Paying back the cost of Covid-19

[Bald Rick]

I don't. If they really are mortgaged to the hilt their net worth wouldn't trigger the tax.

Being mortgaged to the hilt doesn’t mean a small net worth. It just means a small ‘cash’ (or liquid) net worth.

I won’t say what my total net worth is (let’s just say it’s positive), but my ‘cash’ net worth is comfortably negative (excluding the mortgage).

 

[HH]

Being mortgaged to the hilt doesn’t mean a small net worth. It just means a small ‘cash’ (or liquid) net worth.

I won’t say what my total net worth is (let’s just say it’s positive), but my ‘cash’ net worth is comfortably negative (excluding the mortgage).

A lien from the government then. They would effectively own a slice of your property, which you could pay off at some point, else it would come from your estate. This wouldn't affect your cash at all.

Note that I've said several times that this isn't what I expect to happen.

 

[Starmill]

There is no need to raise taxes which will be counter productive given the country is likely to be stuffed for many years. Government should just "print" the money via the Bank of England to pay for the all short term measures that have been implemented.

You do realise that this doesn't actually make more resources, right? It's just that, by printing money like mad, you tax savings through inflation. It's a clever ruse to fire up the printing press because it doesn't look or feel like taxation. But it doesn't make actual resources any less scarce. It doesn't expand the productive capacity of the economy. What's more, running inflation hot to pay for the cost of Covid-19, while a totally viable option, is random and quite unfair. It rewards major borrowers and punishes savers, and it's totally at random who is in which camp.

I agree that a bit of bond buying by the three main cental banks is desirable. Indeed, they're essentially running the show now on global financial markets. Powell in particular took the driving seat and not a moment too soon. But despite the Fed's radical moves, People's QE or Helicopter Money are fraught with risk.

We need to have a good, grown-up conversation about who pays for this. If it were up to me it would be the people and companies who continue emit the most atmospheric carbon facing the majority of the cost. This is essentially impossible, because most people in general don't want to take responsibility for their emissions. A capital levy is less unpalatable that rapid inflation, but both are appalling. There is no easy way out.

 

[Qwerty133]

You do realise that this doesn't actually make more resources, right? It's just that, by printing money like mad, you tax savings through inflation. It's a clever ruse to fire up the printing press because it doesn't look or feelblike taxation. But it doesn't make actual resources any less scarce. It doesn't expand the productive capacity of the economy. What's more, running inflation hot to pay for the cost of Covid-19, while a totally viable option, is random and quite unfair. It rewards major borrowers and punishes savers, and it's totally at random who is in which camp.

I agree that a bit of bond buying by yhe three main cental banks is desirable. Indeed, they're essentially running the show now on global financial markets. Powell in particular took the driving seat and not a moment too soon. But despite the Fed's radical moves, People's QE or Helicopter Money are fraught with risk.

We need to have a good, grown-up conversation about who pays for this. If it were up to me it would be the people and companies who continue emit the most atmospheric carbon facing the majority of the cost. This is essentially impossible, because most people in general don't want to take responsibility for their emissions. A capital levy is less unpalatable that rapid inflation, but both are appalling. There is no easy way out.

It's not totally random, those with cash savings are likely to be on the whole, younger people saving for houses and more working class people whose parents couldn't teach them the ins and outs of investing in stock markets etc. The effects of increased inflation further effect the younger generation by increasing the amount of student loan they have to pay back.

 

[Starmill]

It's not totally random, those with cash savings are likely to be on the whole, younger people saving for houses and more working class people whose parents couldn't teach them the ins and outs of investing in stock markets etc.

So just use bona fide taxes then, rather than pummelling people on low incomes who've still made significant savings by restraining spending, or rewarding wealthy people who well overspent? Or people who kept assets rather than cash. Or a whole host of other factors.

Another key thing about massive inflation is that you've got to increase wages faster than prices, or all you're doing is placing the whole burden onto the poorest people. How does a 15-20% annual increase on the minimum wage sound?

 

[Starmill]

About all this debt that our government is supposedly getting itself into because of the COVID crisis: who are they actually borrowing the money from and at what interest rate? The international "market"? Who benefits from that? Not something that your average citizen can easily get involved with.

You used to be able to buy British government bonds at the Post Office, war bonds by post, local authority bonds from your local town hall, and permanent interest bearing shares from your building society. All ways of raising cash and the benefits kept locally. Anyone with savings will know that the interest rate paid on savings accounts is next to nothing, so there must be billions of pounds looking for a safe home that would pay a decent income. Maybe the government should be looking more towards the British public and issuing COVID bonds?

I frequently have some Royal London UK Treasury Bonds in my stocks & shares ISA. Some family have NS&I savings products, or indeed Premium Bonds. These are all forms of lending to your government. The Bank of England will be issuing some loans too through the Ways and Means facility. Critically, these are to be repaid.

 

[Qwerty133]

So just use bona fide taxes then, rather than pummelling people on low incomes who've still made significant savings by restraining spending, or rewarding wealthy people who well overspent? Or people who kept assets rather than cash. Or a whole host of other factors.

Another key thing about massive inflation is that you've got to increase wages faster than prices, or all you're doing is placing the whole burden onto the poorest people. How does a 15-20% annual increase on the minimum wage sound?

I understand why some like the idea of printing money from a political point of view, but economically it only makes sense it extremely limited circumstances, and even then only when it is being matched by major trading partners. That being said many of the criticisms of quantitative easing equally apply to taxes on wealth in my opinion (albeit for different reasons), and wealth taxes are just as bad at taxing those who have made sensible choices while sparing those who flutter their money away on unnecessary luxuries. Wealth taxes are even worse than QE in some respects as their existence would likely negatively influence spending decisions in a way that QE would not (as under QE sensible assets such as houses typically retain most of their value and are therefore not effected but are included in a wealth tax severely limiting their value) and would therefore almost certainly lead to higher government expenditure in future.

 

[deltic]

Possibly, but where there's a will, there's a way.


I think that you'd better demonstrate why ALL taxes are counter-productive, because if they were why do we have any taxes at all? And, if printing money has no downsides, why don't they just print, print, print all the time?

I didnt say all taxes are counter productive - just raising taxes when the economy is, hopefully, recovering from its biggest slump is counter productive. Printing money continuously leads to hyper-inflation as experienced by inter-war Germany and more recently Zimbabwe. What is being proposed is a one-off when inflation is falling and therefore there is minimal risk.

 

[deltic]

You do realise that this doesn't actually make more resources, right? It's just that, by printing money like mad, you tax savings through inflation. It's a clever ruse to fire up the printing press because it doesn't look or feel like taxation. But it doesn't make actual resources any less scarce. It doesn't expand the productive capacity of the economy. What's more, running inflation hot to pay for the cost of Covid-19, while a totally viable option, is random and quite unfair. It rewards major borrowers and punishes savers, and it's totally at random who is in which camp.

I agree that a bit of bond buying by the three main cental banks is desirable. Indeed, they're essentially running the show now on global financial markets. Powell in particular took the driving seat and not a moment too soon. But despite the Fed's radical moves, People's QE or Helicopter Money are fraught with risk.

We need to have a good, grown-up conversation about who pays for this. If it were up to me it would be the people and companies who continue emit the most atmospheric carbon facing the majority of the cost. This is essentially impossible, because most people in general don't want to take responsibility for their emissions. A capital levy is less unpalatable that rapid inflation, but both are appalling. There is no easy way out.

No-one needs to pay. At the moment we have a massive slump in the economy, governments have stepped in to provide unprecedented support to keep people in employment but many businesses will go under and many people will end up unemployed through no fault of their own. Providing cash to businesses and people directly so they can pay bills and keep on staff will be critical to minimise this situation. One off printing money to pay for this is a rational and sensible approach. It will have no impact on inflation. There are surplus goods in the economy that businesses are desperate to unload and prices are falling. We dont need any more resources we need to shift the ones that are presently been sitting around unsold for the last two/three months. As in any time of uncertainty people stop spending and start saving - what is sensible for one person is a disaster for the economy as demand slumps. We need to increase demand by restoring confidence. Telling people you are going to face another decade of austerity to pay for the present crisis will just lead to a bigger slump and increase the rise of extremism even more.

This is not an argument for continuously printing money which will eventually lead to hyper- inflation but a one off to deal with an unprecedented economic slump.

 

[Starmill]

I completely agree that the government can and should spend us out of the crisis, as I've already explained. Even if it means exceeding 100% debt to GDP for a few years. The Bank of England has already cut rates pretty much as far as possible and made numerous big expansions in the money supply. There is, however, only so far this can go before a real government, political decision to print money and hand it out to people. If you leave that money out in the money supply, eventually it will have consequences unless there is an arrangement to buy it back, which would be particularly sensitive. Some big tax increases are overdue, ans this is subtly different to austerity. The Conservative party have managed to convince people that they don't need to worry about paying as much tax over the past 10 years and allowed borrowing to balloon as a result. More taxation needs to form a part of the conversation because it would have been called for anyway.

 

[HLE]

I'd be against cutting the state pension to be honest. Even the most you can get after a lifetime of work is £134.25 per week. We will all get old!
I would favour cutting the tax loopholes that enable certain individuals and corporations to avoid paying their fair share of tax.
I would also scrap stupid government schemes such as help to buy which just inflate house prices and make a few people very rich.

I'd go further. The amount of people I've worked with who've quite openly said they wanted to go give up work and go into property development is staggering. All they do is make it harder for those people on lower wages to afford to buy a house in a reasonable area. It's definitely fuelled generation rent.

 

[underbank]

An easy win is to apply the 2% NIC surcharge (thanks Gordon) to "save the NHS" to occupational pensions. It wouldn't be due on state pension nor small private pensions, but only on those occupational pensions over the NIC threshold (£8.5k or so). There are huge numbers of pensioners with occupational pensions similar or more than average wage. An early retired GP with a superannuation pension of £50k per year can certainly afford to pay 2% on £38k of that (£760 or so) when they're only having 20% basic rate tax deducted from it. As opposed to a worker earning 50% who is paying 12% NIC, student loans, workplace pension deductions, etc on top of their 20% basic rate band.

I'd also apply the same 2% NIC surcharge on other income, such as dividends, interest (above the threshold), foreign income, trust income, etc. It's a travesty that it's only the "workers" who pay NIC!

 

[Yew]

I would like to imagine that the government will invest in infrastructure and other public works, to create full employment, where the economy is maximally productive, and to stimulate secondary spending. Unfortunately, I feel that the Tories are opposed to investment based economics, and we'll see another round of austerity and asset stripping.

It is somewhat upsetting that, given those of us who are healthy/younger, are staying at home to protect the vulnerable; the reward for our selfless sacrifice will probably be a big bill to pay for all of the economic damage it has caused.

 

[Clayton]

I would like to imagine that the government will invest in infrastructure and other public works, to create full employment, where the economy is maximally productive, and to stimulate secondary spending. Unfortunately, I feel that the Tories are opposed to investment based economics, and we'll see another round of austerity and asset stripping.

It is somewhat upsetting that, given those of us who are healthy/younger, are staying at home to protect the vulnerable; the reward for our selfless sacrifice will probably be a big bill to pay for all of the economic damage it has caused.

Johnson has shown that he is in favour of big infrastructure projects, and has allowed work on HS2 to begin. I don’t think we’ll have austerity as a primary policy

 

[Starmill]

The Conservative manifesto is generally based in the same austerity they've chosen to inflict over the past 10 years, with a small number of departments spared, and sanitised so it isn't calling it that. A large departure from this is necessary. They have at least acted quickly in the heat of the moment, with almost no time to think. We shall see what they do now that they have an opportunity to make political capital from the economic disruption caused by the virus.

 

[Monarch010]

The fallout from the government's lockdown also gives them a very good opportunity to blame the negative economic consequences of Brexit on Covid-19 and not on their ideological folly.

 

[HLE]

An easy win is to apply the 2% NIC surcharge (thanks Gordon) to "save the NHS" to occupational pensions. It wouldn't be due on state pension nor small private pensions, but only on those occupational pensions over the NIC threshold (£8.5k or so). There are huge numbers of pensioners with occupational pensions similar or more than average wage. An early retired GP with a superannuation pension of £50k per year can certainly afford to pay 2% on £38k of that (£760 or so) when they're only having 20% basic rate tax deducted from it. As opposed to a worker earning 50% who is paying 12% NIC, student loans, workplace pension deductions, etc on top of their 20% basic rate band.

I'd also apply the same 2% NIC surcharge on other income, such as dividends, interest (above the threshold), foreign income, trust income, etc. It's a travesty that it's only the "workers" who pay NIC!

Careful here with the bottom bit. A sizeable number of contractors, small businesses and self employed people have their affairs structured through their own limited company.
The director pays themself a salary equal to the personal allowance from the company but still pay a small amount of NI (Ee's & Er's) on this. Then anything above is then taken as dividends which are taxed starting at 7.5% on anything over 2k a year - common mistake to make is to think that dividends only attract that low tax but they don't. Indirectly, the company has to pay 20% Corporation tax on any dividends drew (not quite true definition wise but i've heard many accountants omit that bit). Since the tax free allowance was dropped from 5k to 2k it's less of a difference between drawing it all as salary but it's still more tax effective.

HMRC were cracking down hard on this before coronavirus hit. After all, who wouldn't save tax if they could?

On the flip side you have the rich who draw dividend income who I think you may be aiming more at.

 

[lyndhurst25]

My point was that the UK Government should be issuing bonds to UK citizens in preference, or at a preferential interest rate. It may be cheaper to sell bonds in million pound blocks to big financial institutions and wealthy (often overseas) investors, rather than in smaller chunks to individual UK investors, but that may be being penny wise, pound foolish. A UK citizen will likely spend any interest earned in the UK economy, whereas institutions and overseas investors are likely to squirrel away their interest earned offshore, with that money never to be seen again in the UK.

 

[Bald Rick]

An easy win is to apply the 2% NIC surcharge (thanks Gordon) to "save the NHS" to occupational pensions. It wouldn't be due on state pension nor small private pensions, but only on those occupational pensions over the NIC threshold (£8.5k or so). There are huge numbers of pensioners with occupational pensions similar or more than average wage. An early retired GP with a superannuation pension of £50k per year can certainly afford to pay 2% on £38k of that (£760 or so) when they're only having 20% basic rate tax deducted from it. As opposed to a worker earning 50% who is paying 12% NIC, student loans, workplace pension deductions, etc on top of their 20% basic rate band.

I'd also apply the same 2% NIC surcharge on other income, such as dividends, interest (above the threshold), foreign income, trust income, etc. It's a travesty that it's only the "workers" who pay NIC!

IMHO, and agreeing with something @Bletchleyite mentioned earlier, I would stop pretending NI is anything but another tax. Wrap it into income tax, and have it applied to all income, not just earnings. At a stroke that would bring in billions.

 

[Horizon22]

With furlough scheme being extended by 4 months, this is going to be at least tripling what was already a very large sum. Approximately £100bn.

 

[LAX54]

Rest assured, income tax will rise over the next couple of years ! we will fuind it from our income at some point.

 

[HLE]

Rest assured, income tax will rise over the next couple of years ! we will fuind it from our income at some point.

Undoubtedly. I half expect, if oil prices stay low, for fuel duty to increase. Can't be much of the pound per litre that isn't tax.

 

[LAX54]

It's time to reduce the state pension, not only in real terms, but in nominal terms. The level of the state pension should be the same as the level of universal credit that would be paid to working age people in the same circumstances. It is also time to look at reducing the levels of farming subsidies paid to people who aren't even using the land for farming but rather to enable horse racing or similar activities. I would also like to see a specific tax on TV rights revenues for sporting and other major events, with 50% of the revenue from such being used to support sports with a smaller revenue stream and the rest entering the general pool. It will also be necessary to end the Barnet formula and substantially reduce funding to Scotland to a level that is more consistent with spending in England. There also has to be measures put in place to prevent foreign investors further pushing up the property prices by purchasing properties than they have no intentions of living in and I would like to see a 100% tax put in place for such individuals.
It will also be inevitable that income tax and NI increase and I believe the best way of doing such is increasing the personal allowance so that those on minimum wage don't pay any tax at all while increasing the basic rate to 25% and the higher rate to 45%, and also having flexible thresholds depending on the hours worked per week so that those working part time pay the same proportion of their income in tax as their full time colleagues. Unfortunately the current system has led to many expensive to train public sector professionals to choose to work part time (such as doctors and senior nurses) and something has to be done to increase the incentives for working full time in these areas and the perverse law currently forces the take home way to work out greater per hour for part time rather than full time workers which is simply unacceptable when full time work is more beneficial for the economy.

State Pension can't get much lower surely !

 

[najaB]

Furloughing staff alone has cost approximately £8bn so far. Now the economy was not in a brilliant state anyway, and we have added a lot to the current debt (which was already rising). Is it irrational to think that these debts and costs will be picked up by our generation quite considerably? How long do you think this will be for?

The cost of not doing it would have been much greater. £8bn isn't going to be found down the back of the sofa, but by the same token it's about the cost of an aircraft carrier and we managed to build two of those without breaking the bank.

 

[westv]

The level of the state pension should be the same as the level of universal credit that would be paid to working age people in the same circumstances.

I don't get what you mean when you say "in the same circumstances".

 

[Bantamzen]

Its being reported this morning that the economy shrank by 2% in the first quarter of the year, a downturn almost on a par with the 2008 crash.

Coronavirus: Chancellor Rishi Sunak warns of 'significant recession'

The UK's economy shrank at the fastest pace since 2008 during the first three months of the year.

www.bbc.co.uk

This is now the strongest indication yet that the effects of the virus and lockdown will way exceed anything we've seen for a very long time. And it is very, very worrying.

And on the cover of the Telegraph this morning they are reporting that the overall cost for the crisis could be between £337 billion to up to £516 billion. For context HMRC raised £627 billion in 2018-19. If even remotely true, that could mean staggering cut backs and freezes, and an even longer, deeper period of austerity.

Or a whackload of quantitative easing?

I'm not sure driving down the value of the pound is going to help when we are such a large importer of goods. And before you suggest growing / making our own, it would take years to get everything in place to even have everything in place. And that would need someone to fund it all, talking of which....

Or given how we seem to have done quite well by dealing mostly with small businesses over the period (as most food/drink chains have closed aside from supermarkets), we make sure the likes of Starbucks pay their taxes, and if they don't we just invite them to naff off and let small business owners fill the gap?

OK, Amazon, but that's a bit of a paradox as a fair chunk of it is Amazon Marketplace, so like eBay they are to some extent a large company which enables microbusinesses.

Yeah these large global companies have done well because, well they've hoovered up large parts of the global market, & have much more influence on global prices. Sure you could try tax them more in the hope that they would just pay it or leave. But if the latter happened and they did leave, who would fund the smaller coffee shops in the midst of a global recession, which is coming?

Its a lovely parochial notion that we just snap our fingers and become ultra self-sufficient, but the reality is very different, especially now.

 

[Qwerty133]

I don't get what you mean when you say "in the same circumstances".

So that a cohabiting couple would get the couples allowance (or half of it if one is of working age), single people (including widows) would get the single persons rate, and any pensioners with children of school (or below) age would get the rate that a working age family with the same number of children would get.

 

[Snow1964]

So that a cohabiting couple would get the couples allowance (or half of it if one is of working age), single people (including widows) would get the single persons rate, and any pensioners with children of school (or below) age would get the rate that a working age family with the same number of children would get.

This is more a function of a badly bodged tax system, where rules varying other rules have been added over the years.

I understand the UK tax rules were just 2 books in 1970. Since then so many complications have been added, now apparently takes 9 books (or 11 books if you use same font size). Realistically need to go back to simple rules

Ultimately taxpayers will pay for years to come. This can be long period, as an example the money UK borrowed from USA under Marshal plan (after WW2) was only finally repaid in 2006

 

[BRX]

Effectively we are already "paying" for some of the loss by not having a summer holiday, or not going out to restaurants for several months. There's a whole bunch of non-essential spending that just isn't happening - alongside a whole bunch of non-essential work that isn't being done. So, while the big picture is of course very complex, it's not the case that there's a whole load of absent productivity that needs to be done or paid for in the future.

It's quite possible for taxes to go up for a couple of years for a large proportion of people, that will be largely balanced out by money they didn't spend during this year.

It's not the same as a war, where an enormous amount of work and money goes into doing stuff like building machines to destroy other people's stuff, while they do the same to you. It's a period where a proportion of people (by no means all people - many continue to work largely as normal from home) have a few months where they don't do work, and a lot of that work is not work that is necessary to keep people fed and housed.

 

[Bald Rick]

Undoubtedly. I half expect, if oil prices stay low, for fuel duty to increase. Can't be much of the pound per litre that isn't tax.

At £1 a litre, about 75p is duty / VAT; 15p is the crude oil ($30 / barrel, $1.23 = £1), the rest is the cost of transport, refining, retailing and oil company / retailer profit (not much of that at present!)