tea42 wrote:With the eye watering government borrowing in mind an obvious target for increased taxation to pay the debt down must be dividends? A no concession strategy would mean dividends taxed at your normal rate. Perhaps slashing the £20,000 pa ISA limit too, and a limit as to how much you can hold tax free? ie many of the attractions of the HYP eroded.
Pre financial crisis and UK debt was around £500Bn. Perhaps costing 5%/year to service. Financial crisis came and the BoE pretty much printed money and bought up all of those Gilts whilst the Treasury sold new Gilts, around twice as many paying half the interest rate. On paper the debt ballooned from 500Bn to 1.5Tn, but as the BoE returns all interest received on the gilts it holds back to the treasury, its costing no more to service. The action of such a big buyer (BoE buying 500Bn of Gilts) pushed up bond prices, lowered yields (and had pension funds reducing bonds to add more stock, pushing stock prices higher).
Whilst on one measure some are saying that UK debt/GDP is at 100% levels, on another measure it might be considered as being no different to when it was down at 30% levels and costing more. Conceptually the BoE could just tear up the Gilts it holds, reducing UK debt down from 1.5Tn to 1Tn and that's paying a very low interest rate, less than inflation, so is being eroded.
Adding 100Bn, 200Bn ... whatever to that is relatively mild given the borrow today and pay back less (in real terms) in 20, 30, whatever years time. Not really a issue. The main priority is any deficit, spending more than revenues/income, which hopefully is a short lived issue. If as and when things get back to some degree of 'normality' then it will become apparent whether its required to cut spending/raise taxes to balance the deficit. The degree of any deficit is unknown, something for a later budgetary review to address as-and-when. For instance state pension payouts might be down £0.5Bn/year due to Covid-19.
Much of the UK economy is consumption based. How it may all pan out ??? My guess is that the economy will rebound once people are back out again 'consuming'. The BoE having acquired 500Bn of Gilts may direct towards yield curve control. Say they'll print money and buy Gilts, or sell Gilts in order to direct yields to a specific rate, say 1%. In awareness of such more usually the market automatically adjusts prices to that rate, without the BoE actually having to do anything. With yields 'fixed' the next most usual outcome is for inflation to spike, such that debt is eroded at savers/pension funds expense, 1% interest, 5% inflation, is as good as a 4% tax on saved sums/pensions. That could all very well occur without taxes having changed, just having any deficit also thrown into that bucket.
May be a case of where its made even more attractive to keep money domestic. Directly hit dividends and ISA's/whatever and the outflow to the US/wherever sees that money lost; Alternatively it may be considered desirable to see a outflow of Pounds (declining £/rising interest rates/inflation) - and that button pressed in order to scale up inflation relative to fixed/low nominal gilt yields after having established 'yield curve control' measures (announcements). Without a crystal ball, no one knows.
There are potential great benefits from Brexit. Chancellor could for instance introduce a withholding tax on dividends, so the likes of UK rail/utilities etc. lost into foreign ownership would see some tax revenues from the dividends - maybe specifically directed at the EU (into where many UK assets were lost as part of decades of the UK subsidising EU competitors). The nice thing about Sovereignty is that you get to set your own rates/taxes/currency ..etc. rather than having to follow a one-size-fits-none (other than perhaps Germany) fiscal policy setup.