Paying for the pandemic

[Gengulphus]

I think that the fairest way would be to merge income tax with national insurance and apply it to all, even retirees.

Retirees have done better than those working, especially since 2000, so that would be the fairest way

The above chart is "Median real equivalised household disposable income of individuals by household type , UK, 1977 to FYE 2020, 1977 = 100"

https://www.ons.gov.uk/peoplepopulation ... rovisional

Thank you - that link is indeed helpful in understanding the context, both with regard to how they decide whether a household is retired or not (a household might contain both retired and non-retired individuals) and also for the fact that the figures are 'equivalised' and what that means.

Gengulphus

[scrumpyjack]

I wonder if I've understood this correctly?

Bonds/Gilts are government debt. The capital is repaid at the end of the term the bond was issued for or another bond is issued to continue the level of debt. During the period an amount of interest is paid to the bond holder.

Regardless of the size of the UK governments debt it paid £48bn in interest in 2016 for that debt. Of this £9bn was effectively paid back to itself through the BoE holding some of the bonds/guilts.

That net amount of £39bn was more than the NHS wage bill, more than we spent on defence and more than we spent on our schools budget.

But I just wonder why we would want to continue to pay annual interest for anything other than a national emergency (covid 19/war). I know it's a very simple view but if in 2016 we didn't have to spend £39bn on servicing our debt we could have pumped just short of £200bn into the NHS by 2020. We would have then been far more able to deal with C19 and all the other backlogs we have seen on the NHS for the last 5 years?

Debt is debt. Give or take the odd £100bn the UK government has a debt of £2TN. That's roughly £65K for every member of the working population.

AiY

Of that 2 tn about 25% is not index linked. 2% inflation on 1.5tn is £30 billion, so you could argue that £30bn of that £39bn was not real interest but simply compensation for the decline in the purchasing power of the national debt (ie the amount 'eaten away' by inflation). So arguably the real cost of the national debt was only £9 bn.

The national debt will continue to be eaten away by inflation as the currency inflates, and with the amount of free money thrown around, inflation can only rise.

[Wizard]

As a final comment from me on this thread I would make the following points.

I have never blamed (directly or by implication) any group for the pandemic, though I think one other poster blamed the Chinese. I do not believe any remarks I have made could reasonably be considered callous, I have tried to maintain an objective stance. My view is not a matter of blame, it is about fairness in paying for the response. If the cost of the Government's response is dealt with by tax in the very long run then the young will bear the vast majority of the burden, simply because they will be around paying tax for longer.

It is a simple matter of objective fact that Covid-19 is more likely to kill a 70 year old than a 15 year old or a 25 year old, so the actions to reduce deaths have unquestionably saved the lives of more 70 year olds than 15 or 25 year olds. Yet those 15 year olds have had their education seriously affected by the closure of schools and many of those 25 year olds have lost their jobs. In this way they are already paying a higher price than many in older age groups. But as I have said if this is handled through long term higher taxation or lower spending they will suffer more from that than older people. Is that fair? And at the same time as many thousands are living on a much reduced income and struggling to survive we hear that the State pension is to rise by five times the rate of inflation. Is that fair? Expecting the young to pick up the cost while older people have their income protected or even enhanced is, IMHO, reinforcing a generational divide that already exists.

I understand that many (probably most) others on TLF disagree with me, but I do not think my comments have been callous, far from it as they are driven by a desire to see young people treated fairly.

Disclosure: I am much, much closer in age to 60 than I am to 25!

[scrumpyjack]

At the end of the day I guess any extra tax will be raised in whatever way they think will cause the least damage to the economy and the minimum 'hissing of the goose whose feathers are being plucked'.

'Fairness' won't come into it, except perhaps for glib soundbites from the politicians.

[Adamski]

I don't think we'll be paying significantly via taxes for the 2 trillion debt. It's more likely that we will be similar to Japan with several decades of very low 1% growth. Another scenario will be inflation will take off but interest rates kept low, to inflate away the debt. Neither very good options. But they can't whack taxes up as growth is too slow and would put the country back into recession.

[Lootman]

At the end of the day I guess any extra tax will be raised in whatever way they think will cause the least damage to the economy and the minimum 'hissing of the goose whose feathers are being plucked'.

'Fairness' won't come into it, except perhaps for glib soundbites from the politicians.

Yes. If the government really wanted to raise significant sums then it would have to do what Gengulphus suggested and add a penny or more to VAT and income tax rates. Only by getting everyone to contribute something can large sums be raised.

But at election time politicians tend to play a different game, and try and carve out classes of people who must be "punished" for being too successful, and that is where it all dissolves into games around envy and class warfare.

I'd agree with G that tinkering around with CGT and IHT will yield little, maybe even lead to less revenue as suggested by Laffer. The state pension is pretty much sacrosanct as many have observed. And a wealth tax is a non-starter and again is easily avoided. So it really only leaves income tax and VAT as the biggies. I can see the tagline now: "Just a penny on income tax to save the nation/NHS/the children, our pensioners . . . ".

[langley59]

And a wealth tax is a non-starter and again is easily avoided.

I hope that you are right on this, could you explain your reasoning on both points please (with reference to ordinary people who have saved what some might see as large amounts for their retirement, rather than with reference to the super rich)?

[Arborbridge]

It is a simple matter of objective fact that Covid-19 is more likely to kill a 70 year old than a 15 year old or a 25 year old, so the actions to reduce deaths have unquestionably saved the lives of more 70 year olds than 15 or 25 year olds. Yet those 15 year olds have had their education seriously affected by the closure of schools and many of those 25 year olds have lost their jobs. In this way they are already paying a higher price than many in older age groups.

Hmm. Some might think the older age group has already paid up by dying in larger numbers - and presumably passing their wealth on. It seems to me this cull of the elderly does exactly what people who stoke intergenerational warfare want.

Arb.

[Arborbridge]

And a wealth tax is a non-starter and again is easily avoided.

I hope that you are right on this, could you explain your reasoning on both points please (with reference to ordinary people who have saved what some might see as large amounts for their retirement, rather than with reference to the super rich)?

I suspect avoidance of wealth tax is not easy for the ordinary people of whom you are thinking. The moderately well off is a rich seam for politicians. That group isn't wealthy enough to afford vast fees which the super rich can pay for the best advice, but they exist in big enough numbers to make it easy to raise billions in short order. The super rich or even amazingly rich do not exist in big enough numbers to solve the chancellors problem, and they have too many defensive barriers.
A bit like a predator won't go for prey which is too well armed, so the lesser prey is the type they prefer.

The other target group, in general, is the poor, of course. They exist in attractive numbers and can always be characterised as scroungers who brought their own folly upon themselves, rather than their demise being a result of the turning wheel of fortune. (The poor are, naturally, more affected by this as they have fewer defences and less power in the first place)

Arb.

[Lootman]

And a wealth tax is a non-starter and again is easily avoided.

I hope that you are right on this, could you explain your reasoning on both points please (with reference to ordinary people who have saved what some might see as large amounts for their retirement, rather than with reference to the super rich)?

Well, ordinary people would not be subject to a wealth tax otherwise it would not be a wealth tax, but rather a net assets tax or net worth tax. So my assumption there was that a wealth tax would only apply above a fairly high threshold, say a few million. And people at that level, which includes many here, certainly have options such as relocating assets and/or converting them into either an exempt form or a hard-to-determine form.

If instead the government just decided to tax everyone annually at, say, 1% of their net worth then you are correct that many ordinary folks would lack the ability to avoid that. But quite how the government would accurately determine peoples' net worth is a reasonable question. Right now that only happens upon death, and even then only with a lot of effort and cooperation from the next of kin. I am not convinced that the government has any confidence that it could correctly come up with such a number for everyone. There is a paper trail for transactions, but not for estimates of value. And there would not be broad political support for a new tax that everyone pays.

Another problem with any such wealth tax is that if peoples' wealth is tied up in illiquid assets, like a property or a pension, then they will not necessarily have any way of finding the cash to pay an ad valorem tax on those assets.

So I think there are a host of problems with introducing such a tax, and so it is far from a quick and easy way of increasing revenue when compared with simply increasing rates on existing taxes.

[NeilW]

Yes. If the government really wanted to raise significant sums then it would have to do what Gengulphus suggested and add a penny or more to VAT and income tax rates. Only by getting everyone to contribute something can large sums be raised.

That ends up being a fallacy of composition. If you raise income and VAT rates, or even add a wealth tax, then you just reduce the number of transactions in the economy and lose the tax from those at the other end. The Chancellor cannot really alter the total tax take. He can only alter the distribution of it throughout the currency area.

The total tax take is ultimately determined by the amount people net save in aggregate from their income. If everybody spends everything they earn immediately then the tax take will match the amount the government spends to the penny for any positive tax rate. The tax rate just changes the number of economic transactions to get there.

[NeilW]

I wonder if I've understood this correctly?

Bonds/Gilts are government debt.

There also savings assets - primarily held in pension schemes.

Why did you allocate the debt part equally to everybody but didn't do the same with the savings part?

When the savings are spent, that generates the taxation flow necessary to eliminate the debt. Our grandchildren will inherit the Gilt assets alongside the Gilt debt.

As you can see debt isn't debt when you just owe it to yourself. And since they don't use Sterling anywhere else we do just owe it to ourselves.

[NeilW]

Yet those 15 year olds have had their education seriously affected by the closure of schools and many of those 25 year olds have lost their jobs.

Those 15 and 25 year olds have a substantial capital inheritance created, maintained, improved and handed on by today's 70 year olds that means they don't have to spend 16 hours a day in a field growing cabbages and can instead look forward to food being grown by a tiny fraction of their number.

That's likely to save more time and effort than a few weeks in lockdown don't you think? And of course those 15 and 25 year olds will get their pension in due course.

I'm not sure the last six months has changed that social contract balance that much.

[Wizard]

It is a simple matter of objective fact that Covid-19 is more likely to kill a 70 year old than a 15 year old or a 25 year old, so the actions to reduce deaths have unquestionably saved the lives of more 70 year olds than 15 or 25 year olds. Yet those 15 year olds have had their education seriously affected by the closure of schools and many of those 25 year olds have lost their jobs. In this way they are already paying a higher price than many in older age groups.

Hmm. Some might think the older age group has already paid up by dying in larger numbers - and presumably passing their wealth on. It seems to me this cull of the elderly does exactly what people who stoke intergenerational warfare want.

Arb.

Those that have died have paid a very high price, but they are also no longer drawing a pension. Those saved by the actions to limit the impact of Covid-19 are in a different position. If anyone had wanted a cull of the elderly the thing to do would have been to take no action to limit the impact of Covid-19, which is clearly not what has and still is happening with more than half the UK's population now under Tiers 2 or 3 restrictions.

[Wizard]

Yet those 15 year olds have had their education seriously affected by the closure of schools and many of those 25 year olds have lost their jobs.

Those 15 and 25 year olds have a substantial capital inheritance created, maintained, improved and handed on by today's 70 year olds that means they don't have to spend 16 hours a day in a field growing cabbages and can instead look forward to food being grown by a tiny fraction of their number.

That's likely to save more time and effort than a few weeks in lockdown don't you think? And of course those 15 and 25 year olds will get their pension in due course.

I'm not sure the last six months has changed that social contract balance that much.

Well I certainly agree the social contract has been being eroded since long before Covid-19.

[dealtn]

Yes. If the government really wanted to raise significant sums then it would have to do what Gengulphus suggested and add a penny or more to VAT and income tax rates. Only by getting everyone to contribute something can large sums be raised.

That ends up being a fallacy of composition. If you raise income and VAT rates, or even add a wealth tax, then you just reduce the number of transactions in the economy and lose the tax from those at the other end. The Chancellor cannot really alter the total tax take. He can only alter the distribution of it throughout the currency area.

Really?

Imagine a world where all tax rates were zero. Tax take is "nothing". Now consider every year this and last century. None of those years had zero tax rates, and for each of those years the tax take was "something".

So there is at least one level of tax rate your claim doesn't work for.

Now try the theoretical 100% tax rate.

Now reconsider your argument.

[Dod101]

It is a simple matter of objective fact that Covid-19 is more likely to kill a 70 year old than a 15 year old or a 25 year old, so the actions to reduce deaths have unquestionably saved the lives of more 70 year olds than 15 or 25 year olds. Yet those 15 year olds have had their education seriously affected by the closure of schools and many of those 25 year olds have lost their jobs. In this way they are already paying a higher price than many in older age groups.

Hmm. Some might think the older age group has already paid up by dying in larger numbers - and presumably passing their wealth on. It seems to me this cull of the elderly does exactly what people who stoke intergenerational warfare want.

Arb.

Those that have died have paid a very high price, but they are also no longer drawing a pension. Those saved by the actions to limit the impact of Covid-19 are in a different position. If anyone had wanted a cull of the elderly the thing to do would have been to take no action to limit the impact of Covid-19, which is clearly not what has and still is happening with more than half the UK's population now under Tiers 2 or 3 restrictions.

Being in the older age group myself, I think the loss of the elderly through Covid has been much exaggerated. Many of those would have died anyway in the next year or two. The younger people who are claiming that do not seem to understand that the older ones like me are paying a very big price in that our remaining years of good health are simply being frittered away because we cannot do the things we would like to, such as having close relationships with friends, travelling to meet interesting people and seeing different places. It is true that I have saved money involuntarily but so what at my age and besides, my income is well down as a result of Covid. I doubt therefore that many in my age group are very grateful to the powers that be for taking steps to protect us in particular, even if that were true.

The point is that, as was said early on, we are all in this together and stoking what Arb has called intergenerational warfare helps no one.

Dod

[servodude]

......looks like the asteroid that hit the Earth 65 million years ago didn't kill all the dinosaurs.

...and now COVID's come along to get the rest of them?

-sd

(n.b. for the purposes of a bit of humour I'm alluding to older people being both "more likely to succumb to Covid" and being known colloquially as "dinosaurs" with the butt of the joke being those that think their extinction is warranted/excusable/justified)

[AsleepInYorkshire]

Being in the older age group myself, I think the loss of the elderly through Covid has been much exaggerated. Many of those would have died anyway in the next year or two. The younger people who are claiming that do not seem to understand that the older ones like me are paying a very big price in that our remaining years of good health are simply being frittered away because we cannot do the things we would like to, such as having close relationships with friends, travelling to meet interesting people and seeing different places. It is true that I have saved money involuntarily but so what at my age and besides, my income is well down as a result of Covid. I doubt therefore that many in my age group are very grateful to the powers that be for taking steps to protect us in particular, even if that were true.

The point is that, as was said early on, we are all in this together and stoking what Arb has called intergenerational warfare helps no one.

Dod

During the first week of lockdown my 79 year old Mum was diagnosed with 1st stage breast cancer. She was given some tablets and we believe the prognosis remains good. She's a single lady, having never remarried since my father passed away when she was 49. She worked until she was 75. She doesn't have a magnificent income. She's currently waiting for the results of her scan to see if the cancer has gone. Failing which she will have an operation. She's self isolated for 12 weeks and done a few jig-saws.

I realise this thread is how we should pay for the pandemic and I apologise to the moderators and denizens of our community for straying off topic. However, sometimes we need to remind others that they aren't alone. Loneliness is, in my opinion a disease. A terrible debilitating illness and one which there's no medication for.

My Mum has been unable to go out and continue her voluntary work at the local hospice charity shop and the Minster. She's been denied the company of those she meets during her voluntary work and has felt lonely.

It's been a difficult time for all of us and I hope for all our sakes that we can return to normal soon.

AiY

[Adamski]

Great posts Dod and AiY. AiY, hope the scan shows good news.

It's a tricky balancing act between beating Covid, and getting back to normal. Seems no one is happy with the various tiers and restrictions. Personally think should have gone for a circuit break uk wide. The confusing complicated rules are unenforceable and won't in my opinion work.

In terms of paying for it, investors might have some punishment waiting for us. But I think more likely the 2 trillion debt could become a permanent fixture like in japan, and will be a drag on future economic growth.