Abolish tax on savings

Blah99

Andy_L wrote: »

but why should any savings made be used to make savings tax exempt rather than, say, reducing income tax across the board?

I think you misunderstood my reply. I was posting to explain how expenditure could be decreased rather than supporting the exemption of savings.

That said I do believe that the Government should provide a wrapper that allows medium to long term tax free savings that doesn't have an ISA yearly cap. If the wrapper required, say, a minimum 5 year term (ie: you couldn't withdraw money before 5 years were up, or you paid a % interest based on deposit term) but unlimited deposits it would encourage savings and prudency with money. This is exactly how taper relief works.

The yearly limit on ISA contributions is truly stupid. In fact, despite Government noises about how people must save and be prudent with money there are basically zero incentives to actually do so.

Patr100

MrMicawber wrote: »

I don't think anyone's mentioned VAT in this discussion yet.

Not specifically but see "tax on spending" in my post
http://forums.moneysavingexpert.com/showpost.html?p=15703887&postcount=46

Another online report earlier today that I can't quirte find again mentions the possibility (though remote) of reducing VAT

ed123_2

....I think Darling should bring back the Windows tax (daylight robbery...) sooooooooooo....we pay tax on our earnings, tax then on savings & spendings and tax on property, fuel etc and finally inheritance tax when we snuff it....an't life great.......

MrMicawber_2

How's about a tax on Televisions. Did you know that the average household hs 4.5 tele's in it. Money for old rope. I think I'll write to AD now.

Lansdowne

The average household therefore has 3.5 tele's that will be useless when the government switches off the transmitters. You need to tax the digi-boxes not the sets.

Cancelling the UHF switch-off would be a good way of helping out hard hit households. You could ask AD to mention that at Cabinet.

Dr_Crumb

earlgrey wrote: »

That's why it's a bad for people to think that the full amount of interest they receive can be treated as income. If they do that then their capital will be eroded. What you earn on capital is only what it returns after inflation.

Exactly, and I might add that inflation doesn't destroy savings value as many people suppose but rather transfers real value from creditors to debtors. Given that the biggest debtor of all is the government, inflation in its own right can be seen as a form of taxation. After all, it fulfils the essential function of a tax, the transfer of wealth from population to government. So it's not just a case of saying it is unfair to lose value to inflation AND pay tax on the interest as though no value had been lost. It is more accurate to add that the agent gaining most from from your loss of real capital value is the debtor taxing your interest! The words “double” and “taxation” come to mind and there is no equivalent situation with earned income.

wizk1

Changing the subject slightly, I am very disgruntled at the fact that because of the recent BOE base rate interest cuts, all savers across the country are being penalised with lower savings interest rates, through this country's obsession for irresponsible borrowing. It seems that people who have copious amounts of debt are getting off more lightly at the more responsible savers' expense.

Our government should be encouraging people to save their money, rather than spend what they can't afford. Where is the incentive to save now?

Aegis

wizk1 wrote: »

Changing the subject slightly, I am very disgruntled at the fact that because of the recent BOE base rate interest cuts, all savers across the country are being penalised with lower savings interest rates, through this country's obsession for irresponsible borrowing. It seems that people who have copious amounts of debt are getting off more lightly at the more responsible savers' expense.

Our government should be encouraging people to save their money, rather than spend what they can't afford. Where is the incentive to save now?

Not all savers are being punished. Those who saw the rate cuts coming a mile off have mostly been locking in their savings to fixed term accounts for 1 or more years, so they'll be getting rates above the base for some time to come. This option was available for anyone with more than their survival pot in cash, so it's not particularly accurate to claim that this is a punishment for all savers, it's only a pseudo-punishment for those who didn't plan ahead for the rate cuts.

That said, there are probably comparatively few people in the UK who actually have excess cash to spend, with most people having less than a five figure sum in savings (if I correctly recall the statistic mentioned here previously). As someone with £10k in the bank will be "punished" with only a £17 per month interest penalty from the emergency rate cuts, it's hard to generate all that much sympathy when just a quarter percent base rate will often save someone with a tracker mortgage twice that or more.

In any case, cash savings are essentially designed to be paid interest to more or less match inflation in the long run. Some years you'll get more, some less, but it balances out over the long run. These rate cuts will go towards helping the responsible long-term investors as well as borrowers, as interest rate cuts tend to help local markets in the short- to medium-term.

Dr_Crumb

Aegis wrote: »

Not all savers are being punished. Those who saw the rate cuts coming a mile off have mostly been locking in their savings to fixed term accounts for 1 or more years, so they'll be getting rates above the base for some time to come. This option was available for anyone with more than their survival pot in cash, so it's not particularly accurate to claim that this is a punishment for all savers, it's only a pseudo-punishment for those who didn't plan ahead for the rate cuts.

True in some cases, but a rather simplistic view overall. There are other circumstances and factors that should be taken into account:

• A loss of income of "only" £17 / month on £10K might be OK for those with a good income stream but that doesn't include everybody. Your argument ignores the large number of retired people who will have a lot more than £10K in savings but who are reluctant to spend it because doing so will deplete their income for the rest of their life and cannot be replaced.
• As you rightly say, you cannot tie up every penny. But the amount of survival cash will depend on individual circumstances, for example someone with a family whose job is at risk might not feel too comfortable about losing access to £10K (assuming they have it in the first place of course).
• Following the recent bank failures, many people are reluctant to lock in their money for extended periods. They worry about boring things like the bank going under and watching helplessly as it does. Even though they will get compensation, they will still have to go through the worry and rigmarole of claiming it. Some will attach more importance to this consideration than you or I might.
• This is not a short term fix for a short term problem. Those like you (and me) who saw this a mile off and locked some of their money away for a fixed term will take the same hit in due course.

Olipro

As the saying goes, "you can't please all of the people all of the time"

whilst I myself don't have any debts, and therefore stand to gain from any and all base rate rises (and hence, am losing out due to the cuts), I don't see fit to whine about receiving less interest on my money. - the interest I receive is doled out from the repayments people who are borrowing make, and whilst it's easy to say "oh well, that's their fault", at the end of the day, you're still receiving someone else's money for the sole reason that you have more money than they do.

Not that I see anything wrong with that of course, but people should remember that nobody's taking their own capital off them and it's of course your right to maximise your return, however, bellyaching about interest rate cuts is just ridiculous, the wider economy has more to worry about than ensuring large risk-free returns for old farts and the like... if you really need 6% then go and find a currency paying over that (Hungarian Forint anyone?) and switch your dosh over to that on the spot market whilst taking out a forward FX contract to hedge out the risk of fluctuation.

What I do think however, is that a bank offering savings and loans should maintain a fair "spread" against the two instruments; namely, if they're going to cut the savings rate by 2% then it stands to reason they should cut the loan rate by the same amount; any other action other than maintaining or narrowing the spread between the two is simply a play to augment profit, not forgetting that a £10,000 deposit with a bank allows them to loan out many times more than that amount.

Your money should always be your money, but beyond that, it's every man for himself.