Interest rates - impact of 45% u turn

hallmark

Malthusian said:

hallmark said:

I'm (genuinely) not sure if I'm misreading or missing a joke, but the chances of every household that reverts to (what will be a way higher) variable rate being able to afford it, is zero.  

I am defining "able to afford" as "able to pay", not "able to pay without cutting any other expenditure".
If someone is convinced that they can't possibly cut any expenditure then they will be right. Nobody else is going to do it for them. But sticking their head in the sand and hoping that the Government will magically solve their issues isn't going to help.  
Remember how hundreds of thousands of people were going to stop paying their energy bills from last weekend? Whatever happened to that? *crickets*
The idea that millions of people will default on their mortgages because interest rates have gone back to historically normal levels falls into the same category. Most will respond by cutting other expenditure or increasing income. 
I'm not disputing that a minority of people with very low financial resilience will be unable to do that; only that there's enough of them to have a significant economic effect. Or guarantee a house price crash.

I'm defining it the same way, I'm just far less optimistic than you regarding people's financial resilience.  I think inflation alone is going to wipe out whatever there is of that and a few hundred extra on the mortgage is going to be well beyond most people.  A house price crash is far less guaranteed as the UK house market can defy all expectations of falling (although I think if it's ever going to it could be this time).   I firmly hope you're correct not me.

RogerPensionGuy

The current government were telling everyone that removal of the 45% income tax would actually generate more government income tax to help the country out of an awkward spot.

Today the government are reversing the 45% decision so in fact going forwards less income tax receipts so more borrowings and more interest Joe Public will be paying for decades.

NedS

talexuser said:

NedS said:

Had the threshold for BRT not been frozen, it would have been around £14,256 next April (3.1% + assumed 10%), and worth far more than the 1% reduction in the basic rate to 19%

This is the problem with the economic illiteracy of most people. They are able to be bamboozled by a headline about a future 1% Income Tax cut, when their standard of living has been reduced far more by other less headline friendly means because have to be explained with some attention span time of more than 30 seconds and a basic grasp of numerancy.

Great isn't it - we have a Government trumpeting a low tax economy whilst fiscal drag ensures the complete opposite.

Someone earning £30k will pay £3311.70 in tax next year under the new 19% tax rate. If the tax rate had stayed at 20%, and the basic rate threshold had risen in line with inflation, they would have paid £3148.80, so they are £162.90 worse off. Their tax burden has actually increased by just over 5% despite the reduction in the headline rate to 19%.

Altior

RogerPensionGuy said:

The current government were telling everyone that removal of the 45% income tax would actually generate more government income tax to help the country out of an awkward spot.

Today the government are reversing the 45% decision so in fact going forwards less income tax receipts so more borrowings and more interest Joe Public will be paying for decades.

Realpolitik. The gvnt can't afford to lose the vote in parliament, if the rebels had the numbers then they had little option but to capitulate. 

Malthusian

As annoying as fiscal drag is, it's worth bearing in mind that if the personal allowance had been linked to inflation since 2009, it would be £8,600 today. The State giveth and the State taketh away again.

MiserlyMartin said:

The way we are going the country should now ask for a bailout from the countries who have been in receipt of our foriegn aid money for all this time. They certainly have better healthcare and infrastucture eg roads than the UK does. At least you can access a doctor and dentist there.

Arguably they've already been bailing us out by subsidising our health and care sectors with cheap labour.

MK62

Malthusian said:

As annoying as fiscal drag is, it's worth bearing in mind that if the personal allowance had been linked to inflation since 2009, it would be £8,600 today.

...is this not a little date selective though?........index linked from April 17 for example, it'd be worth about £14700 by April 23......

Regardless of past rises, the PA has been frozen for the last tax 2 years (and effectively frozen for the last 4, though it was said in 2019 that the rise then was a two year one), and the current policy is to continue to freeze it next tax year.

Malthusian said:

 The State giveth and the State taketh away again.

Ain't that the truth......but it does seem they are taking a little more from those at the bottom.

A pensioner on £13600pa in April 2020, would have paid £206 in income tax - c1.5%. Index linked, he'll be on around £16500pa come April 2023, but will pay £747 - c4.5%

A pensioner on 3x that, £40800pa in April 2020, would have paid £5646 in income tax - 13.84%.Index linked, he'll be on around £49500pa come April 2023, but will pay £7017 - 14.17%.

Note that neither pensioner will have actually had a tax cut (despite some claims otherwise).....they are both paying more, but the rise in tax for the pensioner at the lower end of the income scale is much bigger in scale than that for the middle earner.....

Added to this is the fact that the first pensioner's actual inflation rate will be higher than the headline figure......people at the lower end of the income scale spend a larger proportion of their income on essentials.....when inflation is at an average 2% this goes largely unnoticed (inflation might be 2.1% for the low earner and 1.9% for the middle earner), but when it's at 10% it certainly will get noticed, especially by those at the lower end (whose inflation rate might actually be c11% vs c9% for the middle earner).

This is arguably a flaw in the way CPI is calculated......where the basket of goods it considers is weighted towards average earnings.The lower earner might be spending 16% of his income on energy atm, where the middle earner might only be spending eg 8%, despite his bill being higher in £terms........but if the overall CPI calculation gives energy a 12% weighting in the calculation and that's the item which rises the most.......

Malthusian

MK62 said:

...is this not a little date selective though?........index linked from April 17 for example, it'd be worth about £14700 by April 23......

It is indeed. Exactly as selective as comparing April 2023 with April 2017 or April 2022.

Ain't that the truth......but it does seem they are taking a little more from those at the bottom. A pensioner on £13600pa in April 2020, would have paid £206 in income tax - c1.5%.

At the risk of heading into the politics of competitive victimhood, a pensioner on £13,600 isn't "the bottom". Not even close. It's 43% more income than single rate Pension Credit.

Agree entirely on the flaws of CPI - but we have to use something, and that's partly why we also have the triple lock link to average earnings.

Nobody likes to admit it, even the Tories, but tax cuts always give more benefit to people who are richer, because they have bigger tax bills. 

The alternative is Gordon Brown's idea that instead of cutting taxes, you turn almost the entire nation into benefit claimants and give "tax credits", where the less you have the more you get back. This was an unmitigated disaster, which resulted in the low-paid being hit with effective marginal tax rates of 90% once withdrawal of benefits was taken into account. The Tories are still trying to unwind the mess.

The alternative alternative would be to increase the personal allowance again, which I think nearly everyone on this board including me agrees would have been a much better idea. With an increase in the personal allowance, rich and poor alike get the same tax cut (providing their earnings are at or above the increased allowance). But for whatever reason the Tories don't seem to have considered that. Maybe because a cut in the income tax rate is more eyecatching.

hallmark

Or an increase in the amount at which the 40% rate kicks in.  That would have been the obvious answer IMO, as nobody can reasonably claim it would be "helping the rich".   The 40% rate includes a lotta people who are nowhere near the reasonable definition of high earners.

aroominyork

MiserlyMartin said:

The way we are going the country should now ask for a bailout from the countries who have been in receipt of our foriegn aid money for all this time. They certainly have better healthcare and infrastucture eg roads than the UK does. At least you can access a doctor and dentist there.

What total nonsense. I think you are getting confused with adverts offering dental work in Hungary.

sevenhills

Malthusian said:

She had already won the economic argument when Starmer's response to her mini-budget was that Labour would bring back the 45% rate again and chuck it at the NHS. In other words, that Labour accepted the need for stimulus via borrowing. 

But Starmers spending would have helped growth by getting thousands of workers the NHS operations that they need, those workers would then be able to return to work. There are millions on the NHS waiting lists.
Letting the rich keep more of their money would just allow them to spend it in the UK or abroad.