be any part of your deemed “wealth” for taxation purposes as you already pay valuation taxation on it in the form of Council tax.

    I would not assume any of your examples are worthy of the title “Rich”

    Mr Whirlwind may become so if his income continues at its present level or higher for very many years, but he is already paying significant sums of taxation on earnings if on PAYE, and indeed on his lifestyle expenditure.
    If his income is because he is self employed, or runs his own business then his future income could be at significant risk/downturn, so he is entitled to his reward.

    All of your examples will be subject to the new stealth Death Tax even if they pass all assets to their partners, and inheritance will also be due on all estates on last death, both of these taxes will need to be paid BEFORE inheritance.

  13. Lifelogic
    Posted April 12, 2017 at 7:20 am | Permalink

    By far the best ways to tax the better off is to get off their backs, lower tax rates, deregulate, go for cheap energy, allow them be more productive, compete in the world, create real jobs and grow the tax base. The state should aim to kill as many non productive jobs (such as bureaucrats, tax accountants, tax lawyers, employment law consultants, gender pay reporting experts, IHT experts, most state employees and the likes as possible.
    This combined with a bonfire of red tape and the entirely counter productive employment “protections”.

    Also encourage the rich to provide for themselves (schooling, health long term care and for their families). That way they pay for others and pay for themselves too and do not even mind paying. Some tax breaks for health insurance and education top up vouchers would save the government money too. Alas May and Hammond need to have this explained to them very slowly indeed as they clearly (like Osborne) they have not got a clue. The current system of benefits, IHT, red tape and tax actively encourage fecklessness, unproductive jobs and huge inefficiency.

    Hammond has even just put up IPT on medical (and other) policies to 12%, making people pay effectively four times if they want to take use private medicine (with tax, NI, IPT and also for other using the NHS).

    May and Hammond need to be locked in a room and forced to watch Milton Friedman videos on Utube for a weeks or two. This until they finally understand and get real – but can you teach old very misguided dogs new tricks?

  14. Ian Wragg
    Posted April 12, 2017 at 7:28 am | Permalink

    I spent my working career at sea, in the African bush and 20 years in the Middle East as a turbine engineer. I paid my NI all those years and now draw a basic state pension and a small occupational pension.
    Having been prudent means we pay full council tax and don’t get a motility car which appears to be the latest wheeze.
    Mr. Feckless has the right idea. Spend everything and enjoy life.
    Foreigners come in to a handsome weekly payout and state funded houses. Meanwhile our savings get mugged by the government zirp policy.
    You either have to be extremely rich or very poor as us in the middle get royally shafted.

    • Mark B
      Posted April 12, 2017 at 12:43 pm | Permalink

      BINGO !!!!!

    • Lifelogic
      Posted April 12, 2017 at 5:42 pm | Permalink

      Exactly.

  15. Christopher Hudson
    Posted April 12, 2017 at 7:33 am | Permalink

    The government, sadly, is not serious about getting its finances in order.

    • Lifelogic
      Posted April 12, 2017 at 4:29 pm | Permalink

      Indeed until they at least cancel HS2, Hinkley C, Gender pay reporting and all the greencrap subsidies we can very sure of that. Tax, borrow, interfere, over regulate, dictate to and piss down the drain seems to be the May/Hammond agenda.

      • getahead
        Posted April 12, 2017 at 6:51 pm | Permalink

        The way things are going with Toshiba, Hinkley C is likely to cancel itself.

  16. Tim Chick
    Posted April 12, 2017 at 7:37 am | Permalink

    I think the first question is for there to be a true, national debate to actually decide what government is for; what it actually ought to be doing. From that you can then work out: how much funding is actually needed to do that, a contingency for emergencies (saving while the sun shines) and a sum to invest in the future. Then, you can work out how to set fair taxes accordingly.

    Instead we have had governments of all political shades constantly putting their hand into the pockets of ordinary people when they run short of money. We had Gordon Brown’s 1% NI hike to ‘save the NHS’; then there was George Osborne’s Vat increase to deal with the deficit.

    Those in charge have lost touch with the true ‘cost’ of all their spending, which is why I argue that every government spending commitment needs to be related to a meaningful benchmark as follows.

    The average wage in the UK is £27,000 . Each year the tax and national insurance amounts to £5361 per year. So, for example, it takes the yearly tax and NI of 13.8 people to pay a single MP’s salary, or one tax payer’s 13.8 years of full time work to do so. In the case of the Prime Minister, it is 28.8 ordinary people or one person nearly 28.8 years of full time work.

    Perhaps if it was made clearer to those in charge how many ordinary people have to toil away for a whole year to pay for all that government at all levels spends, the national finances would be in better shape and prudence could make a comeback.

  17. Alastair harris
    Posted April 12, 2017 at 7:41 am | Permalink

    Tax income. Flat single rate on salary from employment, less personal allowance which all get, set at just above what you might call the living wage. Tax spending. One flat rate of VAT on ALL spending. Levied by businesses with turnover above a threshold which acknowledges the cost of collection, so exempt small businesses. That will do.
    Don’t tax profits. Waste of time and it is a brake on business activity. Don’t tax capital gains. It’s an arbitrary tax. And in any case, you will collect more on the income and vat as a result.
    The iverriding concern of tax policy should be to minimise the deadweight cost of collection. Simple to understand. Difficult to avoid.
    Don’t get drawn into the behavioural claptrap. Smoking is bad for you Si ban it. Noxious emmissions from petrol/diesel are bad, but regulation (properly engorced) at the point of manufacture is effective

  18. eeyore
    Posted April 12, 2017 at 7:41 am | Permalink

    Who should we tax? asks JR, rather as a farmer might prod his fat bullocks and muse on which to slaughter. Behind the question is the point he made yesterday, that all parties now believe in equalitarianism and redistribution. No longer does we get what we pay for and pay for what we get. Robin Hood is the wise statesman whose example we follow.

    Is all money now really the State’s money?

    One of the unsung triumphs of modern government, in which it has truly surpassed the ancients, is the efficiency of its tax-gathering. Competition restrains the greed of companies, but what restrains the greed of government? As there is no limit to the quantity of hardship in the world, nor to the ambition of kindly politicians to alleviate it, where does that leave Mrs Hardup, Mrs Lucky, and the rest of us?

  19. agricola
    Posted April 12, 2017 at 7:50 am | Permalink

    None that you mention.

    Mrs Hardup acquired her assets from income that had been taxed all her life. What she decides to do with it and the subsequent income should be totally tax free. It would not be thanks to VAT, Insurance Tax, Airport Tax, Road Tax and god knows what else a grasping government can dream up.

    Mrs Lucky should be encouraged to buy a house and free up her council property. As her income derives from an untaxed windfall, she should pay tax on any income that derives from it.

    Mr Feckless no doubt acquired his property through taxed income. What he has is therefore his to do with as he pleases, free of further tax apart from those highlighted under Mrs Hardup.

    Mr Prudent , having been taxed all his life, should be free of tax commitment on what he has accrued. Apart that is from all those taxes highlighted under Mrs. Hardup.

    Mr Whirlwind will pay tax all his life and accrue few tax free assets by retirement.

    Incidentally none of the above should be subject to inheritance tax. It should be killed off.

    None of the above are rich. My minimum definition of rich is to have cash and assets of at least £10,000,000. In this case the person concerned should buy a house in the open market in Guernsey , be tax resident there, and so avoid any punitive tax system devised by controlling , spendthrift government. It would be my choice.

    Incidentally why have you avoided mentioning the numerous (OVERSEAS RICH ED) that clutter our capital paying no tax and not even their parking fines. Are these the untouchables that you dare not mention.

  20. Richard1
    Posted April 12, 2017 at 8:02 am | Permalink

    A flat tax of no more than 20% on income and capital gains, with inheritance treated as income in the hands of the recipient, abolition of all the tweeks and avoidance mechanisms created over the years and added to and complicated by chancellors like Brown and Osborne. Sensible also could be a guaranteed minimum income of eg £10k per adult with withdrawal of 50p of benefit for every £1 earned, and abolition of all benefits, pensions etc which currently exist (& extra help for specific needs such as disabilities). A much simpler, clearer, flatter tax system would surely do much to boost the productivity and competitiveness of the UK.

  21. NHSGP
    Posted April 12, 2017 at 8:22 am | Permalink

    Interesting isn’t it.

    Why is John Redwood now advocating increasing taxes? No connection with services. The idea that tax is the price of the state is gone.

    It’s that tax itself is the goal. More tax better.

    The reason?

    The state has 12.5 trillion pounds of debt and politicians like John have worked out the consequences but can’t bring themselves to tell the public that they have been screwed

  22. fedupsoutherner
    Posted April 12, 2017 at 8:27 am | Permalink

    I am just reading the letter sent to my husband from the Pension Service about the change in his state pension payments. I see that they title it “About the General Increases in BENEFITS”. I take offence to this. In no way is the state pension a ‘benefit’. In the case of my husband, he has paid into the system by way of his NI contributions for 49 years in total and this payment is not a benefit. It could be considered a benefit for people who have paid nothing all their lives and yet still receive a pension.

    • Anonymous
      Posted April 12, 2017 at 1:21 pm | Permalink

      I take offence to this too.

      That we are considered too unintelligent to spot the great swindle by clever use of language.

  23. William Long
    Posted April 12, 2017 at 8:32 am | Permalink

    I think taxation should be morally neutral: its purpose is to raise revenue not to encourage different behaviours. An important thing is that tax should be easy to collect and therefor as simple as possible. The easiest things on which to raise levies are income and profits as they arise, and expenditure as it takes place. From the taxpayers’ viewpoint it is clear what is happening and for the tax gatherer it should therefor be easy to police. For politicians though, simplicity has the disadvantage that it is very clear when they are putting taxes up and recent chancellors of both main parties have gone along enthusiastically with the Treasury’s delight in obfuscation. It is very desirable that this changes.
    There is therefor much to be said for income tax and purchase tax/VAT.
    Clearly those with more should pay more but this would anyway be achieved with even a flat rate of tax.
    The great advantage of tax on income is that there is by definition the liquidity to pay the tax as the income arises; the only tax on capital where this is true is Capital Gains Tax, but the disadvantages of capital taxes are clearly demonstrated by the number of exemptions and exceptions that have been found necessary with CGT and IHT, for farms, landed estates, unquoted businesses etc etc.
    I do not think it helps anyone to have a debate about who is rich and who is not. The answer will always be a purely subjective one and will simply serve to divert attention from the real need which is for a root and branch reform of our personal taxation system so it becomes easy to understand and efficient to manage, and is fair, by which I simply mean that it treats all people in the same way and does not favour one group over another for purely political reasons.

  24. APL
    Posted April 12, 2017 at 8:57 am | Permalink

    JR: “Who are the rich?”

    The rich. In my opinion you are not rich if you merly have a good income. You may be affluent, but hardly rich.

    I’d include MPs in that bracket, you may roll home with £120,000 per annum and all sorts of other hidden goodies, but a couple of weeks after a general election you could just as easily find your self on your uppers as anyone else.

    I think you need to have substantial assets in addition to a good income to be considered ‘rich’.

    (2 named individuals left out ed)

    • APL
      Posted April 13, 2017 at 12:15 pm | Permalink

      (2 named individuals left out ed)

      I don’t see what Richard Branson has done to be ashamed of.

      He is a successful businessman who through his enterprise and hard work has provided jobs and employment for numerous individuals.

      Yes, I think he should have a top tax rate of 30%

      The other named individual, Yes, I can see why he’d prefer to slink around in the shadows.

  25. Know-dice
    Posted April 12, 2017 at 8:57 am | Permalink

    Regardless of who is “rich” or not so rich, there is very little encouragement from this Government and David Cameron’s Government for people to be self sufficient in their old age.

    The drug of taxes on taxes on taxes needs to stop – does the Government actually do anything of value other than waste and drain the system?

    There needs to be real incentives for people to make their own provision for their old age. The Government needs to stop moving the goalposts for people that make these very long-term provisions.

    Oh dear – Mr (or Mrs/Ms/Miss/Mx) angry today 🙁

  26. Bob
    Posted April 12, 2017 at 9:06 am | Permalink

    The govt should not be taxing personal savings and investments.
    Pension fund raiders like Brown and Osborne are the reason that people don’t trust pensions.
    The auto enrolement pensions are a bureaucratic imposition on small businesses and individual employers.

    I’m fed up with the “what shall we tax next” attitude of politicians, cut the wastful spending and foreign aid scam, it’s trade not aid that will allow the third world to develop, it’s not up to western politicians to decree that all countries will have the same lifestyle.

    • chris francis
      Posted April 12, 2017 at 12:19 pm | Permalink

      Absolutely spot on Bob.

    • Lifelogic
      Posted April 12, 2017 at 4:33 pm | Permalink

      Exactly. Socialist in all but name, it will not work it never does. Cut taxes, deregulate, get out of the way and grow the tax base, jobs and the productive sector.

  27. Bert Young
    Posted April 12, 2017 at 9:29 am | Permalink

    I wonder whether it is worth responding ? . For some reason my response is occasionally not published . I keep them short , to the point and only once per day . I don’t wish to waste anyone’s time and I don’t propose to always support the views expressed . In this past week 2 of them have been “moderated” out . Some responders reply several times and , often , off topic . Some are quite lengthy and disregard the request to keep things short . The quandary exists and clarity would be appreciated .

    • acorn
      Posted April 12, 2017 at 4:40 pm | Permalink

      Bert, you have to work up a good ultra right wing rant, like “lifelogic”, and repeat it endlessly. The less you know about how the economy works, the more likely you are to pass moderation. My two posts on how taxation actually works and the job it does to control the use of resources in the economy, had no chance.

  28. Cliff. Wokingham.
    Posted April 12, 2017 at 9:33 am | Permalink

    Or should the state spend more wisely and tax everyone less…..Oh hang on that’s called Conservatism and that is a bad word these days!

    We need a grown up debate about just exactly what we want the state to do for us in terms of public services and public protection. Whether someone is rich or poorer, they should be able to keep more of their own money and not have it stolen by and ever more expanding state.
    Should we really be spending a fortune on TV advertising telling people to check their petrol, tyres and water before they drive their car?…..That used to be common sense.
    Do we need a patronising message from the NHS telling us to look after ourselves? What next? How to put one foot in front of the other in order to walk?

    • Bob
      Posted April 12, 2017 at 1:11 pm | Permalink

      @Cliff. Wokingham

      The BBC is supposed to be a public service broadcaster, so you might wonder why the govt spends so much on commercial advertising.

      I suspect that it is done to buy influence. Global radio was very pro Remain throughout the 2016 EU refercdum campaign.

      Like the Tories £9.5 million EU leaflet drop, it is not good user of taxpayers cash.

      • Lifelogic
        Posted April 12, 2017 at 8:00 pm | Permalink

        Government just love spending tax payer money in indoctrinating they into how to vote or how to think. Buying votes and pissing tax payers money down the drain is what they do best.

  29. a-tracy
    Posted April 12, 2017 at 9:46 am | Permalink

    We don’t know the circumstances in any of these examples, eg are any of them looking after elderly relatives, do any of them have children in University where they have to impoverish their children by expecting them to work all weekend and at night or help them out with a grant, that because of their joint income their grown up offspring can’t access. Are they all single or married/partnerships?

    To get a £35,000 pension you’d need a pension pot around £700,000 more if you want to pass it on to a spouse or retire at 60 instead of 67. Feckless is smart, his £1m would last longer than three years and he should enjoy his life to the full otherwise the government will find a way to take half of it when he’s gone whatever the promises today.

    If you go off tax take an English graduate on £17,000 now is considered suitably rich to take 41% tax, ni and student loan tax on every £1 over this amount. If they work in London and manage to earn £45,000pa every £1 over that the government thinks they’re super rich and takes 51% of their earnings. Plus now those English graduates who started their course in 2012 have the double whammy of tripled fees plus an interest rate of over 6% just to make sure they will never pay their debt off and will always be expected to pay the 9% tax unlike the other nations within the UK whose graduates have been given a free pass.

    • JoolsB
      Posted April 12, 2017 at 12:45 pm | Permalink

      @ a-tracy
      This Conservative Government could not give a toss about the unfair burden they have placed on England’s young, and England’s young alone. In fact this Conservative Government, there by the grace of England, couldn’t give a toss about England – full stop except as a cash cow of course. Meanwhile they are happy to see our taxes and the extra 9% tax hike graduates in England will be clobbered with on top of their already eye watering debts. go to ensure students from the rest of this dis-UK get free or heavily subsided tuition fees.

    • Anonymous
      Posted April 12, 2017 at 1:35 pm | Permalink

      And to have these student debts sold on to private debt agencies and the collectors they use.

      I fear I have given terrible advice to my children in encouraging them to go to university – even if they are for in-demand qualifications.

      If you have a daughter tell her to remain unmarried, get pregnant – get on the state teat as soon as possible and NEVER work.

  30. ale bro
    Posted April 12, 2017 at 9:51 am | Permalink

    My personal view is that capital should be taxed at the same rate as labour as it is incredibly unjust for the hard working to pay for the idle.

    • Cliff. Wokingham.
      Posted April 12, 2017 at 2:26 pm | Permalink

      RG40
      And what if that capital has been earned through hard work? Should it be taxed twice?

      The problem is “the hard done by” or at least those that perceive themselves to be hard done by, because the media tell them that they are, want tax rises for everyone except themselves. The politics of envy in my opinion…..Boo Hoo Hoo, he’s got something I haven’t got take it of of him Nanny, it’s not fair Boo Hoo Hoo.

      Sadly, many people have very short memories and they forget that, when Labour introduced death duty to “get the rich,” the large country estates had to cut staff, take back farmer’s tenancies and stop being benevolent to the local community so, in effect, the very people which the revenue from these new death duties were meant to help, actually suffered because of them.

      We have made wealth and being rich a bad thing in this country but, without the rich people and their wealth to invest, everything grinds to a halt after all, you can’t trust the state to build up new productive industry or to get value for our money.

      It seems the Conservative Party has lost it’s way and became BluLabour under Mr Cameron and, if anything, has gone further towards the dark side of Socialism under Mrs May. It is sad really because it leaves me with no party to support. Although our host is a good local MP, I cannot vote for him with out implying I support the party’s leader and their agenda. I feel very isolated politically which is sad because I have always followed politics and have always voted Conservative.

    • Roy Grainger
      Posted April 12, 2017 at 3:21 pm | Permalink

      People who work are not necessarily “hard working”.

    • Lifelogic
      Posted April 13, 2017 at 3:49 am | Permalink

      Then the capital will be invested elsewhere.

    • anon
      Posted April 14, 2017 at 1:45 am | Permalink

      Agree- no reason earned why income is taxed ( higher ) differently to any other income. CGT should be similar maybe slightly lower (if no inflation indexing).

  31. Patrick
    Posted April 12, 2017 at 9:56 am | Permalink

    Dear John,

    I welcome your bringing attention to these “edge cases” that defy simple definition.

    I think that your characters are a good matrix of starter scenarios for this thought experiment.

    In these scenarios, the salient factor is that the properties in your model are valued far in excess of what anyone in the scenarios paid.

    I do not doubt the approximate theoretical market value of some of the properties in question, but it is clear that these high valuations are only possible as a result of demand systemically exceeding supply. My opinion is that this is a government-driven problem since the government has created the following conditions:

    1) Low interest rates in combination with an under-regulated credit market lending excessive mortgage salary multiples (only possible because of demand systemically exceeding supply, thus banks statistically expecting property price increase).

    2) Regulations on “planning permissions” rendering approved residential building land expensive and neighbouring agricultural land extremely cheap comparatively. More houses must be built and probably the bottleneck is the outdated planning system.

    3) Regulations on property ownership by absentee/long term non-resident landlords. By this I mean that certain sectors of the property market are sold largely to foreign investors based in relatively unstable places as a bolt-hole or hedge. This inflow of capital is welcome, but it is not directed towards investment in value-producing business offering skilled employment, but rather as a store of value in a market that is almost bound to rise due to supply and demand. This clearly distorts our property market.

    4) Private residence relief (no capital gains on sale of a private residence). This is in some respects a necessity if anyone is to sell their house at all in a systemically rising market biassed by supply and demand forces: in swapping one house for another, the buik of the house values can’t be taxed away or you have no market. That said, it is a massive distortion to an economy as the outstanding rising asset class over the last 40 years and uniquely with no capital gains.

    5) Recategorisation of residential properties into business properties. For example, in Edinburgh’s New Town, entire streets of very handsome Georgian houses are in fact offices: you can see only the occasional resident at night living in the attics. Service industry occupation of suitable residential housing is a market distortion. These houses are off the market as dwellings for sale or let reducing prime-site housing stock. Also, companies can exist longer than human occupants. Finally, while personal relief is generous to individuals, it is standard practice to allow companies to depreciate their whole property value over a certain number of years. While this would sensibly apply to industrial facilities, it does not match the market reality for smart rows of townhouses in most British cities.

    The above are my opinions and while I think they make sense, there are a lot of people who are “winning” from these factors and who have no interest in reform. I sympathise with the view that if someone owns a proprty they should be able to use it for whatever they want to. That said I do not believe that this current model is sustainable over the long term and we should make intelligent moves to direct investment towards productive assets rather than investing in inflation as we do at present.

    ——————————————————————

    Regarding your question as to who is rich, clearly they all are. Mr Whirlwind seems treated pretty badly out of this, but only if you look at “The Current Year”.

    Mrs Hardup can realise circa 1.2 million tax free. But it’s not her fault that a combination of inflation, unfit housing regulations, yuppies and foreign capital inflow might overvalue her house.

    Mr Feckless has 1.5 million tax free prior to his expenditure. Mr Feckless is in the position that he is acting like a wild Mrs Lucky: he is going to pay only the vat on his tax-free million or so he wants to “waste” on enjoying himself.

    Mr Prudent can realise 1.5 million tax free almost any time. It is a mere paper value since he has no intention of moving on and it would be foolish to make an assumption of wealth until the asset is even for sale.

    These three are in the position of holding assets. In a fiat money system the currency is assured to depreciate in purchasing power and so capital gains over years are hard to define for asset categories.

    Mrs Lucky has 1.2 million tax free only at source. She has already paid the “tax/good causes donations” on her ticket, as every participant. In aggregate more tax is received from Mrs Lucky’s win than for liquidating any of the assets above

    Mr Whirlwind is being mugged, relatively. He is taxed and NIC’d 60,000 GBP on his 150,000 GBP salary and his employer pays 20,000 GBP in employer NICs. Ignoring the polite fiction that NICs are not taxation, his true salary (cost to employer) is GBP 170000 and he hands over GBP 80,000 or 47% tax. (This means that he’s only working for himself after his third coffee on Wednesday.) He pays high rent and presumably a higher band of council tax while doing so. He pays v.a.t. of 20% on his high expenditure, but of course if he enjoys a drink with his dinner this is much more. His few assets imply that he spends the majority of what remains after his rent. What percentage is he really paying? Even borrowing five times his top-1%-of-earners salary, he couldn’t buy Mr Feckless’s house. That said, he chooses to “waste” his money and he could afford to buy a more modest property and live well on GBP 90,000 net. Pushing him above 50% might make him slow down a bit!

    How to tax them?

    Trying to reform the system quickly to “look fair” in reality would cause severe disruption. The thing to do is be smart and take actions to remove the distortions: review regulations that cause distortions in our market that offer certain asset classes systemic positive or negative bias (for example some listed above). This will encourage more investment in genuine productive assets (company holdings for example) by freeing up monthly rental and mortgage payments. This will in turn reduce aggregate state expenditure down to a sensible proportion of GDP over time making tax easier.

    Best wishes,

    Patrick

    • Bob
      Posted April 12, 2017 at 1:23 pm | Permalink

      @Patrick

      You forgot the elephant in the room. Immigrants arriving in the UK are entitled to accommodation at taxpayers expense.

      John arrives in the UK, buys property on a BTL mortgage, rents it to cousin Susan who gets housing benefit, John gets mortgage paid. If John is rich enough he buys a property outright and then donates the property to John’s charity in ( A foreign country ed) who then collects the rent tax free. Rinse and repeat/

      Being a dual passport hold opens up all kinds of opportunities.

      This activity will increase the UK tax burden and property prices in one fell swoop.

    • acorn
      Posted April 12, 2017 at 5:15 pm | Permalink

      So basically, you are saying that property, particularly land, is not paying enough tax. With that I would agree.

      The trouble is, there is no way back for the neo-liberal UK. There is no way of escaping the Polanyi matrix. Thatcherite neo-liberals created fictitious commodities out of Money; Land, and Labour, which have crushed consumer welfare in the last three decades. The Capitalists, the 1%, have won, game set and match.

  32. David B
    Posted April 12, 2017 at 9:56 am | Permalink

    The examples you give are interesting but miss a vital point. Surveys show people will happily pay more tax/NIC to fund the NHS, Social Care or Education but when it comes down to the harsh reality of actually paying more tax then look no further than the response to the budget. The reality is people think the “rich” should pay more but define the rich as “someone who earns more or has more than me”.

    Then there is the infomous Owen Jones interview on the Daily Polotics where he confused assets and income of cabinet ministers. So not only do people not want to pay more tax themselves they don’t understand the basic principles of taxation.

    Before we can move on our tax code needs simplified. Cut out the exemptions and complications. Then cut rates. Everyone will benefit.

    • Lifelogic
      Posted April 12, 2017 at 4:39 pm | Permalink

      There is no point in giving the dire NHS more money. They need to start charging customer and to encourage people to go privately if they can. The free at the point of non delivery and general incompetence NHS can never work as currently structured, it is a disgrace.

  33. John Probert
    Posted April 12, 2017 at 10:07 am | Permalink

    Relatively speaking we are all rich we come from the land of plenty.
    The uncomfortable truth is the more money we have the more we waste
    Look what is spent on the NHS
    Keep this up and we will all be paying 70%

    • Russ
      Posted April 13, 2017 at 7:30 am | Permalink

      The waste is staggering.

  34. graham1946
    Posted April 12, 2017 at 10:19 am | Permalink

    All things being equal, surely it is income that should be taxed, not assets, as these will have been acquired with previously taxed income and I don’t think there should be double taxation, such as IHT or the more mundane VAT on road fuel which is a tax on a tax. If an asset produces income, this should be taxed.

    The problem is that things are not equal and income can be moved around, income holidays or delays, tax avoided in various schemes which the wealthy are able to do but which the average PAYE person cannot avoid. It needs to be fair which it is not at the moment. Therefore a simpler tax regime is required without loopholes.

    However, before thinking of increasing current taxes, how about getting in the tax that is already due and not being paid, from multi nationals, off-shoring etc and the like. Do that and you can probably leave the rest of us alone.

  35. Phil
    Posted April 12, 2017 at 10:28 am | Permalink

    Another example might be a top professional sportsperson, who has an income in the top 0.0001%, but only over a short number of years, which they have to use to set themselves up for life. The 45% top rate is less fair for them than it is for someone whose income rises steadily over many years.

    I don’t know the answers, which always leads me to the obvious observation: taxation is theft, and it is only justified when it’s the lesser of two evils, therefore however we tax, it shouldn’t be any more than necessary.

  36. Prigger
    Posted April 12, 2017 at 10:31 am | Permalink

    Your examples are obviously not character profiles in a synopsis for a publisher of your new novel. She, would say your characters are ghosts, shadows.Mr Whirlwind though spending willy-nilly and living the life of Riley is a divorcee. He loved his Ex with a passion worthy of a novel. She was foreign, mysterious, allusive, romantic. So he searches unconsciously the world on his cruises to replace her…It allows him to live with hope. He spends to impoverish himself like physical wounding self-abuse. There are people like this btw.
    So clincal Mr Taxman is not a novelist, poet. He is but a shadow. Never lived a real life. He acts on facts, figures, black and white stereotypes in his database. Representations of human beings who have no physical and living presence.
    Labour’s chant of Tax the Rich dehumanises, deindividualises people. Makes a shadow of them. A spectre. They do not know what love is.

    • Anonymous
      Posted April 12, 2017 at 12:01 pm | Permalink

      *applause*

  37. Posted April 12, 2017 at 10:38 am | Permalink

    The problem of taxation is that unless it is done with care, it has a profound affect on people’s decisions. I remember many years ago turning down promotion to a better job because it would have taken me into a higher tax band, and having done the maths, I decided that the extra hassle wasn’t worth the small increase in my net income. Tax influenced my decision.
    Estate duty is affecting my decisions at the moment. I own a valuable house; should we sell up and buy a smaller property (which in itself would incur stamp duty) and pass the money to our children in the hope that we will live sufficiently long for them to avoid estate duty? Or perhaps we should go on a world cruise and spend it as our children are both quite comfortable? This would both avoid any estate duty as well as the need to pay if we should ever have to be taken into care.
    It is surely wrong when if I spend/waste the money I don’t pay any tax whereas if I give it away, the recipient is likely to find themselves paying estate duty.
    The big problem with welfare/benefits systems is that the feckless win all the time whilst the high earners not only pay far more tax but get little for that taxation in terms of benefits. This is a problem which needs to be addressed if we are to have a taxation system that is acceptable to the majority.

  38. forthurst
    Posted April 12, 2017 at 10:50 am | Permalink

    Of course the word ‘rich’ has been part of our language since well before the days of fiat currencies and thieving banksters who deliberately create property bubbles to increase their profits, and well before the days when pathologically greedy individuals could obtain loans created out of thin air in order to pump up property prices in their desperation to acquire private houses and flats that ordinary people who like to buy and now find themselves obliged to rent, and well before the days when financial speculators could enrich themselves by selling out British companies to foreign predators. The policy of the government towards whose activities which are parasitical rather than socially useful should be to try to discourage it, not just tax them.

    None of the people highlighted is rich when their assets or income correspond with what some banksters pay themselves in a year or ‘earn’ in a week when we know that none of their activities has any beneficial effect on the wider community. These are the sorts of people who voted to Remain because they are post-patriotic globalist scum.

  39. Vanessa
    Posted April 12, 2017 at 10:54 am | Permalink

    All governments want to make us all poorer so we are completely dependent on them. They do not seem to realise that if they reduce taxation then people flourish and governments get more into their coffers. If you do not let the rich flourish then they do not start companies and employ more people and therefore pull more of us up the wealth ladder. The higher the taxation the more we find ways of not paying it as it penalises us for working hard and contributing to the economy. They are unfair and governments spend our money on useless vain projects of their own.

  40. Kenneth
    Posted April 12, 2017 at 11:02 am | Permalink

    My inclination is to side-step these arguments and have a flat charge (call it a community charge if you wish), and keep VAT as it is.

    I would levy this flat child for every person including children but I would also provide a fund for parish councils to help those who are destitute and disabled.

    Such a system would drastically reduce costs for the government and remove perverted incentives and create unfairness.

    • Kenneth
      Posted April 12, 2017 at 11:03 am | Permalink

      I would levy this flat charge (not child) !

    • Vanessa
      Posted April 12, 2017 at 1:03 pm | Permalink

      Vat should be abolished once we leave the EU (IF we leave the EU). It is a European Union tax and should not stay to be paid by the British. It is handed to Brussels now but not in the future.
      We used to have a purchase tax which was nothing like 20% (one fifth of the total!!). Bring that back.

  41. Tony Sharp
    Posted April 12, 2017 at 11:45 am | Permalink

    As always a thoughtful and thought provoking piece by John.

    John asks who is wealthier among a number of different candidates circumstances and choices? But surely taxation on wealth must be related by ‘ability to pay’ hence the opposition to Poll Taxes (the infamous Council Tax of 1990). It was also the foolish policy of Ed Miliband in 2015 that proposed a ‘Mansion Tax’ on a value of people’s homes (in fact a mortgage debt – so a tax on a debt also – with a dubious equity value related on to markets for the same home and so as much a possible negative and positive equity. Ability to pay is based soley on Income.

    Generally any attempt to scrutinise life style and expenditure choices, in order to decide taxation policy, is the thin end of a Nanny State ‘wedge’ rather like the EU or Soviet systems. There is a tax on ‘life style’ choices through VAT and other forms of purchase and expenditure tax anyway, which is directly related to disposable income surely?

    I ought to point out that I am highly remunerated and have savings – and these latter shall produce future income. I have also always lived in low priced rented accommodation – I am single – and yes a lot of my income is spent on leisure and discretionary choices.

    My considered view is that Assets, especially real estate and homes, should be ignored as of any worth at all. Therefore, the only source to be taxed is that of Income as that is the only wealth there is for the individual. If an asset produces a real Income (not notional value) then that is properly taxed. There ought to be no Tax on Pension Savings (there is of course, one of the more disgraceful of Gordon Brown’s/ Treasury’s ‘innovations’ – I write as a traditional Labour supporter – but not consistently since his premiership). There ought to be and is a taper to paying tax on Pensions as income.

    I cannot think of a simpler and fairer method – ‘second guessing’ alleged ‘real wealth’ is frankly totalitarian.

  42. Antisthenes
    Posted April 12, 2017 at 11:46 am | Permalink

    According to many especially on the left of the political spectrum the feckless are just another group of victims of social injustice. They also believe that those who have become rich have done so by nefarious means and will use any means to deny them access to those riches. Some truth in those assertions but not enough to warrant the clamour to reward fecklessness or at least ignore it and punitively punish the rich by stripping them of their wealth. Actions that are counterproductive as resources become poorly allocated and their supply seriously impaired.

    An obvious consequence of such thinking which gives rise to your article today on tax and spend preferences. Looking for answers to which option is the lesser of the evils on offer. Instead it should be asking how to encourage virtue into the tax and spend system and how the system can be reformed to eliminate inappropriate consequences.

  43. Eh?
    Posted April 12, 2017 at 11:50 am | Permalink

    It seems a terrible problem for government on just who to rob of its people and how much to rob. But rob it must.
    I once met a professional burglar like this. Many years ago. He loved to steal. It gave him a buzz. Couldn’t stop! But he was known as a Robin Hood in his locality. He gave so much of it away. He lived humbly. People said: “You know he only robs rich people, …the ones who have double garages and two cars. ( it was years ago ).

    Perhaps we should thank government for progressing our society to the point where having a double garage and two cars isn’t indicative in itself of being Rich. Yet it still feels it should rob such people and ones with even less money.
    Government is worse than a burglar and lacks his humanity and robs people by making a raids on wages vans ( before he receives his wage ), steals from him whenever he spends s anything at all on virtually every single item. Robs him if he chooses to smoke and drink and laughingly says he is helping him by robbing him. Now he robs his children spooning sugar on their cornflakes “To help them “. Governement even robs from Old Age Pensions.

    Less “help” from govenment should come or the govenment collectively and individually jailed for their “help”. However,— government personnel should be offered rehabiltation, Perhaps learning how to bricklay, or carpentry. Some job they could apply for after their release into civilised society.

  44. Posted April 12, 2017 at 12:05 pm | Permalink

    Taxes control inflation they don’t fund anything.

    Unless of course you think we are still on the gold standard.

    Isn’t time you told the rich we don’t need their taxes so everyone can move forward ?

  45. Mr Punch
    Posted April 12, 2017 at 12:06 pm | Permalink

    “If we are going to develop a better approach to taxing the better off ”
    It is probably the healthy desire of all of us and hopefully the aspiration of government that we should be “better off”. It is seems crazy then to kick in the sandcastle we have just built.

  46. Newmania
    Posted April 12, 2017 at 12:26 pm | Permalink

    One of the things that has made me contemptuous of the supposed democratic mandate of the 52% is the fact that many other silly ideas would equally be supported .The most obvious o these is that the rich should be taxed more which has retained huge support despite demonstrably costing the exchequer money
    I doubt that JR`s interest in the idea is not much more complicated than cost free populism as is his belated opposition to Iraq
    The Liberal Party have for many years wanted a wealth tax to find that whilst people love other people paying more they are dubious that money can ever fairly be taxed twice and anyway old people have assets and they run the country .
    When Labour increased the overall tax on the wealthier recently it lead to a loss of income and the UK sits more or loss at the top of its own Laffer curve where dynamic affects make further increases more or less neutral
    The use of token taxes on the rich is usually to provide as smokescreen to more indirect taxes on the ordinary where the real tax burden always falls . Insurance Premium Tax , for example is marching up to 20% with its anti-social affect and regressive implications . This is the sort of area Brexit will look at to take money from the young and economically active and funnel it to its new “Left Behind” constituency who they tricked into supporting Brexit and who will suffer disproportionately outside the regulated single market

    Where Nationalism comes, socialism usually follows which ,as an economic and social Liberal is just about the worst sort of government I can imagine .

    • Anonymous
      Posted April 13, 2017 at 2:15 pm | Permalink

      I wish you’d take a little more time to punctuate and paragraph better. Good points may be getting lost and band ones may be going unchallenged.

      • Anonymous
        Posted April 13, 2017 at 2:17 pm | Permalink

        BTW – the effective £12.5 trillion debt that the tax is used to pay for was accrued whilst in the EU.

  47. behindthefrogs
    Posted April 12, 2017 at 12:34 pm | Permalink

    We need a much more balanced tax system. For example why do we pay NI on earnings but not on interest from savings and dividends? The sooner NI is merged with income tax the better. This would also relieve those on minimum wages from paying NI contributions and allow a smoother increase in tax paid as income increases.

  48. Anonymous
    Posted April 12, 2017 at 1:18 pm | Permalink

    If property ramping is going to be considered as compensatory pay (over low interest rates) in these highly indebted times then it ought to be taxed.

    It is simply not right that the younger generation should be excluded from property ownership and worked like dogs to pay the pensions of the asset rich generation ahead of them. After all, it is the young’s efforts that are keeping asset prices high.

  49. norman
    Posted April 12, 2017 at 1:32 pm | Permalink

    As my Dad used to say, the government give with one hand, and take away with the other! He probably earned about £7 a week at the time, and lived in a tied cottage. I understand that before WWI, income tax was very low, but soared as a result of the war. This was not meant to be permanent, but…. we all know what happens.
    A farmer I knew tried to pay his bill in gooseberries and clotted cream – he had no cash,but lived on a property worth well over a million at the time. My boss was not amused when I returned with payment in kind!
    I’m also mindful of men like Dr Livingston, who came from a poor background, worked long hours in a factory, studied at night school to become a medical missionary, and later, opened up Africa. There is a richness the taxman knows little of – like dear Miss Cafferty of Ebola fame – now returning to do charity work among the orphans of Sierra Leone (both Scots, of whom the UK can be proud!)
    Finally, as its Easter, perhaps it will be of comfort to some on this blog who do not earn such dizzy sums, to savour the words of the Bedfordshire tinker, John Bunyan (1628-88) who penned the following beautiful hymn:
    “He that is down needs fear no fall,
    He that is low, no pride;
    He that is humble ever shall
    Have God to be his guide.
    I am content with what I have,
    Little be it or much;
    And, Lord, contentment, still I crave,
    Because Thou savest such.
    Fullness to such a burden is
    That go on pilgrimage;
    Here little, and hereafter bliss,
    Is best from age to age.”
    And the text to go with it:
    “Better is the poor that walketh in his uprightness, than he that is perverse in his ways,
    though he be rich.” Proverbs 28:6
    PS – I believe in fair, sensible taxation, and that we should all pay our dues, for all the good work that responsible modern government is obliged to accomplish. But there’s probably far too much waste.

  50. Bob
    Posted April 12, 2017 at 1:37 pm | Permalink

    The rich are People like Richard Branson who can live offsore in their own little tax havens while people who have worked hard, scrimped, saved have to suffer legalised theft of their nest eggs and are not even allowed to pass their lifes savings to their children without first giving 40% to be squandered on dubious foreign aid projects, which over the years appear to have achieved little or nothing.

  51. margaret
    Posted April 12, 2017 at 1:43 pm | Permalink

    A couple of years ago I subscribed to a well known dating site for professionals. I am getting old and would like another income to help me along into retirement plus the company I would miss not interacting with patients and colleagues. I am a divorced single parent and have had a difficult financial time for 30 years or more, yet some see me as well off : not so . It is how I have saved and rationalised money over the years to enable me peace in old age. On the dating sites these professional in the majority put their yearly income as £10,ooo PA. !!!! They consider themselves well off.
    Higher tax rates should also take into account whether responsibility attends the income in terms of employment and staff .

  52. Anonymous
    Posted April 12, 2017 at 2:02 pm | Permalink

    Amber Rudd writes today in the Express.

    According to her modern slavery is the fault of people smugglers.

    No it isn’t. It’s the fault of illegal immigrants breaking our migration laws and paying smugglers who know how to do it.

    Ms Rudd’s job (especially after the Brexit vote) is to stand up for British people and no-one else. Lax border control is the friend of slavery of which there is nothing ‘modern’ about.

    An amnesty will go down like a cup of cold sick with voters right now but it sounds like this is going to happen.

    Such people are seeking sanctuary from a harsh world, we know that. But we fear that all that will happen is that won’t stop until our country is equally as unpleasant or until the borders are restored.

    • APL
      Posted April 12, 2017 at 9:40 pm | Permalink

      “According to [Amber Rudd] modern slavery is the fault of people smugglers. ”

      Slavery is still illegal in this country, and if it wasn’t for the supine posture of the Police, it would be prosecuted to the full extent of the law.

      Now Cameron’s government bombed Libya back to the stone age, and we are now hearing reports of real live modern day slaving conducted among the Islamic warlords in that once affluent country.

      Well don Amber Rudd and David Cameron. Enablers of slavery.

  53. Stephen Berry
    Posted April 12, 2017 at 2:09 pm | Permalink

    Looked at from the vantage point of someone who can remember the 1950s, all these people seem loaded. It’s worth remembering that someone who is asset rich and income poor can quite easily make themselves income rich. Similarly, someone who is income rich and asset poor only needs to stay income rich for (say) 10 years to become asset rich. I must say I have absolutely no desire to make any of these people pay more tax. Plainly, the more rich people there are in this country the better it is for everyone.

    In fact, let’s be brutally candid about it. Jean-Baptiste Colbert, the finance minister of Louis XIV said the first and the last word about the government’s attitude to taxes. “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.” Our dear Chancellor forgot this in his recent budget and the hissing almost cost him his job.

    The main reason I voted for Brexit was the hope that UK politicians would realise that a Britain out of the EU trading in the world markets could reduce taxes and tariffs and flourish mightily. And before anyone asks how we are to finance all our marvellous public services without taxes, let me point out there are still massive cuts which could be made in public expenditure. Here are three to get the ball rolling. How do we stop our military messing in the Middle East? How do we stop Overseas Aid? How do we stop HS2?

  54. Bert Young
    Posted April 12, 2017 at 3:29 pm | Permalink

    If you spend you pay tax ; if you don’t spend you don’t pay tax . This system works ; those that have the wealth and spend it pay a tax on each item they buy ; those who are prudent and do not spend as much , do not pay as much tax proportionately .

    I have always advocated that a “Sales Tax System ” is fairer to all and easy and less costly to maintain . Direct taxation causes enormous costs to the public ; it gives Accountants an opportunity to earn high fees and , worse of all , confusion to every individual .

  55. Roger Ceccarelli
    Posted April 12, 2017 at 4:02 pm | Permalink

    But the real solution though is … that the Government should spend significantly less, and tax us all less.

  56. Keith
    Posted April 12, 2017 at 4:34 pm | Permalink

    All public sector workers who have a defined benefits pension scheme should instead have half of their salary with a defined benefits pension and the remaining half with a defined contributions pensions. This would reflect the country’s economy being roughly 50/50 public/private sector.

    This would then allow the public sector workers to understand that profit is not a nasty word, the private sector has to earn a profit to pay taxes to the government and also to fund the defined contribution pensions of those public sector workers.

  57. a-tracy
    Posted April 12, 2017 at 4:36 pm | Permalink

    This massive property enhancement really isn’t universal around the United Kingdom. I read today a BBC personality bought a house in London for £147,000 and 20 years later he has it for sale for an eye-popping £1.2million it doesn’t say what the mortgage interest cost him over that time span or the cost of any improvements, replacements: roof, windows, doors etc.; landscaping; new kitchen: new bathroom etc. The houses where I live that cost £145,000 30 years ago are being sold for around £250,000 now as long as they have been kept in good order, had the windows replaced, new kitchens and bathrooms, the garden landscaped and well maintained, new fires, modern decor etc. Maybe £280k if there’s a new orangery. When you think about it the mortgage interest over 25 years would have resulted in an outgoing price for the property of around £310,000 so with the additional improvement costs of that home they’re making a loss not a capital gain.

    • Anonymous
      Posted April 13, 2017 at 2:22 pm | Permalink

      The alternative is to pay rent of a higher amount – and for life.

      There is nothing left to show for it.

      To some extent home buying is like being paid to live in your own home.

  58. Turboterrier.
    Posted April 12, 2017 at 5:14 pm | Permalink

    None are really rich as comes that last day whatever you have the IHT from whatever government will take more than a fair share of their money.

    The real rich in life are those that never work a day, have no responsibility, live on credits and subsidies and will always be housed and at the end of their days will still be looked after by the state. When is a government (any government) going to address the 3rd/4th generation of unemployed in households?

    Throwing money at it is not the answer, because as with the NHS, education it is not what you give it is how it is spent. Just like foreign aid. Waste, Waste, Waste.

    • Anonymous
      Posted April 12, 2017 at 7:30 pm | Permalink

      It is shocking to see at first hand.

      The studious and well educated professional worker spanked at an effective rate of 60% income tax just as they hit a mortgageable wage – living in bedsits – while the never-worked, illiterate, state sponger gets a fully appointed house with brand new mod-cons because she knocked out a kid as soon as she could.

      Guess who’s most likely to see the bailiffs now that student debt has been sold to private companies !

      This is not the outcome we expected when we advised our children to work hard at their exams.

  59. Posted April 12, 2017 at 6:17 pm | Permalink

    Mrs Hardup is probably living in an ex local authority property which she bought for peanuts
    when Mrs Thatcher decided to distribute billions of pounds worth of state assets on the purely random basis of who qualified to live in a council house at the time. Thus Mrs Hardup now an elderly widow is sitting in a 3 bedroom house in a desirable location and an utterly undeserved windfall north of a million pounds. And politicians wonder why many people think they are doing a poor job of running the country.

  60. John
    Posted April 12, 2017 at 6:37 pm | Permalink

    As we know the Treasury barged in on large parts of pension policy.

    £1m total tax advantaged fund limit. A pension contribution limit of £10,000 for those on higher incomes.

    Not surprising to see executives loosing interest in raising pension contribution percentages for staff when a 5% and 5% contribution basis can sent the average CEO over the pension contribution limit.

  61. APL
    Posted April 12, 2017 at 9:23 pm | Permalink

    Posted April 12, 2017 at 8:57 am – Your comment is awaiting moderation.

    I’m amused to see my comment from this morning is still in moderation.

    I actually think I asked a reasonable question.

    When looking at wealth it isn’t unreasonable to ask what the source of the wealth is. So a successful and affluent businessman might reasonable pay tax at a discount to ……

    … another extremely affluent individual who has only made his ‘nut’ from helping himself from the Public purse.

    The former might pay tax at, say 30%, but the latter, I think 85% given that under Labour an extremely high tax rate is preferred.

  62. Aatif Ahmad
    Posted April 12, 2017 at 9:23 pm | Permalink

    None of them are rich by london standards (£1.5m won’t get you an executive home in Londres). But relative to the rest of the UK they are rich.

  63. Chris S
    Posted April 12, 2017 at 10:00 pm | Permalink

    Broadly speaking you are rich if your combined realiseable assets are above a certain value.
    We can argue what that figure is but I would suggest a figure of £1m.

    Where you live is irrelevant to the calculation of assets. After all, the widow living on only a state pension in the £1m London flat could sell it and move somewhere cheaper or use equity release to obtain cash to live on.

    We have never taxed assets in the way that some other European countries do. That would be a slippery slope. Taxation overall is too high and he system is far too complicated.

    I would prefer a simple two their flat tax system starting with a very low rate for the first, say, £10,000 pa. But everyone would have to pay something – there would be no tax-free allowance.

    We should get rid of NI, Council tax, Stamp Duty etc, rolling everything into the Income Tax system, VAT, IHT and CGT ( but only on gains in excess of inflation ).

    Governments would have nowhere to hide as it would be obvious to everyone what public services are costing. Ideally that would create real pressure to reduce public spending. I would want to cut VAT, CGT and IHT to 10% but without a dramatic cutback on State spending that might not be possible.

  64. Russ
    Posted April 13, 2017 at 7:24 am | Permalink

    I was Mr Whirlwind in 2013 but now I am Mr Pauper. The ups and downs of being self employed. Sadly I still have a big tax bill from when things were so much better.

  65. Russ
    Posted April 13, 2017 at 7:34 am | Permalink

    Mr Whirlwind lives a precarious life, you can easily go from 150k a year to 25k then back upto again etc, that’s why he rents and won’t commit to a mortgage. But some people like to travel light and want their governments to do the same.

  66. hefner
    Posted April 14, 2017 at 9:14 am | Permalink

    I’ll stick to the statistics from the ONS on the distribution of income/wealth in the UK, and keep wondering what this whole series on the rich is all about: what about “Panem et circenses”?

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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