FT - Tories to raid tax relief pensions

Triumph13

MK62 said:

michaels said:

The larger curve is the elephant in the room. Currently the different tax rates and lifetime/annual allowances are pushing some higher earners to work part time or retire early to avoid very high marginal rates which is very inefficient for both the economy and the total tax take.

Any solution needs to avoid these sort of high marginal rate cliff edges that simply deter working and thus reduce tax take. This might well need higher 'base' taxation from lower levels of income to allow for less punitive tax rate ranges to avoid the economic distortion they bring.

Agreed about trying to eliminate as many distortions/anomalies as possible, but increasing taxes on the lower paid, to make life easier for higher earners, would be a very tough sell in today's political climate.......

The Laffer curve doesn't imply a need to shift the tax burden to the lower paid.  The curve is really a set of curves - one for each different income levels  For any particular income level you want to try to get the perfect tax rate - high enough to raise plenty of revenue, but not so high that it drives unwanted behaviours (emigration, turning down work, not investing, etc) which reduce the overall take.   It's not about making the rich pay more or less tax for moral reasons, it's about designing the system to get the maximum of milk with the minimum of moo.

Paul_Herring

Triumph13 said:

 it's about designing the system to get the maximum of milk with the minimum of moo.

I'm sure that's not how Jean-Baptiste Colbert put it...

MK62

Triumph13 said:

MK62 said:

michaels said:

The larger curve is the elephant in the room. Currently the different tax rates and lifetime/annual allowances are pushing some higher earners to work part time or retire early to avoid very high marginal rates which is very inefficient for both the economy and the total tax take.

Any solution needs to avoid these sort of high marginal rate cliff edges that simply deter working and thus reduce tax take. This might well need higher 'base' taxation from lower levels of income to allow for less punitive tax rate ranges to avoid the economic distortion they bring.

Agreed about trying to eliminate as many distortions/anomalies as possible, but increasing taxes on the lower paid, to make life easier for higher earners, would be a very tough sell in today's political climate.......

The Laffer curve doesn't imply a need to shift the tax burden to the lower paid.  The curve is really a set of curves - one for each different income levels  For any particular income level you want to try to get the perfect tax rate - high enough to raise plenty of revenue, but not so high that it drives unwanted behaviours (emigration, turning down work, not investing, etc) which reduce the overall take.   It's not about making the rich pay more or less tax for moral reasons, it's about designing the system to get the maximum of milk with the minimum of moo.

I didn't comment on Laffer curves, or the morality of "making the rich pay more"......I was specifically commenting on the suggestion that "higher base taxation on lower levels of income" might be needed to reduce/remove higher marginal tax rates for higher earners.........and I still say that would be a tough sell, curve or no curve!!

EdSwippet

Triumph13 said:

For any particular income level you want to try to get the perfect tax rate - high enough to raise plenty of revenue, but not so high that it drives unwanted behaviours (emigration, turning down work, not investing, etc) which reduce the overall take. It's not about making the rich pay more or less tax for moral reasons, it's about designing the system to get the maximum of milk with the minimum of moo.

Why is tax maximising the "perfect tax rate"? Rather than, say, just raising enough to cover required and essential services?

Triumph13

MK62 said:

Triumph13 said:

MK62 said:

michaels said:

The larger curve is the elephant in the room. Currently the different tax rates and lifetime/annual allowances are pushing some higher earners to work part time or retire early to avoid very high marginal rates which is very inefficient for both the economy and the total tax take.

Any solution needs to avoid these sort of high marginal rate cliff edges that simply deter working and thus reduce tax take. This might well need higher 'base' taxation from lower levels of income to allow for less punitive tax rate ranges to avoid the economic distortion they bring.

Agreed about trying to eliminate as many distortions/anomalies as possible, but increasing taxes on the lower paid, to make life easier for higher earners, would be a very tough sell in today's political climate.......

The Laffer curve doesn't imply a need to shift the tax burden to the lower paid.  The curve is really a set of curves - one for each different income levels  For any particular income level you want to try to get the perfect tax rate - high enough to raise plenty of revenue, but not so high that it drives unwanted behaviours (emigration, turning down work, not investing, etc) which reduce the overall take.   It's not about making the rich pay more or less tax for moral reasons, it's about designing the system to get the maximum of milk with the minimum of moo.

I didn't comment on Laffer curves, or the morality of "making the rich pay more"......I was specifically commenting on the suggestion that "higher base taxation on lower levels of income" might be needed to reduce/remove higher marginal tax rates for higher earners.........and I still say that would be a tough sell, curve or no curve!!

I agree that it's a tough sell as the opposition will try their hardest to paint it as Tories helping the rich, but there is every chance that removing the daft rules that create the high marginal rates will actually generate MORE tax revenue not less because of the impacts on behaviour - that's where the curve comes in. 

Triumph13

EdSwippet said:

Triumph13 said:

For any particular income level you want to try to get the perfect tax rate - high enough to raise plenty of revenue, but not so high that it drives unwanted behaviours (emigration, turning down work, not investing, etc) which reduce the overall take. It's not about making the rich pay more or less tax for moral reasons, it's about designing the system to get the maximum of milk with the minimum of moo.

Why is tax maximising the "perfect tax rate"? Rather than, say, just raising enough to cover required and essential services?

If we ever get the deficit dealt with and the national debt paid down to a more sustainable level then I will completely agree with you.

Malthusian

EdSwippet said:

Triumph13 said:

For any particular income level you want to try to get the perfect tax rate - high enough to raise plenty of revenue, but not so high that it drives unwanted behaviours (emigration, turning down work, not investing, etc) which reduce the overall take. It's not about making the rich pay more or less tax for moral reasons, it's about designing the system to get the maximum of milk with the minimum of moo.

Why is tax maximising the "perfect tax rate"? Rather than, say, just raising enough to cover required and essential services?

Because if you're discussing the Laffer curve it can be taken as read that tax benefits society, one way or another. Otherwise the rich will swan off to jurisdictions with similar tax rates and more competent governments, to enjoy the superior healthcare / culture / social harmony at no expense to themselves.

The Laffer curve looks at the question purely from the point of view of the Government. It is not a given that raising more tax is a good thing but applying a higher tax rate and receiving less tax is definitely a bad thing.

kinger101

michaels said:

Look at this from the govt point of view and 5 year time horizon.

If you do something that means higher earners use ISAs/LISAs rather than pension contributions to save for retirement you move a lot of tax forward to now from pension receipt time which looks brilliant from a psbr perspective and allows a lot more spending now. Sure you get less tax as people spend from their ISAs in retirement but that is several parliaments down the road before it is material.

There is already madness from the government's introduction of the LISA as a retirement vehicle.  It's great that BR taxpayers are able to access a method of retirement saving which has much better tax incentives - i.e. 25% net benefit.  Currently, the only way BR taxpayers can get that from the pension system is if they have a salary sacrifice scheme.  If they've maxed out the employer contributions, in my view, the LISA is the better vehicle than the pension savings, as its more likely income tax will rise in the future than fall (which would reduce the 25% benefit under salary sacrifice).  Although there's a short term gain for HMRC from the employer's NI element for post-tax payments made into a LISA, the net cost of doing this to the HMRC is actually higher in the long run, as they don't get to tax the income from the pension pot after the capital growth.  

It would have been far better to just to improve incentives for BR taxpayers within pensions (via the NI).  

michaels

kinger101 said:

michaels said:

Look at this from the govt point of view and 5 year time horizon.

If you do something that means higher earners use ISAs/LISAs rather than pension contributions to save for retirement you move a lot of tax forward to now from pension receipt time which looks brilliant from a psbr perspective and allows a lot more spending now. Sure you get less tax as people spend from their ISAs in retirement but that is several parliaments down the road before it is material.

There is already madness from the government's introduction of the LISA as a retirement vehicle.  It's great that BR taxpayers are able to access a method of retirement saving which has much better tax incentives - i.e. 25% net benefit.  Currently, the only way BR taxpayers can get that from the pension system is if they have a salary sacrifice scheme.  If they've maxed out the employer contributions, in my view, the LISA is the better vehicle than the pension savings, as its more likely income tax will rise in the future than fall (which would reduce the 25% benefit under salary sacrifice).  Although there's a short term gain for HMRC from the employer's NI element for post-tax payments made into a LISA, the net cost of doing this to the HMRC is actually higher in the long run, as they don't get to tax the income from the pension pot after the capital growth.  

It would have been far better to just to improve incentives for BR taxpayers within pensions (via the NI).  

Better for who?  For the country overall perhaps but for a govt with a 5 years max time horizon then getting tax now at the cost of a bigger hole to fill in 10-50 years time is a no brainer.

zagfles

CSL0183 said:

JoeCrystal said:

CSL0183 said:

Around 70% of pension schemes utilise the salary sacrifice method. The majority of us are receiving a minimum of 32% tax relief. HRT a bit more. 

If you replace this with a flat rate of 20-25%, who benefits exactly? Tens of millions of us are receiving 32%+ at the moment. 

It would lose the government the next election. 

Where did you come across that 70% statistic? Here I was thinking that most DC pension schemes are not salary sacrifice. Certainly, none of the companies I worked for utilises it, unfortunately.

This article from 2014 reported 61%

https://employeebenefits.co.uk/issues/november-2014/pensions-salary-sacrifice-what-employers-need-to-know/

This article from 2017 states 68%

https://employeebenefits.co.uk/issues/february-online-2017/68-employers-use-salary-sacrifice-deliver-workplace-pension-scheme/

This article has a varied list of figures depending on the size of the company..

https://www.lambert-chapman.co.uk/blog/embrace-the-power-of-the-salary-sacrifice-scheme/

I have seen a banded around figure more recently of 70% of pensions are SS schemes but I can’t remember where that was now. 61% in 2014, so it won’t be far off that 70% in 2020. 
If your company are not using the SS model then they are not very tax efficient. It’s poor financial planning as there are employer benefits too, namely the 13.8% NI element that they save by adopting the scheme. 

Those seem to be private sector companies, the public sector don't generally use sal sac for pensions AFAIK. They use net pay. Even if they are included in those figures for schemes, the public sector schemes are much bigger generally than private sector. So in terms of numbers of employees it'll be a completely different, and almost certainly much lower figure than the number of schemes