Cameron makes savings tax pledge

Sir_Humphrey

Sapphire wrote: »

I think it is a good idea for basic rate taxpayers who already have savings – not just those who put £3,600 into an ISA each year. Also, not everyone wants to invest in shares or bonds to use up their ISA allowance – I certainly don't.

The trouble in doing so in a recession is that encouraging more saving would raise unemployment and cut people's incomes. Encouraging savings during the boom would have been a good idea (would have tamed the excesses of the boom), but encouraging it during a recession would just make the recession worse. Just look at the early 1990s if you want to see what tight money does in a recession.

nickmason

I knew I was getting into deep water, but I stand by what I said.
What I didn't say was that each specific instance of individuals not having enough the ability to save was their fault.
What I said was that there was a large proportion of people who don't save but could. As others have pointed out, saving is difficult (especially when the savings get eaten up by emergencies), and often involves hard choices.

Lots of people - not suggesting anyone on this board, its very self-selection means that those here are unlikely to be guilty - put their head in the sand and then just bow to pester power, or go on holiday*, or whatever it is.

Someone has said that people will only save once they're paid a decent wage. If fewer people needed rescuing because they hadn't saved, such that taxes and NI were lower, people would effectively be receiving a better wage. It's a virtuous/vicious circle; we need to kick start it somewhere. And to do so requires a mood change, not just a few incentives here and a few there - because all they cause is other people to peer over the fence, note the greenness of the grass, and question what it's all for.

* there are enough people on this board alone who can't afford to take holidays to prove that they are a luxury - and as such should come after saving. I'm as guilty as most, I imagine, of going on holiday when I should be putting more money aside. But at least I recognise the fact.

nickmason

Sir_Humphrey wrote: »

Nick. In order to out someone, it is necessary to hide your identity in the first place. You chose not to do so. Perhaps if Sir John Major posted here under his own name, and someone pointed out that he was the former PM, that would mean he was "outed". As for savers: well I am on about average earnings, and by being fairly frugal stash away the ISA limit per year (for a house deposit). So this would not benefit me. Savers have also had it pretty good for a year or so, so we cannot complain now. What is the moral justification for making a large return for zero risk anyway?

Okay "Sir Humph". I really didn't take offence - I was simply amused that you bundled be in with such illustrious company as Cameron, Osborne and Redwood, by reference to my university activity. Certainly wasn't being precious.

As I've already stated:
1) ISAs are not known to everyone - they are a very middle class investment vehicle.
2) to change the baseline from savings are taxed to savings aren't taxed sends a clear message
3) this has been set up directly to help the poorer, and to encourage saving. Any attempt to spin out of that is unfounded.
4) Not too sure how "savers have had it pretty good for a year or so"...they've been taxed on interest that has typically been below inflation. In other words they've been taxed more than the asset has appreciated.

In any event, I don't see any moral issue with receiving interest. Damn it, haven't you read the parable of the talents? I do have a moral issue with governments (of all hues) running economies such that inflation erodes wealth, and an economic issue with the same eroding savings.

chewmylegoff

Sapphire wrote: »

I think it is a good idea for basic rate taxpayers who already have savings – not just those who put £3,600 into an ISA each year. Also, not everyone wants to invest in shares or bonds to use up their ISA allowance – I certainly don't.

It's about the best idea that's come up so far to help 'ordinary' people, and it could certainly be funded by cutting down on wasteful state spending of taxpayers' money on, e.g. very highly paid management consultants, bogus benefits claimants and the like.

but how much will it really help?

at current interest rates - say 3.5%, we're talking for every pound you have saved over and above the ISA limit, that you cannot transfer into your current year's ISA allocation, this measure would benefit you to the tune of an extra 0.7p in your pocket.

so, say that in the unlikely event that you do you have £10,000 saved outside of ISAs, you get £70 extra a year. not going to make a difference to someone who has £10,000 in the bank. not going to help - unless you are a pensioner trying to live off interest without eroding capital

for a BR taxpayer it is unlikely that you will have large savings outside of ISAs, unless you don't understand tax. or of course you are a pensioner, in which case i said before this is a very good thing.

the most common scenario is probably where someone has made a load of money out of HPI and has it sitting in the bank. realisitically i don't see why they shouldn't be taxed on income generated by such a cash pot; it's not as if they paid tax on the cash in the first place like you do with actual earnings. i have no problems paying 40% tax on the interest on my cash pot from HPI.

there are better ways of helping "ordinary people". the most obvious is materially raising the personal allowance.

Sir_Humphrey

The biggest emergency that eats into savings is unemployment. Unemployment can happen to the prudent as well as the reckless, and is a major risk at the moment. Higher IRs make unemployment higher. Cameron's incentive benefits people who live off capital (rentiers) at the expense of those who actually work for a living. Perhaps the best incentive the Tories could give to savers is to make benefits more universal, so savings are not eroded by means testing? Can't see them proposing that one though...

Sir_Humphrey

Another question. There is currently a shortage of money. People who save more than they need to hoard the money to live off the return. The result is that people are made unemployed. BTL landlords hoard housing to live off the return, making life difficult for First Time Buyers. What is the moral difference? Not much, both are rentiers. The Tories helped create BTL by creating ASTs in the late 1980s and supported BTL by appointing Kirsty Allsop as thier housing expert. Now they want to protect those with capital against those who work for a living.

nickmason

Sir_Humphrey wrote: »

The trouble in doing so in a recession is that encouraging more saving would raise unemployment and cut people's incomes. Encouraging savings during the boom would have been a good idea (would have tamed the excesses of the boom), but encouraging it during a recession would just make the recession worse.

What a shame this good idea wasn't embraced by Gordon during the years of plenty, then?

Anyhow, according to the government (well one face of the Janus) we'll be out of recession soon, and before any election, so it makes sense for the Conservatives to pitch this sensible idea.

Just look at the early 1990s if you want to see what tight money does in a recession.

If only this one was going to be "only" as bad as the early 90s.

Sir_Humphrey

nickmason wrote: »

What a shame this good idea wasn't embraced by Gordon during the years of plenty, then?

I don't recall Cameron encouraging savings during the boom. I seem to recall him praising the City and inviting Kirsty Allsop to join his team. I suspect a lot of other people think the same, after all if the he Tories were any good, they should be thrashing Labour in the polls, but we are probably just heading for a hung parliament (not a bad outcome IMO).

nickmason

chewmylegoff wrote: »

for a BR taxpayer it is unlikely that you will have large savings outside of ISAs, unless you don't understand tax.

1) I don't think large savings are necessary to see some benefit.
2) there are many people who don't understand tax, and don't use their ISA allowance. Self-evidently, they are the ones that should be encouraged to save.

WTF?_2

PasturesNew wrote: »

The problem with savings is, they get eaten up with emergencies.

That's one of the main reasons to have savings.

You have to accept that some people just don't have spare cash at all. Mostly from trying to do what is considered to be "the best thing".

Anyone on an average income should have been able to accumulate something for a rainy day during the unprecedented prosperity of much of the last decade.

Seems to me that a lot of the reason for the woeful amount of saving amongst the general population today is that people are more interested in having stuff now and figure that they'll always have access to cheap credit (and have a job). That perception is set to change as events unfold.

There are sometimes, for some people, no chance of savings.

Fact.

Sure - people just making ends meet on the breadline aren't going to be able to save. But the average person with a job should certainly be able to put money aside with some sensible control of their spending. It would appear that this has not happened and the population has for the most part chosen to go on an orgy of consumption and borrowing during the good times. A bit like our woeful government in fact......