£6bn lost savings tax revenue

baby_boomer

Lower interest rates are going to cost the government is going up to £6bn from savers over the coming year.

I'm basing this on £1 trillion savings, average savings rates at 3% lower and a 20% savings tax rate.

I've not allowed for ISAs or non-taxpayers, but nor does the calculation take into account 40% taxpayers, who tend to have more money and will cost the government even more in lost revenue.

Nagiw

baby_boomer wrote: »

Lower interest rates are going to cost the government is going up to £6bn from savers over the coming year.

I'm basing this on £1 trillion savings, average savings rates at 3% lower and a 20% savings tax rate.

I've not allowed for ISAs or non-taxpayers, but nor does the calculation take into account 40% taxpayers, who tend to have more money and will cost the government even more in lost revenue.

I may be wrong here but if interest rates are lower then isn't it cheaper for the government to borrow the many billions it owes? So this might offset at least some of the loss in savings tax.

While were on the subject, just about every country seems to have great big debts - so who's lending it all?

baby_boomer

It isn't cheaper for it to borrow most of the £billions it has already borrowed as the yield is set at the time the gilts are offered for sale.

It may be cheaper for it to borrow in the future - unless investors think that the government will seek to offload its debt by unleashing the printing presses and future inflation.

The Japanese - stuck with 0% interest rates at home - have been propping up the US Treasury debts. There is a limit, however, if the lenders think that excess borrowing has created a basket case economy with problems for the future that will result in currency falls (and losses for overseas lenders).

JayTee99_2

Nobody ever said stimulating the economy comes cheap

Oblivion

JayTee99 wrote: »

Nobody ever said stimulating the economy comes cheap

Problem is, despite the huge sums of money being thrown at the problem, I can see little evidence of any stimulation taking place. Gordon's desperately trying to fill the hole he's already made in the economy with an even bigger hole.

Dave.

JayTee99_2

Oblivion wrote: »

Problem is, despite the huge sums of money being thrown at the problem, I can see little evidence of any stimulation taking place.

Yes, fair point, although it may be too soon to be seeing those 'green shoots' just yet

The level of borrowing has certainly divided opinion; it may be years before we know who was right, and even then the results may not be 'black & white' (will it be possible to prove that recession was shorter because of govt action?)

The problem is, with a sharply deteriorating economy, banks/businesses going bust, huge job losses resulting from that, outlook getting worse, what do you do? just stand by and watch it happen and offer sympathy or actively get involved?
What is certain is that deep recession would be blamed fair & square on govt if they didn't take any serious action.

Blah99

JayTee99 wrote: »

The problem is, with a sharply deteriorating economy, banks/businesses going bust, huge job losses resulting from that, outlook getting worse, what do you do? just stand by and watch it happen and offer sympathy or actively get involved?
What is certain is that deep recession would be blamed fair & square on govt if they didn't take any serious action.

The problem is that Governments should NOT meddle in markets. Any activity taken by Government that distorts a free market is a bad thing. Yes, companies will go out of business, and people will lose their jobs, but that's how Western free market capitalist economies work. Unfortunately too many people don't understand this, making it a politically impossible decision.

Murdina

of course any action taken by a government distorts the free market. The problem is that unless you want to live in anarchy, there has to be some sort of government and that means it needs funds to function, even at a minimal level.

The argument then, in pure economic terms, is whether you achieve the best outcome for the most number of people by tending towards minimum intervention, or whether the moment you start to distort the free market, the whole picture moves so much that more intervention may actually lead to a better outcome.

In addition, the free market is not good at providing communal goods and tends to need some impetus or incentive to do this (eg fresh water, drainage, waste disposal) which again means you have to live with not having a perfect free economy (unless you want to revert to some sort of subsidence level living).

These are major issues in economics and there are no easy answers. However, we would do well to remember that the only reason for economies and governments is to serve us the people and not the other way around.