Non-partisan mini-budget predictions thread

mebu60

Not convinced about combining income tax and NI. The former is on all income the latter on earned income only. There's a large and not necessarily wealthy demographic that does not pay NI. I also think it's such a big change it would be 'leaked' for quite some time beforehand to manage expectations / gauge reaction. Plus standalone NI is more tweakable for political purposes than changing headline rate of income tax. 

mebu60

Thanks to hallmark for starting this thread and all who have participated.
Has been interesting! 

MK62

MattMattMattUK said:

MK62 said:

MattMattMattUK said:

MK62 said:

MattMattMattUK said:

MK62 said:

MattMattMattUK said:

MK62 said:

Millyonare said:

MK62 said:

kinger101 said:

MK62 said:

In the end, no matter what they do, some are going to be saying "ouch".......but  the government need to remember that there is a cost-of-living issue at the moment, coupled with an impending recession and many are already feeling the squeeze - the chancellor has little room for any more tax rises on the majority at this time.......which is why he might go more for spending cuts and other money saving measures, such as reliefs and allowances, which won't hit the majority directly in the pocket now.

I feel that's a circular argument though.  Freezing allowances will mean tax rises for the majority via fiscal drag.  E.g someone earning £15,000 getting a 5% pay rise from April would be paying £486 income tax this year (3.24 % overall) compared to £636 next year (which is 4.04%).  They're paying more tax, despite the fact their income has declined in real terms.

 

I wasn't really referring to the Personal allowance - it's already frozen until 2026, so all he can do is extend the freeze, which won't affect anyone's pocket now, at least not more than was already planned (unless he actually reduces it - but that would be unexpected and a major surprise).

I totally agree about this freeze though......and it's disproportionate effect on lower income groups.

For balance, it is worth noting that the "lower income groups" in the UK already pay just about the least tax in the entire industrialised world. It is possible to earn £1000+ per month and not pay a bean in tax. The UK tax system is already incredibly favourable to entry-level workers. By some international standards, believe it or not, UK entry workers are very under-taxed (not over-taxed).

It can be quite misleading comparing single aspects of life in various countries.....the cost of living (inc housing), benefit entitlement, healthcare provision, state pension provision/entitlement, indirect taxes, direct taxes and a host of other aspects can all vary widely.
A bit like saying the minimum wage is higher in eg Germany.....tells you very little on its own, unless you also take a host of other factors into account.

Whilst I somewhat agree, in the UK the lowest two thirds of earners have the lowest effective rate of income taxation in the EU (the top third have the fifth highest), this is largely due to the extremely large personal allowance (the largest of any advanced economy). Our VAT rate is around the EU average as a headline rate, although Germany for example has a headline rate of 19% which is lower than our 20%, they also have nearly no zero rated products and charge VAT at 7% on all food so the effective rate of taxation is actually higher than ours, their tobacco, alcohol and fuel taxes are all higher than ours. Most of the rest of Europe (ignoring tax havens like Monaco an Luxembourg) has considerably higher tax rates on all income levels and all parts of life than we do in the UK, our tax revenue as a percentage of GDP is the lowest in the EU etc. 

So would you not then expect all those things to be considerably more expensive in Europe?.....or is simply comparing tax rates alone somewhat misleading?

Food is more expensive in most other comparable European nations, but not "considerably more", just somewhat, reflective of the 7% VAT on food in Germany for example. Tobacco is more expensive in the European nations that tax it more than us, alcohol is the same. It is not misleading as the point is in the UK the vast majority of people pay much less tax than in other European nations, we have the lowest percentage of tax as GDP of any EU nation which is why our public services are so badly funded.

You'd need to reveal your source for the claim that food is more expensive in Europe/Germany.......but even if so, in general it's far more involved than just the level of VAT ......how much do German supermarkets pay in rent, salaries, pensions, energy, corporation tax, social security taxes and so on.....compared to similar UK operations?

As for the rest, just comparing tax levels is far too simplistic a view tbh........the overall cost of living is lower in Germany, for example.

Have a look online at German food retailers, or Norwegian food retailers, or French food retailers, or Dutch food retailers, or observationally whilst in those countries. 

MK62 said:

There is somewhat of a variance, but again some of that is avoidable lifestyle choices, other parts are unavoidable, one of the reasons that inflation is calculated as lower on high earners in that they save and invest a proportion of their income, which means it is not impacted by inflation, if one saves 25% of one's income then automatically reduces the direct impact of inflation as a percentage of income, even if it does not impact the inflation one experiences buying petrol for example. Middle earners are the ones expected to be hit the hardest in the coming year as they will be mortgage payers and they will face much higher mortgage payments when their fixes expire, low earners do not generally have mortgages and the upper quintile generally live in properties that they own outright. The chancellor will be very much aware, but the reality is that everyone will have to tough it out all the same.

The why is interesting, but not directly relevant to the cost of living pressure..........the fact is that the lowest quintile currently face higher inflation than the the upper quintile.......the fact that they have very little to save doesn't change that.

I have to ask, where do you think the lowest quintile live? Do these people not have mortgages or rent to pay - and if they pay rent, do the landlord's not have a mortgage to pay?......(fair enough, maybe not.... )

For those who live in social housing this is relevant from gov.uk "From 1 April 2020 rents have been regulated through RSH’s rent standard where the limit on annual increases is CPI + 1%. The Government consultation focusing on the introduction of a rent ceiling for 2023/24 closed on 12 October 2022".......so they'll have to await the results of that, but let's not pretend that the lower quintile face no housing cost pressures.......they are facing it just the same, at least for now.

Most of the lowest quintile do not live in mortgaged properties, so whilst rents are rising they have not been rising at the same rates as mortgages have been rising. Rents have been rising on renewal around 6-10% depending on the area, mortgage payments have been rising 40-100% depending previous and new fix rates, total balance etc.. I am not pretending that the lowest quintile are facing not housing pressure costs, that is a straw man, I am saying that the rise is nowhere near as significant as the rise being faced by people with mortgages. 

MK62 said:

I do not think fairness should really come into the equation because the concept of fairness is subjective, the reality needs to be pragmatic and based on economics and finance. Everyone in employment has to tighten their belts, so those on benefits and pensions should have to do the same, however we also have to account for the fact that benefits for some (although not all) are also very low and for some further erosion by inflation would make it very difficult to function financially. Personally I would prefer no rise in in-work benefits, but an above inflation rise in the NLW, raising disability benefits in line with (or ahead of) inflation and pensions should probably rise with average earnings.

It may be subjective, and open to disagreement, but once you remove any concept of fairness from the equation, then we may as well give up.......that's only a step away from the law of the jungle, financially speaking at least. I don't disagree about everyone having to tighten their belts - as long as everyone is asked to tighten their belts to the same degree, or even perhaps those with broader shoulders being asked to tighten a little bit more (within reason).......maybe only save 23% of that income you mentioned earlier, rather than 25%........but those at or near the bottom who simply cannot tighten any more, shouldn't be expected to.

The problem is our fiscal system is unbalanced, we have very low levels of net contributors. Higher earners already make a disproportionate contribution compared to any other advanced economy and the problem is that taxing them a bit more raises comparatively little compared to taxing everyone a bit more. I am a middle ish earner, I have been a higher rate taxpayer (Covid smashed my business) and I expect to be again next year and going forward, I have been a low earner (both early in my working live and during Covid). I am prepared to pay tax, I think that I should pay more tax, but I think that everyone should pay more tax across the board. We should look to the tax systems in Germany and Scandinavia where everyone pays more, but that means high quality and sustainable public services can be funded from that tax revenue. Taxation as a social contract only works if we all contribute, if a shrinking minority of people are forced to everyone else then the social contract starts to break down, of course those with the broadest shoulders should carry more of the burden, but the issues we have in this country is we have a huge proportion of the population who barely carry any burden at all. 

In the ideal world you might be right, but the world isn't really like that......many carry little burden as they are unable, rather than unwilling.

It is like that though, it works in much of the rest of Europe, the issue here is that most people are unprepared to make lifestyle cuts, where as in much of the rest of Europe they accept that they should all pay in for the good of society.

MK62 said:
but in light of your comments, what would you suggest the chancellor actually does tomorrow?

Keeping in mind that they would actually have to be able to implement the changes as well.
I would freeze the personal allowance permanently, ideally it should be cut, but the political reality is people would not accept that, so it has to be eroded over time by inflation.
Freeze the higher rate band for five years and lower the additional rate band to £100k however also allow everyone to keep the personal allowance, both thresholds would then rise with inflation after the five year period.
Combine Income tax and NI into one single Income Tax.
Set Corporation Tax at 20% for the first £100k of profit, 25% after that, also reforming corporation tax so it is structured to encourage investment, similar to the German system. 
Tax any dividend issued to non-UK taxpayers at the higher rate (using a withholding tax).
Abolish the dividend allowance, set the base rate at 12%, the higher rate at 24% and the additional rate at 30% (this means that when accounting for corporation tax paid at the new higher rates the overall rate will be the same as the combined Incme tax).
Increase capital gains tax from 20% to 25%, combined with a reintroduction of indexation. 
Reduce non-domicile tax status to five years (from 15), for any current non-domiciled persons they will loose the status in five years. 
Allow councils to raise Council Tax by up to 10% for FY 23/24 and then by a maximum of inflation plus three percent after that.
Increase Tobacco duty.
Reform alcohol duty in line with the previous plans to reflect strength.
Raise disability benefits by 22% to restore them to the levels in 2015.
Freeze in-work benefits, but raise the National Living Wage to £12.00 per hour.
Set a fixed national rate of housing benefit, rather than regional rates.
Abolish the triple lock and have pensions rise with the national average wage on a permanent basis, in years where the national average wage falls then the pension would not fall but that fall would be accounted for in subsequent rises. 
Commit to abolish stamp duty within five years.
Commit to abolish inherence tax within five years.

Are you really Norman Tebbit?....

Millyonare

sevenhills said:

Millyonare said:

 Japan and France have blown trillions on fast rail and they remain relatively poor (by G7 standards). US has pretty much no fast rail and is the wealthiest country on Earth.

The USA has the largest economy in the world, but just like the UK, the USA has a lot of poor people.
The richest country in the world is Luxembourg.
And the USA has even more debt than the UK.

I don't think tomorrows budget will please anyone, it will be difficult, Hunt needs to be brave and fund public services, whilst below inflation rises for benefits. The people have already received hundreds towards their energy bills.

Luxembourg is a tiny city state and tax haven, not so much a country.

US net wealth per head, at $260k, just blitzes every country on the planet. It is the world's no.1 richest country by far. The US is the world's reserve currency of choice, by far, and they can run much higher debt levels due to unprecedented liquidity.

The UK does not need tax rises at all. The UK has just about the lowest debt in the G7, the fastest-growing economy in the G7 this year, the black hole is a myth of hysterical OBR forecasting, and the tax-raid budget is a needless exercise in self-inflicted misery.

We are talking and taxing the UK into recession.

MattMattMattUK

mebu60 said:

Combine Income tax and NI into one single Income Tax.

How do you see this working?
(I made an observation on this point earlier in the thread).

I see it working exactly as intended, those who do not pay NI would pay the combined income tax rate rate, largely pensioners earning more than the LEL. 

MK62

MattMattMattUK said:

It is like that though, it works in much of the rest of Europe, the issue here is that most people are unprepared to make lifestyle cuts, where as in much of the rest of Europe they accept that they should all pay in for the good of society.

It works here too.....almost everyone with an income of more than £12570 (£13830 for some with partners earning less than £11313) in the UK is paying in - but if you feel people below that threshold should make "lifestyle cuts" in order to contribute more, there's not much left to say really - but I strongly disagree with that viewpoint. As a society, in general, we won't fix anything by making the poor even poorer.

Some of your other proposals are probably already on the table, in one form or another, but we don't have long to wait now......

MattMattMattUK

MK62 said:

MattMattMattUK said:

 Taxation as a social contract only works if we all contribute, if a shrinking minority of people are forced to everyone else then the social contract starts to break down, of course those with the broadest shoulders should carry more of the burden, but the issues we have in this country is we have a huge proportion of the population who barely carry any burden at all. 

So how much tax/NI do you think would be a fair burden for a minimum wage earner?

Given that his/her current burden is 9.3%, and if the minimum wage rises to £10.50 as predicted, and allowances stay frozen, as predicted, that will rise to 11.4%......and given that his/her net pay will rise 8%, but they are already looking at inflation well in excess of 12%.......how much more burden, if any, should be placed here?

Out of interest, how much burden should be placed on someone earning say, for example, £80000pa?

On the first around 22% (Germany would be 24.68%, in France 23.31%), which would be in line with most of the rest of Europe, on the latter around 35%, on a £150k salary around 38% and on a £1 million salary around 48%.

mebu60

MattMattMattUK said:

mebu60 said:

Combine Income tax and NI into one single Income Tax.

How do you see this working?
(I made an observation on this point earlier in the thread).

I see it working exactly as intended, those who do not pay NI would pay the combined income tax rate rate, largely pensioners earning more than the LEL. 

Earning or receiving? Huge difference. 
And what levels do you envisage this new combined tax rate to be? (thresholds and %s).

MattMattMattUK

mebu60 said:

MattMattMattUK said:

mebu60 said:

Combine Income tax and NI into one single Income Tax.

How do you see this working?
(I made an observation on this point earlier in the thread).

I see it working exactly as intended, those who do not pay NI would pay the combined income tax rate rate, largely pensioners earning more than the LEL. 

Earning or receiving? Huge difference. 

It depends on the source, eg. standard income would be taxed as income, dividend as dividend etc.
Base rate from LEL up to £50k would be 32%, although that should probably be increased.
Higher rate from £50-100k (ideally lowering the threshold for the additional rate) to 42%.
Higher rate from £100k upwards 47%.

hallmark

Happening live currently bbc.  I have a jar of vaseline handy.