Deflation - Inflation - Hyper Inflation & Interest Rates Questions?

itwasntme001

Its funny but if you look at all the medical advancement of the last few decades, it is also the boomers that will benefit from it now because they are of an age when medical issues rise significantly.  Who knows what the cost of healthcare will be by the time the young retire.  So its not at all fair to say young benefits from tech, the old are benefiting from the major medical breakthroughs of the last half century.

grumiofoundation

itwasntme001 said:

grumiofoundation said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

On the debt/taxes point. It depends what taxes are levied on, for instance consumption (VAT), capital (IHT, CGT), property (council tax, stamp duty etc). Remember than taxes on earned income are now at historically low levels, the personal allowance is now much higher in real terms than it was is the 80's, the basic rate of tax is 20%, much lower than in the 80's. NI is a bit higher, but overall taxes on earnings are at an all time low.

Taxes will probably have to rise, but they don't necessarily have to rise on earnings, there is serious talk about capital taxes rising instead (eg CGT). The last decade has shown us that politicians (and mainly Tory ones) are willing to raise capital taxes eg stamp duty on second homes, CGT, big cuts in the pension lifetime allowance, but have been reducing taxes on earnings (big increases in personal allowance).

Well of course it will depend on where taxes are levied.  Does not take a genius, given the main voting block of the UK, who will be favoured more. Sheesh.

Again you are talking about things that don't and won't (a lot because of the boomer voting base) have material difference.  Last year ending March 2020, the deficit was over £60bn.  The rest of this year will be astronomical given the COVID spending.  Debt levels are at highest levels seen since WW2.  IHT intake is around £6bn a year.  CGT intake around £10bn.  Gonna take a !!!!!! load of CGT and IHT tax hikes to even cover a normal year's deficit, let alone a COVID year AND LET ALONE EVEN TOUCH THE NATIONAL DEBT ITSELF.  VAT, income tax, stamp duty raises in a time of economic uncertainty is going to be economic suicide and potentially political suicide as well.

Only the younger generations can and will have to pay for the majority of the debt.

Odd how over the last decade capital taxes have increased but earnings tax have reduced then, isn't it?

While interest rates are below inflation, there's no rush to pay down the national debt. What do think will eventually happen to the vast wealth of the boomers?

Just because interest rates are so low does not mean that someone is not paying for it.  Inflation is a way to pay for it.  Funny how state pensions and many DB pensions will be protected from this inflation isn't it?

Much of the wealth will be reduced to nil on death.  Much will be passed on to younger generations.  The point still stand however.  Boomers have had a major advantage over the younger generation in terms of wealth generation ability.

NMW too, last rise was 4 times the inflation rate, next rise looks to be well over inflation too.

DB pensions in deferment are now index linked with a 5% cap (2.5% for some service), but in payment, there is no compulsory index linking on pre 97 service. Other than the GMP (SERPS replacement). Go into the PPF and there is no inflation protection on pre 97 service and 2.5% cap on post.

Nobody in their 20's in the 1980's knew what their "wealth generation ability" over the next 40 years would be, any more than people in their 20's now know what their wealth generation ability will be between now and 2060. It depends massively on growth. A few technological advances could give growth a massive boost (nuclear fusion for instance, yes it's the holy grail). The WW2 war debts, much bigger than current debt in GDP terms, were mostly cleared in a couple of decades thanks to good growth.  

The boomers had a favourable starting position because by the time they went into the workforce, the debts were largely reduced by a combination of inflation and actual nominal reduction due to growth.  They had long periods of high nominal interest rates (which matters a lot for wealth accumulation), cheaper housing, generous pension plans, high real growth from the 80s, disinflation for much of their working lives due to globalisation and many more things.  The young have everything working against them at this stage.  It remains to be seen what will happen to growth and technological advancements, but there will need to be huge leaps in technology to see this as so far productivity has not materialised at all despite all the tech.  Add the huge debt pile and low real interest rates, it seems the young will struggle a lot to be even close to ever being in the same advantageous position as the boomers.

I guess time will tell.

Again, this is not about envy or anger.  Much of the young are set to benefit from inheritances (assuming no major IHT changes).  It is simply a discussion around wealth generating ability.  I am not surprised there is a view that the millennials are lazy and do stupid things like eating avocado on toast.  They just don't have the opportunities that your generation did and with that why bother working so hard when there will hardly be any impact to your future?

I would agree it would appear that millenials are starting from a less favourable position than the boomers (but a much more favourable position than the parents/grandparents of the boomers). But we never knew that in the 80's, and you can't know the future now.

I don't think there's a widespread view millenials are lazy or wasteful, my kids definitely aren't and nor are any of their friends I know well. They are hard working, and very very good with money. If I had a criticism it would be they are too tight which is quite something coming from me

Well yes that is what I have been trying to tell you.  The boomers are in a much more favourable position than the young (although ultimately it can only be known in hindsight) and boomers had a more favourable position than the generation before them.

I am glad now that you finally agree with me

Depends how you define “position”. 

How many people do you think would rather have been born (in the UK) in ~1960 compared to being born in ~1990? 

Well we will only ever know in about 40 years with a lot of hindsight behind us.  However the point is that the wealth generating ability for boomers is expected to be massively more favourable than for the young.

I am not going to repeat myself why, so I suggest you re-read/read my posts to get some insight.

To be honest my “wealth generating ability”, both current and future, doesn’t really factor into the fact that I am very glad I was born in the 1990s not the 40/50/60s. 

I was not asking you to repeat yourself, I was asking a question. None of your insightful posts give me a reason to wish I was a ‘boomer’.

An exercise I would be interested to see (but as a lazy millennial I am not willing to put the effort in to do) would be to calculate how much a the lifestyle of a ~25 year old ‘boomer’ would cost now (take out spending on mobiles, game consoles etc) and see how much is left over and then calculate if they would have the same wealth as the equivalent boomer, e. g. house etc (including of course factoring in that women’s salaries weren’t properly included). 

zagfles

itwasntme001 said:

zagfles said:

Uxb1 said:

The Tories can afford to tax the owning classes as because they know that those taxed have nowhere else to go to vote - these people are not likely to be voting labour!
Meanwhile as others have said they have reduced the tax on income so those in the lower income earning bracket (ie typically labour voters) will benefit...so the Tories hope to benefit from this.
It's a sort of reverse psychology, each party needs the votes of those other than their core supporters and to do this they need to appeal to those not really likely to vote for them. Tony Blair likewise did this by becoming Tory-lite to get the right wing/capitalist vote to vote for a labour administration.
A roll forward CGT regime on owner occupied property comes a cropper when as is often the final property is sold to pay for the occupants end of life care. By the time the CGT is paid on all the roll up's HMG is going to end up paying the bill for the care as the amount left for the resident is not a lot.
 There is a proposal from the office of tax "simplification"  to remove the rebasing of CGT upon death so the new owner/inheritor of the asset, share/house/car, art work whatever pays CGT not from the value at which they were given it in the will but at the value from when the deceased bought it.  Quite how this is classed as "simplification" escapes me as the new owner would need to know the price paid and quite how legitimate deductible expenses at purchase incurred back then by the now deceased would even be known much less how they would be accounted for.
Anyway this is an interesting thread to read and learn

There's a lot of exaggeration about the effect of end of life care, overall it won't make much difference because most people won't need it and those that do will only need a couple of years. But the point of something like CGT isn't so much to raise revenue, it's mainly to reduce the investment potential of housing, so the incentive to buy property as a financial investment is reduced. So reducing demand, which should reduce or at least stablise prices.

Although it may have the effect of BTL landlords holding onto their properties longer to avoid having to pay the CGT in the first place, thus keeping supply low relative to demand.  Will depend on how they implement the change.  If they hike CGT from 2022, it will give over a year window for landlords to sell up using the current thresholds.  Perhaps should see price corrections finally in London.

I am not sure of the statistic of the number of landlords who are on higher income brackets, but that presumably if the income tax changes on rentals have not deterred landlords to sell by now, perhaps they are fine to continue holding from that perspective.

The effect would be more marked with CGT on owner occupied, that would need careful implementation, eg use the value at the date of implementation as the starting value rather than date of purchase, then you avoid charges of retrospective taxation.

NottinghamKnight

zagfles said:

itwasntme001 said:

zagfles said:

Uxb1 said:

The Tories can afford to tax the owning classes as because they know that those taxed have nowhere else to go to vote - these people are not likely to be voting labour!
Meanwhile as others have said they have reduced the tax on income so those in the lower income earning bracket (ie typically labour voters) will benefit...so the Tories hope to benefit from this.
It's a sort of reverse psychology, each party needs the votes of those other than their core supporters and to do this they need to appeal to those not really likely to vote for them. Tony Blair likewise did this by becoming Tory-lite to get the right wing/capitalist vote to vote for a labour administration.
A roll forward CGT regime on owner occupied property comes a cropper when as is often the final property is sold to pay for the occupants end of life care. By the time the CGT is paid on all the roll up's HMG is going to end up paying the bill for the care as the amount left for the resident is not a lot.
 There is a proposal from the office of tax "simplification"  to remove the rebasing of CGT upon death so the new owner/inheritor of the asset, share/house/car, art work whatever pays CGT not from the value at which they were given it in the will but at the value from when the deceased bought it.  Quite how this is classed as "simplification" escapes me as the new owner would need to know the price paid and quite how legitimate deductible expenses at purchase incurred back then by the now deceased would even be known much less how they would be accounted for.
Anyway this is an interesting thread to read and learn

There's a lot of exaggeration about the effect of end of life care, overall it won't make much difference because most people won't need it and those that do will only need a couple of years. But the point of something like CGT isn't so much to raise revenue, it's mainly to reduce the investment potential of housing, so the incentive to buy property as a financial investment is reduced. So reducing demand, which should reduce or at least stablise prices.

Although it may have the effect of BTL landlords holding onto their properties longer to avoid having to pay the CGT in the first place, thus keeping supply low relative to demand.  Will depend on how they implement the change.  If they hike CGT from 2022, it will give over a year window for landlords to sell up using the current thresholds.  Perhaps should see price corrections finally in London.

I am not sure of the statistic of the number of landlords who are on higher income brackets, but that presumably if the income tax changes on rentals have not deterred landlords to sell by now, perhaps they are fine to continue holding from that perspective.

The effect would be more marked with CGT on owner occupied, that would need careful implementation, eg use the value at the date of implementation as the starting value rather than date of purchase, then you avoid charges of retrospective taxation.

...and those who have already benefitted from the exemption don't have to stump up tax of course. 
The average person is better off now than they would have been in past decades, that's just the way it is and not just in the uk; china, india, africa people are generally better off as time progresses.
The big issue for me is lack of social mobility, and a significant number of millenials will simply inherit wealth. The expansion of higher education for example has fuelled this, a degree becomes less rare and less valuable, so one consequence is that those from better backgrounds find better jobs and the cycle continues.

itwasntme001

grumiofoundation said:

itwasntme001 said:

grumiofoundation said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

On the debt/taxes point. It depends what taxes are levied on, for instance consumption (VAT), capital (IHT, CGT), property (council tax, stamp duty etc). Remember than taxes on earned income are now at historically low levels, the personal allowance is now much higher in real terms than it was is the 80's, the basic rate of tax is 20%, much lower than in the 80's. NI is a bit higher, but overall taxes on earnings are at an all time low.

Taxes will probably have to rise, but they don't necessarily have to rise on earnings, there is serious talk about capital taxes rising instead (eg CGT). The last decade has shown us that politicians (and mainly Tory ones) are willing to raise capital taxes eg stamp duty on second homes, CGT, big cuts in the pension lifetime allowance, but have been reducing taxes on earnings (big increases in personal allowance).

Well of course it will depend on where taxes are levied.  Does not take a genius, given the main voting block of the UK, who will be favoured more. Sheesh.

Again you are talking about things that don't and won't (a lot because of the boomer voting base) have material difference.  Last year ending March 2020, the deficit was over £60bn.  The rest of this year will be astronomical given the COVID spending.  Debt levels are at highest levels seen since WW2.  IHT intake is around £6bn a year.  CGT intake around £10bn.  Gonna take a !!!!!! load of CGT and IHT tax hikes to even cover a normal year's deficit, let alone a COVID year AND LET ALONE EVEN TOUCH THE NATIONAL DEBT ITSELF.  VAT, income tax, stamp duty raises in a time of economic uncertainty is going to be economic suicide and potentially political suicide as well.

Only the younger generations can and will have to pay for the majority of the debt.

Odd how over the last decade capital taxes have increased but earnings tax have reduced then, isn't it?

While interest rates are below inflation, there's no rush to pay down the national debt. What do think will eventually happen to the vast wealth of the boomers?

Just because interest rates are so low does not mean that someone is not paying for it.  Inflation is a way to pay for it.  Funny how state pensions and many DB pensions will be protected from this inflation isn't it?

Much of the wealth will be reduced to nil on death.  Much will be passed on to younger generations.  The point still stand however.  Boomers have had a major advantage over the younger generation in terms of wealth generation ability.

NMW too, last rise was 4 times the inflation rate, next rise looks to be well over inflation too.

DB pensions in deferment are now index linked with a 5% cap (2.5% for some service), but in payment, there is no compulsory index linking on pre 97 service. Other than the GMP (SERPS replacement). Go into the PPF and there is no inflation protection on pre 97 service and 2.5% cap on post.

Nobody in their 20's in the 1980's knew what their "wealth generation ability" over the next 40 years would be, any more than people in their 20's now know what their wealth generation ability will be between now and 2060. It depends massively on growth. A few technological advances could give growth a massive boost (nuclear fusion for instance, yes it's the holy grail). The WW2 war debts, much bigger than current debt in GDP terms, were mostly cleared in a couple of decades thanks to good growth.  

The boomers had a favourable starting position because by the time they went into the workforce, the debts were largely reduced by a combination of inflation and actual nominal reduction due to growth.  They had long periods of high nominal interest rates (which matters a lot for wealth accumulation), cheaper housing, generous pension plans, high real growth from the 80s, disinflation for much of their working lives due to globalisation and many more things.  The young have everything working against them at this stage.  It remains to be seen what will happen to growth and technological advancements, but there will need to be huge leaps in technology to see this as so far productivity has not materialised at all despite all the tech.  Add the huge debt pile and low real interest rates, it seems the young will struggle a lot to be even close to ever being in the same advantageous position as the boomers.

I guess time will tell.

Again, this is not about envy or anger.  Much of the young are set to benefit from inheritances (assuming no major IHT changes).  It is simply a discussion around wealth generating ability.  I am not surprised there is a view that the millennials are lazy and do stupid things like eating avocado on toast.  They just don't have the opportunities that your generation did and with that why bother working so hard when there will hardly be any impact to your future?

I would agree it would appear that millenials are starting from a less favourable position than the boomers (but a much more favourable position than the parents/grandparents of the boomers). But we never knew that in the 80's, and you can't know the future now.

I don't think there's a widespread view millenials are lazy or wasteful, my kids definitely aren't and nor are any of their friends I know well. They are hard working, and very very good with money. If I had a criticism it would be they are too tight which is quite something coming from me

Well yes that is what I have been trying to tell you.  The boomers are in a much more favourable position than the young (although ultimately it can only be known in hindsight) and boomers had a more favourable position than the generation before them.

I am glad now that you finally agree with me

Depends how you define “position”. 

How many people do you think would rather have been born (in the UK) in ~1960 compared to being born in ~1990? 

Well we will only ever know in about 40 years with a lot of hindsight behind us.  However the point is that the wealth generating ability for boomers is expected to be massively more favourable than for the young.

I am not going to repeat myself why, so I suggest you re-read/read my posts to get some insight.

To be honest my “wealth generating ability”, both current and future, doesn’t really factor into the fact that I am very glad I was born in the 1990s not the 40/50/60s. 

I was not asking you to repeat yourself, I was asking a question. None of your insightful posts give me a reason to wish I was a ‘boomer’.

An exercise I would be interested to see (but as a lazy millennial I am not willing to put the effort in to do) would be to calculate how much a the lifestyle of a ~25 year old ‘boomer’ would cost now (take out spending on mobiles, game consoles etc) and see how much is left over and then calculate if they would have the same wealth as the equivalent boomer, e. g. house etc (including of course factoring in that women’s salaries weren’t properly included). 

The main point fo the discussion was about wealth generating ability across generations.  It is clear the boomers had a massive advantage.  Whether people prefer to born today or 70 years ago is another debate altogether and a lot more subjective.  It remains to be seen what the future holds in terms of wars, viruses, space exploration, AI, robotics, asteroids etc etc.

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

Uxb1 said:

The Tories can afford to tax the owning classes as because they know that those taxed have nowhere else to go to vote - these people are not likely to be voting labour!
Meanwhile as others have said they have reduced the tax on income so those in the lower income earning bracket (ie typically labour voters) will benefit...so the Tories hope to benefit from this.
It's a sort of reverse psychology, each party needs the votes of those other than their core supporters and to do this they need to appeal to those not really likely to vote for them. Tony Blair likewise did this by becoming Tory-lite to get the right wing/capitalist vote to vote for a labour administration.
A roll forward CGT regime on owner occupied property comes a cropper when as is often the final property is sold to pay for the occupants end of life care. By the time the CGT is paid on all the roll up's HMG is going to end up paying the bill for the care as the amount left for the resident is not a lot.
 There is a proposal from the office of tax "simplification"  to remove the rebasing of CGT upon death so the new owner/inheritor of the asset, share/house/car, art work whatever pays CGT not from the value at which they were given it in the will but at the value from when the deceased bought it.  Quite how this is classed as "simplification" escapes me as the new owner would need to know the price paid and quite how legitimate deductible expenses at purchase incurred back then by the now deceased would even be known much less how they would be accounted for.
Anyway this is an interesting thread to read and learn

There's a lot of exaggeration about the effect of end of life care, overall it won't make much difference because most people won't need it and those that do will only need a couple of years. But the point of something like CGT isn't so much to raise revenue, it's mainly to reduce the investment potential of housing, so the incentive to buy property as a financial investment is reduced. So reducing demand, which should reduce or at least stablise prices.

Although it may have the effect of BTL landlords holding onto their properties longer to avoid having to pay the CGT in the first place, thus keeping supply low relative to demand.  Will depend on how they implement the change.  If they hike CGT from 2022, it will give over a year window for landlords to sell up using the current thresholds.  Perhaps should see price corrections finally in London.

I am not sure of the statistic of the number of landlords who are on higher income brackets, but that presumably if the income tax changes on rentals have not deterred landlords to sell by now, perhaps they are fine to continue holding from that perspective.

The effect would be more marked with CGT on owner occupied, that would need careful implementation, eg use the value at the date of implementation as the starting value rather than date of purchase, then you avoid charges of retrospective taxation.

Then it becomes more like a wealth tax and you reduce the benefits of inheritances for the young to pay off the debts and now we are back to arguing again about the boomers vs young inequalities....

itwasntme001

NottinghamKnight said:

zagfles said:

itwasntme001 said:

zagfles said:

Uxb1 said:

The Tories can afford to tax the owning classes as because they know that those taxed have nowhere else to go to vote - these people are not likely to be voting labour!
Meanwhile as others have said they have reduced the tax on income so those in the lower income earning bracket (ie typically labour voters) will benefit...so the Tories hope to benefit from this.
It's a sort of reverse psychology, each party needs the votes of those other than their core supporters and to do this they need to appeal to those not really likely to vote for them. Tony Blair likewise did this by becoming Tory-lite to get the right wing/capitalist vote to vote for a labour administration.
A roll forward CGT regime on owner occupied property comes a cropper when as is often the final property is sold to pay for the occupants end of life care. By the time the CGT is paid on all the roll up's HMG is going to end up paying the bill for the care as the amount left for the resident is not a lot.
 There is a proposal from the office of tax "simplification"  to remove the rebasing of CGT upon death so the new owner/inheritor of the asset, share/house/car, art work whatever pays CGT not from the value at which they were given it in the will but at the value from when the deceased bought it.  Quite how this is classed as "simplification" escapes me as the new owner would need to know the price paid and quite how legitimate deductible expenses at purchase incurred back then by the now deceased would even be known much less how they would be accounted for.
Anyway this is an interesting thread to read and learn

There's a lot of exaggeration about the effect of end of life care, overall it won't make much difference because most people won't need it and those that do will only need a couple of years. But the point of something like CGT isn't so much to raise revenue, it's mainly to reduce the investment potential of housing, so the incentive to buy property as a financial investment is reduced. So reducing demand, which should reduce or at least stablise prices.

Although it may have the effect of BTL landlords holding onto their properties longer to avoid having to pay the CGT in the first place, thus keeping supply low relative to demand.  Will depend on how they implement the change.  If they hike CGT from 2022, it will give over a year window for landlords to sell up using the current thresholds.  Perhaps should see price corrections finally in London.

I am not sure of the statistic of the number of landlords who are on higher income brackets, but that presumably if the income tax changes on rentals have not deterred landlords to sell by now, perhaps they are fine to continue holding from that perspective.

The effect would be more marked with CGT on owner occupied, that would need careful implementation, eg use the value at the date of implementation as the starting value rather than date of purchase, then you avoid charges of retrospective taxation.

...and those who have already benefitted from the exemption don't have to stump up tax of course. 
The average person is better off now than they would have been in past decades, that's just the way it is and not just in the uk; china, india, africa people are generally better off as time progresses.
The big issue for me is lack of social mobility, and a significant number of millenials will simply inherit wealth. The expansion of higher education for example has fuelled this, a degree becomes less rare and less valuable, so one consequence is that those from better backgrounds find better jobs and the cycle continues.

In general yes humanity has shown much progress over long periods of time.  But intergenerational differences are pretty large and the young looks to be holders of a large amount of debt that needs to be paid off as they are the only ones who will be productive.  We need major AI automation etc to boost productivity as so far the tech has had 0 impact over the last 20 years...

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

garmeg said:

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Then markets fell, we got Gordon Brown and the rest is history.

Gordon Brown is also responsible for the biggest problem faced by the young today - high house prices. The really steep rise in prices occurred between 1997 and 2007. He started with good intentions, in his first budget in 1997 he promised not to let house prices get out of control. But he broke that promise spectacularly, partly due to the stupid target he set the BoE, an inflation measure that specifically excluded house prices. So the BoE ran monetary policy not caring about runaway house prices.

Then even through strong growth he kept borrowing, because he thought boom and bust had been abolished. Leaving a massive budget deficit when the penny dropped and the credit fuelled boom ran out, causing the biggest bust for decades, and massive debts to be paid off probably mostly by the young.

Ironic how the young think Labour is on their side

It wasn't just interest rates, it was immigration too.  Again Labour's fault with Blair's immigration policy.

Arguably immigration had a bigger impact.  When you have low skilled immigration like we have had, you have massive fiscal support being provided to the immigrants in the form of schooling, healthcare, benefits etc and that helps provides demand for rentals (because immigrants have more money to spend on rents) which in turn drives demand from BTL landlords to buy up these properties.  This results in a boom in property prices generally, particularly in areas like London that saw massive inward immigration.

So a higher capital gains tax targetted at landlords (because they can not sell a fraction of a property) seems only fair and is essentially just give back on the massive fiscal support through immigration policy that underpinned much of their profits.

Immigration isn't to blame, the increased housing demand over the last few decades wasn't fuelled by increased population, the housing stock has risen much faster than population. Population in 1970 was about 55.6 million, in 2010 about 62.8 million. A 13% increase. Housing stock in 1970 was about 18 million, in 2010 about 26 million. A 44% increase.

It was fuelled by a big decrease in the amount of people per property, and that was more amongst the existing population, not immigrants who generally live more densely. There was/is an issue in London with mega rich foreigners buying London property as a sort of safe haven for their wealth, driving prices up.

There was this attitude that you should buy property as soon as you can, and you should buy the biggest/most expensive property you can afford, because it's a "good investment". There was a stigma about still living with your Mum in your 20's.

So this fed not only into people buying as soon as they could afford, and buying bigger houses than they needed, but also buying second properties, buying BTLs etc. Demand was not been fed by need, but by investment potential.

Yes high CGT on housing profits should have been implemented ages ago, also on owner occupied gains with a roll forwards allowance - so if you make a gain on your first house, sell it and buy a more expensive second house, you can roll forwards to the gain to the new house, so you never pay CGT until you actually realise your gain by eg moving downmarket, abroad etc. 

(At least the Tories have done something about all this, like having higher stamp duty for second homes, higher CGT for property, and restricting tax relief on BTL mortgages. Too little too late, but more than Labour ever did while they were watching prices skyrocket on their watch...ironic that lots of people still seem to be believe tired old stereotypes that the Tories are on the side of the owning classes...)

You are looking at too far back in history so of course you will come to different conclusions, and worse, you are looking at a significant period of time between 1970 to 2000 when house prices to earnings was flat.  If you just look at the boom period in London housing over the last 20 years, you will see that housing stock went up 15% where as population increased 25%.  Clearly population growth was a contributor to the boom along with interest rates and lax policy that should otherwise deter landlord speculation.  In fact, London house prices to earnings (which is what really matters in order to strip out the effect of wage inflation which was rampant in the 70/80s) did not boom nearly as much between 1970 to 2000 compared to 2000 to 2020 (flat between 1970 to 2000 and 2.5x between 2000 to 2020). London's population reduced slightly between 1970 to 2000.

OK but even there a <10% increase in the population/housing stock ratio will only explain a tiny proportion of the 200%+ rise in prices between 1997 and 2007. (prices have fallen in real terms since 2007).

The overall point wasn't the affordability of housing, but the point the population/housing stock ratio has fallen massively - driven IMO by the perceived investment potential of housing rather than need. Immigration/population growth may be a factor but a minor one.

The fact that we even talk about price/earnings ratio for housing proves the point. We rarely talk about price/earnings ratios for any other product we buy, why not? The underlying assumption seems to be house prices should be driven by affordability,  ie that demand should increase in line with earnings. That doesn't happen for other essentials in life, like food. But then, people don't buy apples to invest, they buy them to eat.

You need to strip out the effects of wages from price increases because without any net migration, it is clearly obvious that a general rise in wages is supportive of house price growth.  We don't look at things like apples and oranges relative to wages because they are such a minor part of our spending.  Housing is a huge factor in terms of how much of it we can afford and its linked to our earnings because how much deposit and mortgage we can have depends on past and current earnings.

Again the statistics are obvious - between 2000 to 2020 you have a huge increase in immigration whilst house prices and house price to earnings ratio increased substantially.  Some of it was due to interest rates and some of it due to immigration and some due to tailwinds for landlords.  I suspect a lot has been due to immigration because its not only the numbers of immigrants but also the fiscal support of immigrants that support rental prices and make land-lording more lucrative.  It never is a 1 for 1 relationship between immigration and house prices, because that fails to consider the impact of leverage and fiscal support.

Food is not really a minor part of most peoples' spending. But the proportion isn't really relevant, the point is we don't expect food to rise with wages, we do expect houses to, so house prices rise until they hit an affordability limit. This implies that demand is limited purely by affordability, not by need or even want, ie that most people will spend as much as they can afford on housing, or home ownership at least.

You were complaining earlier I was using an irrelavant period between 1970-2000, but you're using an equally irrelavant period, between 2007 and 2020, during which house prices fell in real terms. The steep rise in prices was 1997-2007.

Compared to houses and rent, food is a minor cost to people's spending.  That is why people don't care about food prices to earnings because it is so immaterial and an 3, 4, 5% rise in food costs still won't matter too much for the average person or even most below average person whereas housing costs do matter because it usually takes a large portion of savings and earnings to be able to afford houses.  Houses should rise with wages all else being equal but they don't because there are other factors such as interest rates, immigrations, supply etc.  I am only looking at London for the period 2000-2020 which is when we saw the huge rise in London prices to earnings and a corresponding huge rise in immigration.

itwasntme001

In fact London prices did start to go up a lot from 1997 which is exactly when immigration started to really take off with Blair, EU immigration nonsense - most of which was low skilled from Eastern Europe.  People who need a lot of fiscal support at the start for kids schools, healthcare, benefits whilst they get settle din jobs.  Fiscal support which essentially went into landlord pockets