The Resolution Foundatioin is the latest progressive think tank to issue a sticking plaster report. According to many reports this morning its intergenerational commission is making a series of what, I hate to say, look to be pretty misguided recommendations today.
First it is saying that each 25 year old should get a £10,000 lump sum from the state.
Second it is saying changes to inheritance tax should fund this.
Third it is saying that those who work over the age of 65 should be made to pay national insurance to help fund the NHS.
I am sure there is more to the report than this, but headlines matter and these do not sell well, for quite fundamental reasons.
First, why 25? What's so magic about being 25? Why not create a right to Universal Basic Capital, to be claimed once in life, of at least £10,000? Then make clear that it has to be used for a purpose: housing, education, creating a business, paying for training or whatever. Of course it could still be abused. But that's a risk worth taking. And if the application required an explanation as to what the funds were to be used for (with assistance to be provided for those who would need help making such a claim) then that risk would be minimised and the return maximised. And this then becomes linked to oppprtunity, and not just an arbitrary date long used by the families of the wealthy to indicate the time when the younger generation got their hands on their trust funds.
Second, why £10,000? And why in a lump? Why not be considerably more creative - and allow a phased pay down as well if all is not required at once? And why not allow more when the case can be made?
Third, let's not pretend this does anything very much re housing: it simply does not. Or education debt come to that, where it is mere tinkering. It has to be something else then.
And fourth, please let's stop the left being obsessed with the ‘How are you going to pay for it?' argument. Let's be clear that nearly 35% of any such grant would be paid for by the tax paid when it is spent - because spent it will be, and overall that's the likely tax that will be paid by the first recipient of the spend. But as they spend the receipt that recovery will grow. This grant does not need to be paid for with Inheritance Tax: it will pay for itself with tax generated by it being spent.
Fifth, if you want to tax inheritances justify it in its own right to reduce wealth and to address the issue of inequality - not to say it pays for something, when it (like all tax) never pays for government spending.
And last, stop the nonsense that NIC pays for the NHS, and stop too the nonsense spouted by David Willetts on the Today programme this morning, who said that it was unfair that the NHS should be paid for by those of working age. Apart from the fact that is it not paid for by them, what he should have said is that it is wholly unfair that work is taxed considerably more heavily in the UK than investment income, which carries no NIC at all, can be diverted into low rate capital gains for which there is a second effective personal allowance a year, and which also has very high rates of non-declaration. Instead of simply piling extra tax on other workers, which bizarrely is the Resolutuon Foundation solution (making it look very non-progressive indeed) the answer is to increase CGT, create an investment income surcharge of 15% extra income tax on invetsment income of more than £5,000 a year (effectively extending the so called dividend tax to all investment income) and to cut the CGT allowance, considerably. Those measures target inequality and would happen to raise considerable revenue.
That would be progressive. Right now I have to say I see very little progressive about the Resolution Foundation propsoals. It is instead another attempt at electoral triangulation that will really not solve any problem, and most likely create new ones needing fairly rapid correction.
We really do deserve some decent thinking on tax. This is not it. Sticking plaster will not do.
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OK, so lets put this into some perspective:
“The new figures for housing affordability in England and Wales between 1997 and 2016 have been issued by the Office for National Statistics. They said the median price paid for a home leapt by 259% over this period, while median individual annual earnings could only manage a 68% rise.”
https://www.theguardian.com/money/2017/mar/17/average-house-price-times-annual-salary-official-figures-ons (March 17 2017)
There is no need for me to describe the (class biased) inter-generational transfer of wealth that we associate with those facts. Its huge. That is already known to most of us and in that context £10,000 handouts are just too silly to mention.
With the Inheritance Tax idea the foundation may be just looking for a pretext to introduce the tax , but you are right of course, no pretext is required and that suggestion, if realised, would just end up being another hypothecated nonsense.
As for the NIC Britain really needs to get rid of it. Its just an historical hangover and no other nation has it (not that I know of ) a restructure of income and other taxes could replace it.
If we want to solve intergenerational debt issues we start applying capital gains tax to houses
“As for the NIC Britain really needs to get rid of it. Its just an historical hangover and no other nation has it (not that I know of )”
I was rather puzzled by this comment. Additional taxes on employment are widespread as far as I was aware.
The USA has “Social Security” and all the EU countries I have ever looked at have something broadly equivalent at varying levels. In some countries the rates are far higher.
Having said that I am not a fan of NICs and I would like to see them merged in with income tax to simplify the system. I argued this point back in 2011 when the office of tax simplification had said exactly the same thing, but Richard preferred to have an additional tax on investment income.
At the time Richard told me that NICs should remain…
“Because the contributory principle is vital and pensioners suffer in a merger”
I have changed my mind on that now….
Time has now duscredited it
But social security is commonplace
Things like Social Security in the US, Medicare Levy in Australia etc. are proportionately much smaller, just as false in their hypothecation, but so much smaller that they merely serve as a form of surcharge. The comparison is in principle alone
Years ago when I first saw the NICS proportion of UK tax receipts (currently about 20%) I was astonished. I still am.
Well, income tax is about a quarter of the UK’s total tax take, and NICs is about two thirds of that. Simple comparison of the rates tells most of the story – 12% NICs for most employees versus 20% income tax (but higher rate employees pay marginal rates of 40% or 45% income tax and 2% NICs) plus the 13.8% payroll tax for employers.
You could simply merge NICs and income tax and have a basic income tax rate of 32%, a higher rate of 42% and an additional rate of 47%. But you might still want to address the different rates that apply to dividends and to capital gains.
Wasn’t the child trust fund meant to address this sort of intergenerational issue?
I’m a big fan of Resolution Foundation’s research and I like how they have managed to get tax including redistribution into the media. Some of their ideas and reasonings might be suspect as you point out however it is massively important that we begin to normalise the concept that things, especially tax and redistibution, has to change and soon.
Moving inheritance tax from the estate to the individual recipient of the inheritance is in line, I think, with your book (Joy of Tax) isn’t it? Maybe you could re-iterate how the way you propose for it to work is better than RF’s method (or how you could make RF’s method better).
Property Tax instead of council tax also seems more progressive?
All your qs about the 10K seem valid and we could do with answers but do you see any positives in the report? Or do you feel it is completely a missed opportunity / misguided?
many thanks
No problem asking the questions
But like IPPR they have to move a lot further on the answers
And re the 10k: I see ample reason why we should invest more in many people
Enough not to create student debt for a start
And to provide opportunity for those not going to university as well
I welcome the report because raises the issue and because it is coming from a Conservative Lord and has the CBI on board.
Important is that more and more voices start to point out that we need to redress the imbalances that have accumulated.
I agree the 10k at 25 looks odd and like UBI is not really a solution. 4 years funded skills and knowledge training from 18 + Social housing and better state pensions would be better.
What do we want? Good jobs, somewhere secure to live and security in old age, not much to ask really. Beveridge wrote down the solution in ’42, but then after ’75 politicians sold out to wealth and the votes of the boomers. Gradually it gets worse for each successive generation but soon they will be the majority and things will change.
Agreed
Charles Adams says:
“I welcome the report because raises the issue and because it is coming from a Conservative Lord and has the CBI on board.
Important is that more and more voices start to point out that we need to redress the imbalances that have accumulated.”
Yes. Fine. So it’s discussable at last.
I’m inclined to be cynical about the reasons you suggest, however. If it’s coming from a Conservative Lord and the CBI (likely to be predominantly of a Conservative disposition), I think it’s not so much to do with redressing imbalances as a realisation that businesses are running short of customers because they have no money and no credit left.
It was only a matter of time before trickle-up slowed enough to be noticed by the party of self-interest. Conservative governments have always relied on home owners and business people to vote for them. As financial pressure builds on their core constituency they will have to take steps.
I don’t think a lump sum is going to cut it. Certainly not if it is going to be age targetted as suggested. Much of it will just pile straight into debt servicing. And there will be some fairly pissed-off twenty-six year-olds !
Agree re. the headlines, which regrettably reaffirm the ‘scarcity of government money’ misinformation. You’d have thought the RF would have come up with a better solution to the problem they’ve rightly highlighted. Clearly they didn’t consult with anyone who understands how the economy actually functions. A seriously missed opportunity which also diminishes their authenticity as a progressive think tank (IMHO).
I have to admit that I assumed that BBC cherry-picked the report for sensational/stupid sound bites. That probably says much about my distrust of the BBC and not a lot about the Resolution Foundation, but then I don’t think much of most of the Think Tanks the BBC reports on.
This report is nonsense, but when you look at the people behind it – little wonder. Unfortunately it is a distraction from the real issues of inequality – of income, wealth, housing, health, education, employment, for example – which affect the whole population, even if it’s some more than others. This is a report to gain headlines. A sticking plaster won’t stop blood pumping out of the body politic.
I raised MMT in Q&A but received no reply.
Your question was probably not understood
It was simple: Modern Monetary Theory shows that a state with its own currency can create all the money it needs so why are you trying to balance the budget? They allowed a lot of questions at the end with no intention of answering any of them. I found it a very slick affair. The venue at the top of the Cheesegrater must have cost a fortune and everyone was provided with a thick glossy brochure of their policies. I gave mine away immediately. I don’t think I’ll bother with them again, although I do rather like Torsten Bell.
The Cheesegrater as a venue to discuss this? Not good….
Typical of the Tories. Money solves every problem except here it is the failure of capitalism as enforced by the Tories that is to blame. All they want is to cling to power so as to stop others. They have no vision and just rely on money to solve problems. The sooner we have a more intellectual far sighted politicians the better.
Giving £10,000 to 25 year olds (£20,000 for a couple) will further inflate an already over-inflated property market. It’s not the cost of bricks and mortar, fixtures and fittings that has driven house prices and rents so high. It is land prices and a completely unregulated free market.
If we are to tackle poverty, equality, and give everyone a better standard of living we need to regulate the price and availability of housing land such that someone on average earnings can comfortably afford to buy or rent an average house and we need to match supply to demand. Help to buy schemes just throw fuel on the fire as does the current system of housing benefit.
Another policy that would help to make residential property more affordable would be to outlaw the private rented housing sector and give landlords a limited time period (perhaps three years) to sell their portfolios. Only properly licensed, not for profit housing associations should be allowed to rent out housing.
My suggestions are quite radical but the housing market is completely out of control and needs radical reform.
“If we are to tackle poverty, equality, and give everyone a better standard of living we need to regulate the price and availability of housing land”. There’s a very simple solution: land value tax, http://www.labourland.org.