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Here’s the UK Wealth Tax to Really Worry About · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marin
• 0:19
  Speaker 1: Talks Money Market Wrap, where we talk about the biggest
• 0:21
  Speaker 1: moves in market this week and what is driving them.
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  Speaker 1: I'm Marren Sum's that web editor at Large for Bloomberg
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  Speaker 1: UK Wealth.
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  Speaker 2: And I'm joined Stepic, senior reporter for Bloomberg and author
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  Speaker 2: of the Money Distilled newsletter.
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  Speaker 1: Morning John Mordon Marin. So today I think we really
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  Speaker 1: have to talk about debt and we have to talk
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  Speaker 1: about tax I mean, this week has been I suppose
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  Speaker 1: you could say every week for quite a long time,
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  Speaker 1: it's been kind of the same, but this has been
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  Speaker 1: one of the weeks when the problems globally with public
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  Speaker 1: levels of debt has come right to the four again,
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  Speaker 1: and that has particularly been the case in the UK,
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  Speaker 1: where we've had this report out from the OBL saying
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  Speaker 1: that things are really very very very bad. So we've
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  Speaker 1: got tax burden at a seventy five year high, but
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  Speaker 1: yet our finances are described as vulnerable, daunting, growing pressures,
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  Speaker 1: unsustainable position in the long term, and the UK cannot
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  Speaker 1: afford the array of promises that it has made to
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  Speaker 1: the public. Now, you and I have talked a lot
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  Speaker 1: about this in the past, thing that one of the
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  Speaker 1: ways you grow out of debt is to default on
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  Speaker 1: your promises to the public, and that it's just one
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  Speaker 1: of many things that's going to happen. But we are
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  Speaker 1: also beginning to see the impact of all this concern
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  Speaker 1: about UK levels of unsustainable debt. We're beginning to see
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  Speaker 1: that in the debt markets themselves.
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  Speaker 2: Right, Yeah, I think so, And it is something that
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  Speaker 2: we've talked about a lot. But I mean even the
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  Speaker 2: RBR point so that the UK in terms of its
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  Speaker 2: bordering costs is higher than almost any sort of peer economy.
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  Speaker 2: I think the only ones that are there, let me
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  Speaker 2: just check this report, but I think the only ones
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  Speaker 2: that are doing. What's from that point of view is, yeah,
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  Speaker 2: government is fourth highest among advanced European economies, six highest
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  Speaker 2: among advanced economies after Japan and Greece, Italy, France and
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  Speaker 2: the US. But we also face the third highest borrowing
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  Speaker 2: cost of any advanced economy after New Zealand and Iceland.
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  Speaker 2: And you know, I mean New Zealand and Iceland aren't
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  Speaker 2: exactly major economies, no.
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  Speaker 1: So just to put it in perspective that our thirty
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  Speaker 1: year yelled is now what five point four five percent
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  Speaker 1: four something like that, and the tenure yield at four
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  Speaker 1: point four point six ish. So these are very high
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  Speaker 1: borrowing costs for the UK.
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  Speaker 2: Yeah, and the problem is that it's happening at a
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  Speaker 2: time where we also get very high debt, so we're
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  Speaker 2: paying a very high interest rate on a massive pile
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  Speaker 2: of debt. To my mind, I think, and I think
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  Speaker 2: the thing that the OBR is pointing out is that
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  Speaker 2: this is not a trajectory, isn't sustainable. And one of
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  Speaker 2: the kind of like key charts in this OBR report
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  Speaker 2: is one where the point that every single time there's
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  Speaker 2: a budget, the government promises whichever government obviously not just
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  Speaker 2: does government promises that the trajectory is going to improve,
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  Speaker 2: that we're going to cut down or the deficit, and
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  Speaker 2: the actual outturn is that it just keeps getting bigger
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  Speaker 2: and bigger.
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  Speaker 1: And we seem absolutely incapable, as discussed previously and everyone
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  Speaker 1: has seen over the last couple of weeks, incapable of
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  Speaker 1: cutting spending. We cannot do anything about our insane welfare bill.
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  Speaker 1: We cannot do even a tiny little chip around the edge.
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  Speaker 1: It just fails. The expectations of the population are I
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  Speaker 1: was constantly ratcheting up, and it doesn't seem to be
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  Speaker 1: a way out.
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  Speaker 2: I think trying to get to the heart of why
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  Speaker 2: that is is interesting. I mean, it is difficult to
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  Speaker 2: take stuff away from people, but I do think that
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  Speaker 2: there's a sense among I think almost everyone feels that
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  Speaker 2: there's someone else that is getting something they are not
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  Speaker 2: entitled to, or that there's someone else who is not
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  Speaker 2: being taxed heavily enough. And so this is one of
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  Speaker 2: the reasons why if you target anything at all, there's
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  Speaker 2: this sort of big bike lash. But they also don't
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  Speaker 2: do it very well. I mean, the winter fuel allowance
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  Speaker 2: is a very good case in point. There were many
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  Speaker 2: ways you could have done that, and they chose basically
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  Speaker 2: the worst way to do it. So there's an element
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  Speaker 2: being bad at politics involved here.
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  Speaker 1: It's true. I mean the winter fuel payment always seems
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  Speaker 1: to me that it should be part of the different
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  Speaker 1: part of the benefit system. Or if you think people
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  Speaker 1: should have extra extra pension, which is effectively what it was,
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  Speaker 1: put it on the pension. And if it's not effectively
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  Speaker 1: extra pension, what is it for in the first place.
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  Speaker 1: I mean, all this stuff, you can pick any part
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  Speaker 1: of the welfare system and talk about how ridiculous it is.
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  Speaker 1: And one of the things that you and I were
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  Speaker 1: talking about briefly the other day was the extraordinary fact
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  Speaker 1: that you can claim an awful lot of benefits in
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  Speaker 1: the UK while still living in a house that you own.
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  Speaker 1: Out right. You can live in a two million pound
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  Speaker 1: house in London and still claim Universal Benefit. For example.
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  Speaker 1: There's one of the many madnesses inside a system that
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  Speaker 1: is now so complicated and so full of entitlement that
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  Speaker 1: is practically impossible to clean up so that the genuinely
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  Speaker 1: needy other ones in receipt. Let's not go down any
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  Speaker 1: welfare rabbit holes. I could do it, but let's not.
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  Speaker 2: I think again, there is the ailment special interest groups law,
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  Speaker 2: because we've always protected viewed the hosts as some sort
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  Speaker 2: of advantage in this country, and so I think that, yeah,
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  Speaker 2: it just speaks to the way they're thing of that
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  Speaker 2: we know have so many third rails that there is
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  Speaker 2: nothing you can do.
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  Speaker 1: Yeah, and there is there is no sense from politicians
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  Speaker 1: that you can come out and say, well, actually, every
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  Speaker 1: time you try and change anything, everyone says, well, you
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  Speaker 1: don't care about the poor, or you don't care about
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  Speaker 1: the disabled, and the message needs to change too. If
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  Speaker 1: you really want to protect the poor and the disabled
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  Speaker 1: long term, then you need massive reform or in the
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  Speaker 1: end no one gets protected.
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  Speaker 2: Absolutely, And I think, but I guess this is what
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  Speaker 2: market so for, isn't it.
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  Speaker 1: This is what markets are for. Markets are giving giving
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  Speaker 1: that message very very strongly to the UK, very strongly.
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  Speaker 1: So the solution, obviously, this solution is to massively reform
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  Speaker 1: everything in sight quickly. That's not going to happen. So
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  Speaker 1: what's as you're going to happen is the tax burden
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  Speaker 1: is going to rise from its current seventy five year high.
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  Speaker 1: And the talk at the moment is around a wealth taxture.
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  Speaker 1: There'd be a wealth tax in the UK. Now, you
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  Speaker 1: and I we've talked about this so much, and the
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  Speaker 1: answer is no, of course, not everywhere there is a
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  Speaker 1: wealth tax. It failed. This will be a disaster. And
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  Speaker 1: anyone who thinks that it's fine, it's all right, it's
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  Speaker 1: only it's not me, it's the other rich people. Let
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  Speaker 1: us introduce you to fiscal drag.
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  Speaker 2: The wealth tax is one of those things like rent controls,
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  Speaker 2: where you he almost it's almost not worth engaging in
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  Speaker 2: the argument because if someone still believes it walks by now,
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  Speaker 2: then they aren't amenable to reasonable conversation. They just want
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  Speaker 2: to believe that a wealth tax will solve things. They
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  Speaker 2: just want to believe the main controls will solve things.
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  Speaker 2: So there's nothing you can see to change their mains.
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  Speaker 1: Even though you've got, you know, hundreds of years of
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  Speaker 1: history to show it isn't true. However, regardless of what
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  Speaker 1: you and I think about this, there are going to
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  Speaker 1: be more taxes on wealth. And it may be it
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  Speaker 1: may be that this is not what we might call
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  Speaker 1: an official wealth tax. But one thing that we know
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  Speaker 1: you and I is that there are ready a lot
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  Speaker 1: of wealth taxes in the UK. And the most likely
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  Speaker 1: thing we'll see from here is an increase in some
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  Speaker 1: of the wealth taxes that we already have. And I'm
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  Speaker 1: sure there are conversations going on around increasing capital gains tax.
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  Speaker 1: There'll be conversations around IHT. And I was looking at
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  Speaker 1: a note from RSN today and there are horrifying suggestions
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  Speaker 1: in here, John, one of which is that they might
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  Speaker 1: look at the resident and nil rate band for IHT,
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  Speaker 1: so that idea that you can pass on an additional
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  Speaker 1: amount of money attached to your main home. There is
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  Speaker 1: always a bit of a fiddle, a complete fiddle free
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  Speaker 1: of IHT, and that the suggestion is that that might
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  Speaker 1: be removed such that you only have your nil rate
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  Speaker 1: band of three hundred and twenty five thousand pounds per
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  Speaker 1: head to pass on as opposed to the extra what
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  Speaker 1: is it one hundred and seventy five thousands per head
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  Speaker 1: for this mythical family house, and that would that would
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  Speaker 1: bring an awful lot of new people into the IHT bracket,
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  Speaker 1: which is unpleasant. On the other really nasty possibility might
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  Speaker 1: be the removal of this idea that all your assets
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  Speaker 1: are re based for capital gains purposes on death, so
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  Speaker 1: when you die, you're a status not liable for capital's
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  Speaker 1: gains tax. It is only liable for IHT and multie.
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  Speaker 1: That creates all sorts of complicated tax planning things for
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  Speaker 1: all sorts of PEP And they don't like to sell
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  Speaker 1: and pay capital gains tax when they're old, because then
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  Speaker 1: maybe double tax effectively or five hundred times tax given
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  Speaker 1: the way that the UK system works. Removal of that
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  Speaker 1: would mean that on death you would pay both capital
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  Speaker 1: gains and then IHD. So so for example, let's say
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  Speaker 1: you inherited one hundred thousand pounds which had capital gains tax,
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  Speaker 1: so the net value had gone up. You would then
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  Speaker 1: pay your capital gains tax, and having paid that, you
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  Speaker 1: would then pay IHT on the remainder.
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  Speaker 2: I can see that happening. Then nobody bind for how
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  Speaker 2: you ses? I think, well, if they need a political
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  Speaker 2: back life, that that would be like they went a
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  Speaker 2: fuel of leans kind of like times one hundred. But
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  Speaker 2: the CGT thing, I think that would go over most
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  Speaker 2: people's heads.
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  Speaker 1: Yes, I do, well, entil they had to pay it.
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  Speaker 1: So look at it like this. Let's say, do you
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  Speaker 1: know what I mean?
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  Speaker 2: That's a long wead on the lane for pts of
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  Speaker 2: the people who may complain about it.
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  Speaker 1: But it would also mean that you know people who
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  Speaker 1: inherited relatively small amounts, or you might think of a
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  Speaker 1: smaller towns and in terms of IHT or in terms
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  Speaker 1: of inheriting housing etctera. Say you inherited something worth only
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  Speaker 1: one hundred thousand pounds, we had a capital gain of
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  Speaker 1: one hundred thousand pounds, right, yeah, and then you pay
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  Speaker 1: twenty four thousand pounds in CGT. Then you would pay
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  Speaker 1: thirty thousand, four hundred pounds in IHT on the remainder,
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  Speaker 1: So the overall tax rate on that bit of inheritance
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  Speaker 1: is fifty four percent. Yeah, I mean, and even if
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  Speaker 1: you weren't liable for IHT, maybe you thought you were
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  Speaker 1: inheriting this thing, and you know, you don't consider yourself
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  Speaker 1: to be the kind of personal liable for tax on
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  Speaker 1: an inheritance, and you would still pay your twenty four
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  Speaker 1: thousand pounds. I mean, I think would cause a bit
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  Speaker 1: of an uproar. But nonetheless, that is a wealth tax,
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  Speaker 1: a new wealth tax.
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  Speaker 2: Did they have any idea or any estimate at how
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  Speaker 2: much that would raise? Because the thing that gets me
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  Speaker 2: about all of this is that in terms of the
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  Speaker 2: gap between what we need realistically and what we get
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  Speaker 2: from all of these wealth taxes.
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  Speaker 1: Is big.
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  Speaker 2: And if you've if you've ruled out touching things like
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  Speaker 2: income tax and VAT, is very very hard to fill.
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  Speaker 1: Absolutely, this is fiddling around the edges, and it's absolutely
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  Speaker 1: fiddling around the edges. But you know it's it's performative
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  Speaker 1: wealth tax, isn't it. Yeah.
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  Speaker 2: But I mean, again that brings us back to the
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  Speaker 2: whole point about the markets, because I think one of
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  Speaker 2: the issues with the markets. That possibly is that goes
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  Speaker 2: a little bit under discust is that it's not about
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  Speaker 2: the absolute numbers. It's about the sense that you're not
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  Speaker 2: getting a grip. It's you know, you can run a
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  Speaker 2: big deficit if people think that you're actually doing something
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  Speaker 2: with it. But at the moment, and for a long
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  Speaker 2: time now, it feels as a Britain is just sort
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  Speaker 2: of spiling its spiraling around the plug hole and as
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  Speaker 2: you say, sort of targeting bits and pieces that are
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  Speaker 2: actually getting in the way and making everything harder and
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  Speaker 2: just clogging up the kind of economies. Are cities more
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  Speaker 2: than more base if they try to simplify things, And
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  Speaker 2: that looked as if we were going to get some
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  Speaker 2: sort of plan in place that would actually want to
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  Speaker 2: get the economy growing and all the rest, then I
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  Speaker 2: think that the markets would give more levy. I think.
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  Speaker 2: I mean, basically, it's a governance issue. It's not our
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  Speaker 2: financial as a financial issue. As a governance so Isshoe
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  Speaker 2: fast and.
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  Speaker 1: Foremost, although reminded John that you can't plan growth and
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  Speaker 1: you can't create growth the way and let growth happen.
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  Speaker 2: Yeah, that's the problem.
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  Speaker 1: I mean, I think you and I both know all
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  Speaker 1: our listeners. Was also know that there's this isn't impossible
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  Speaker 1: that pretty much everything, not everything, but pretty much everything
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  Speaker 1: that is wrong with the UK can be fixed with
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  Speaker 1: major policy change. And those major policy changes aren't complicated
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  Speaker 1: until you start trying to implement them in a political environment. Right,
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  Speaker 1: and the simplest way forward from here is to increase
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  Speaker 1: the rate of income tax for everybody. You know the moment,
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  Speaker 1: what is the number? Fifty fifty five percent of of
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  Speaker 1: UK households are net receivers as opposed to net contributors
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  Speaker 1: to the system. That's not sustainable. This idea that you
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  Speaker 1: constantly take more and more and more people out of
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  Speaker 1: tax by keeping this historical thing we've had of raising
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  Speaker 1: the basic allowance for income tax to try and make
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  Speaker 1: sure that people don't pay tax was possibly the wrong approach.
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  Speaker 1: In the end, everybody has to contribute if you want
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  Speaker 1: to have a state of this size and if you
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  Speaker 1: want to continue to offer all these things. If you
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  Speaker 1: don't want that, then you have to find a way
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  Speaker 1: to cut spending. It's really it's not complicated on the
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  Speaker 1: face of it. It's only complicated inside the political environment
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  Speaker 1: that we have created for ourselves. With a little political will,
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  Speaker 1: and you know, one have thought, I think you and
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  Speaker 1: I have thought that a government with a vast majority
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  Speaker 1: like this might have the ability to make the changes
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  Speaker 1: that were necessary. But clearly, clearly it does not. So
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  Speaker 1: here we go down the plug hole, John all over
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  Speaker 1: the end of Britain.
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  Speaker 2: Yeah, yeah, yeah, yeah.
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  Speaker 1: You can look forward to you can look forward to
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  Speaker 1: a sharp rise in non income tax taxes from here,
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  Speaker 1: followed by a sharp rise in the in the guilty yeldom,
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  Speaker 1: followed by things that I don't really want to think about,
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  Speaker 1: but certainly a defaulting of the state's promises to its population.
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  Speaker 1: Have you got anything cheery to add, John before I
• 14:19
  Speaker 1: sign off, because I really really appreciated if you did.
• 14:24
  Speaker 2: I don't really you know, it was some really interesting
• 14:27
  Speaker 2: I read something in Bloomberg response saying that you tell us,
• 14:29
  Speaker 2: you know the stable coin issure, You've got a stash
• 14:32
  Speaker 2: of eight billion dollars worth of gold, so maybe finding
• 14:36
  Speaker 2: a private central bank is what we all need to do.
• 14:43
  Speaker 1: That's so interesting. Even crypto moves to gold in the end.
• 14:47
  Speaker 1: When I was tweeting about the UK's levels of debt
• 14:50
  Speaker 1: this morning, pretty much everyone replied to me saying, God
• 14:53
  Speaker 1: bitcoin to which my response was no, but I have
• 14:56
  Speaker 1: got gold.
• 15:00
  Speaker 2: I'm going to steal that one.
• 15:01
  Speaker 1: You aren't you. You haven't got any crypto at least
• 15:03
  Speaker 1: I've got some. No. None. Thanks for listening to this
• 15:11
  Speaker 1: week's Marin Talks Money Debrief. If you like our show,
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  Speaker 1: Twitter at mariness w and John underscore Stepeg. This episode
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  Speaker 1: Merri Money at Bloomberg dot net