So .... 2021

[Saracen999]

One quick Brext thought. It's done, like it or not.

And yes, I'm sure "rejoin" will start in earnest, if it hasn't already. That's a given.

But it's NOT what this thread is about. So can we please, please pretty please Not get distracted into Brexit again. If you want a rejoin thread, please start it outside this one.

Right.

Thread premise.

We are, conveniently, starting a new year. We are now post-Brexit, so that isn't the all-consuming distraction it has been. We do have, for good or ill, an EU trade deal, and about 60 others.

Moreover, we have both a massive Covid crisis and, potentially at least, a solution, in the form of a growing variety of both vaccines, and treatment knowledge and options.

However .... we also still have lockdown, currently called Tier 4 (with rumours of imminent Tier 5) which, in practice, is something close to a national lockdown if not by name.

We also have a lot of businesses in deep poop, and some that are already gone. We need stimulus, but we also have a humungous debt pile accumluated, paying for the last lockdown.

Add to that, we have significant levels of economic disparity around the country, and far worse, disparity of opportunity around the country.

I think, whether we like it or not (and a lot won't) we are heading for a period (years) of significantly higher overall tax burdens and, sure, that has to include significant burdens on the better off but that, on it's own, will not be enough.

We need a program of significant investment, both to develop industries of the future, and redistibute opportunity. An independent UK has significant opportunities round the world but we have to have goods and services of a world class to offer to make the most of that.

Investment requires money to invest, and with already stellar debt levels, that implies tax rises.

We akso have growing inequality of both current and future inequality and that implies redistribution. Economically disadvantaged areas have to be funded in a way to at least try to bring up levels of opportunity. The alternative is increasing social devisiveness.

I can't see any practical alternative to an increasing overall level of tax burden. As a generalisation, the poor can't pay it 'cos they can't afford it, the rich can't pay it alone 'cos there aren't enough of them, and the large slab of relatively affluent middle classes really aren't going to like it. But I don't see an aslternative. Well, not one that isn't dystopian, anyway.

So, middle classes, hold on to your Gucci braces and buckle in. It's gonna get tough. And expensive.

On a personal note, I'm naturally inclined to smaller state, financially and fiscally small-C conservative BUT, even I don't see an alternative. One question is ... do politicians have the balls to do it?

It does also suggest that much of the traditional old left/right political divide is, well, largely irrelevant now. The bounaries have moved. Even BJ is making noises, now that the B-thingy is past, about "levelling up" and Red Wall votes merely being "on loan". That suggests a political pragmatism that tradition left/right classiifications don't apply, and that this year (and the next few years, at least) are going to have to concentrate on :-

- exploiting our 'freedom' and building world-wide trade, and

- not just reinvestment to grow wealth, but a substantial redistribution.

Discuss.

And please, no B-arguments.

[jimbouk]

Triple lock pension? How long are they going to keep buying that vote whilst wages stagnate and unemployment rises? Not a miracle cure but a start...

[Saracen999]

I think we need some pragmatism. Part of that is that some people are going to gain, and some lose out.

But ... fair enough.

One thing that needs looking at, IMHO, is non-means-related benefits. I have some relatives whose sole source of income is benefits, and they live pretty much day to day, with no safety net.

Others get some non-means-related benefits and I remember them coming back from a 3-month world cruise, at a cost of several tens of thosands of pounds (and did did this four or five times over a couple of decades, and averaged about four cruises a year) to find their non-means related benefits had gone up. And their free TV licence.

Over the years, many governments have found it politically convenient to be generous with taxpayer money, for what I can only think is political reasons, but once you give people something it is poitically hard to take it away again.

[TeePee]

There are going to have to be significant changes. People joking about how 2020 is over, and how much better 2021 will be need to adjust their thinking. Estimates of the cost of lockdowns range around GBP350Bn. That's about three times the total amount saved over five years by the Government's austerity program, between 2010 and 2015. So... Are you ready for 15 years of austerity? That's the perspective that people need to have.

And this is not just a UK problem. The US has spent Trillions, and let's not get started on how much the EU bailout would have cost us.

Then there's the Civil unrest. In 2011 the London riots were largely a product of unemployment and economic decline. The US had some huge riots in 2020, again with underlying economic causes. Cities like Seattle were booming, but has seen a massive flight of people and businesses due to riots. Long term, Seattle has a good chance of becoming the next Detroit, as the wealthy flee and tax revenue shrinks below the level required for public services. 2021 will see more riots, very likely in the same places and with the same triggers. The March trial will be one to watch, and the outcome is very likely to lead to significant unrest, probably worse than 2020. While I don't think the US or UK will collapse, or the US end up in another Civil War, it's very likely that some countries around the world will. Hundreds of millions of people have been forced in to poverty. Longer term, this has led to a massive shift of power toward China, and the 20+ year outlook for that is terrifying.

Where do we go from here? How do we fix it? The Great Depression, which is the last time we were nearly this bad, was only fixed by the Second World War, but the real legacy is the welfare state of the late 1940s. 'Levelling Up' sounds like a great idea. Massive investment in public works to get people employed and the economy moving. But that's just more money and the terrifying idea of trying to spend our way out of debt. The next five years are going to be far too interesting.

[chj]

Traditional brick and mortar retail has been one of the worst hit sectors and had to lay off a large number of employees. One issue is people who've solely worked retail are now without a job and not the skills for other careers so perhaps some funding to help retrain these people would be of benefit.

A proportionate increase in tax like you say will be needed. I'm not sure what other measures to redistribute wealth could be used but having left the EU I guess the UK wants to remain attractive to businesses and prevent scaring them away with too heavy a hand on business fees etc.

Also it's not just the mountain of debt, it's how disproportionately much we've spent compared to other countries which have handled the pandemic better which puts us at a disadvantage.

[Saracen999]

....

Where do we go from here? How do we fix it? The Great Depression, which is the last time we were nearly this bad, was only fixed by the Second World War, but the real legacy is the welfare state of the late 1940s. 'Levelling Up' sounds like a great idea. Massive investment in public works to get people employed and the economy moving. But that's just more money and the terrifying idea of trying to spend our way out of debt. The next five years are going to be far too interesting.

With an economics background, I regard "spending" and "investment" as rather different creatures .... though politicians generally like to call all spending "investment", for reasons of political posturing.

We could, at least in part, invest our way out of this, but politicians may equally likely (or more likely) end up spending our way deeper into the sewer.

And getting out of this is no quick job. 10 or 20 years? Doubt it. 50 maybe.

[kalniel]

I think the govt hope is that de-regulation etc. will eventually pay off and that the rest of the world starts investing more in the UK. It's very risky though and I suspect we'll come to regret giving up things like welfare standards and maintaining skills in the UK population in return for a quick economic boost.

My preferred way out of this is to think long term and invest in nurturing/growing UK skills - which means making sure we do take part in Erasmus and other collaborations so that eventually we can generate economically viable green technology for eg. Reform working practises, teach good management. Increase productivity by making sure that people are no longer working all hours just because it looks good on a time sheet - move to 4 day weeks, make sure that all workforces are inclusive so that all talent can be used to it's potential. Fix childcare. Fix house availability.

[Phage]

The problem is that the tax base itself needs revising. Big companies play 3-card monty to tax havens, and the middle classes are rapidly shrinking. Plus of course the revenue from petrol and tobacco are dropping. De-carbonisation and and globalisation require a bottom up re-think of how Governments raise money.

https://www.itpf.org/index

[Saracen999]

The problem is that the tax base itself needs revising. Big companies play 3-card monty to tax havens, and the middle classes are rapidly shrinking. ..

Agreed that it's needed. A large part of the problem there is that that game of Monty relies on a shedload, a web even, of international double-taxation treaties that aren't easy to change unilaterally. It's also got a large element of zero-sum game in it, meaning that if we increase our tax take, some other country's probably goes down, or at least, their industries or companies become less profitable. And that other country is often the US which for us, is kinda like a 98lb weakling challenging a peeved black bear to hand-to-hand combat.

[Spud1]

A few friends and I have had a similar discussion, and we can't figure out any practical way through this.

We *need* a proper lockdown to deal with Covid - we needed one 9 months ago, but the constant approach of soft lockdowns has crippled much of the economy. Problem is, we're not likely to get one (Tier 4 and rumored 5 are still not strict enough!) and even if we did, its far too late. If you look at the mess globally it just shows how damaging the isolationist approach (of most countries in the world, including individual ones in the EU) has been - if countries decided to work together and take at least a semi consistent approach to lockdowns etc, the world would be in a much better place. Therefore expect more soft lockdowns as the vaccine rolls out.

So we need to raise money to pay for this, probably though tax, and most of that money is with the middle classes or the 1% rich, who don't want to give it up. I count myself there - the government can do one if they want to take even more of my hard earned cash - I will simply move out of the country if that's what it comes to. I would potentially have been OK with a tax increase if I had any faith in those in power - but I cannot put any faith in our current government given their handling of the pandemic and well, the whole B situation - I don't trust they would use the extra funds raised by taxes to do any good at all.

So what else can they do? Cut public services? Yes there is still fat to trim here, but doing so will immediately annoy one sector of the population. There is no magic bullet here or service you can cut that doesn't harm some significant % of the country.

Tax companies more? I refer you to the above - will not go down well, and ultimately it's those at the lower end of the income spectrum to often get hit the hardest as this usually leads to higher prices and tighter squeezes on wages at the bottom.
Cut down on tax loopholes & incentive schemes - well they have been doing this for a while now annoyingly, and the impact is that you invest your money in a different way through a different country. At a time when we need to attract as much outside investment as we can, this does not seem sensible.

There are many more that we went round but there isn't a "neat" solution.

Best we came up with was to

Tax Crypto currency gains properly
legalise & tax cannabis (maybe other drugs also)
implement road pricing now rather than in 2030 (whatever they call the replacement for road tax that we'll need when ICE cars are banned)
Increase tax on share stamp duty (plus close the loopholes here)
Introduce a capped charge (NOT a tax) for NHS use for those paying 45% tax. Possible a tiered scheme for those on 40%. Flat rates & treatment levels, similar to what is applied for dental treatment.

Even all of that isn't enough - if you apply fag packet maths from other countries that have put in similar schemes, you could have 4-5bn there...still not even close to what's really needed. That last one would be really unpopular for idealist reasons (and provides the most tax revenue), but it's quite honestly short sighted to think that way. Back when we had a specific tax that paid for the NHS, that sort of view is justified - but "national insurance" has not directly funded the NHS & welfare state for years now; we need a bit of realism here when it comes to paying for healthcare.

I would not want to be in government at the moment!

[Kumagoro]

Fines should take into consideration wealth.

Paying a fine of £100 when living pay cheque to pay cheque is devastating in compassion to a millionaire.

[cheesemp]

Oh my thanks for the cheery start to 2021. I guess I hadn't really consider tax would need to rise. The last 6 months have been the first in 7 years (kids) we haven't been spending what we earn. I've actually paid down debt and created an emergencies fund. (Its amazing how much you can save not driving plus being entitled to free childcare for the youngest). I'm therefore very nervous about tax rises that wipe out my first gains in so long. I keep thinking ultimately the answer may end up being inflation ultimately writing off a lot a debt - I know it'll cause other problems but I don't see how else we can clear this public debt? I certainly don't trust this shower of a government with my tax money.

[Phage]

... on a shedload, a web even, of international double-taxation treaties that aren't easy to change unilaterally. .

The link I provided is an international org looking at that exact issue. Not unilateral but as a bloc

[badass]

Here's the thing when it comes to the "who pays for it" discussion. By "it" I mean the increased government debt as a result of this. Some of it will need to come from taxes probably. However a large part of the rest can be paid by no one. Let's take QE as an example. The BofE were directly buying government debt last year as it was necessary. Now, hold that thought for a second.

Why do taxes need to exist at all?
1. To reduce the supply of money, keeping inflation under control.
2. To discourage undesirable behaviour (subsidies being the reverse)
3. To redistribute resources (e.g. take more money from the rich to spend on the poor)

Notice there is no "pay for government spending" there?

As a massive oversimplification, inflation is about supply and demand. If there is too much money chasing too few resources, the value of money goes down - i.e. things cost more. If there isn't enough money floating around for abundant resources, the value of money goes up - i.e. you pay less of it for the same items in the future.

The government has a degree of control of inflation through fiscal policy - how much money they spend and how they spend it. The BofE has a degree of control over inflation through monetary policy - interest rates and things like QE (or even the sometimes discussed "helicopter money" option)

Theoretically, the government spending could be completely financed by the BofE however that would cause hyperinflation. Zimbabwe tried it. It didn't go well for them. Not only would the huge amounts of money sloshing around the economy cause problems with inflation, also any kind of investment in the country would require stupidly high, impossible returns for anyone to consider it.

What is important is that there is no requirement for the government to pay back the money it owes the BofE at all. Apart from politics and investor sentiment.

If the BofE cancelled all government debt as a one off, there would no doubt be short term inflation simply due to the currency dropping in value. That would help export competitivity of course.
The problem is it is politically very difficult. The BofE must be politically neutral.

Interestingly, for certain types of government debt that the BofE holds, they pay the government bask the interest they charge! https://www.bbc.co.uk/news/business-20268679

I suppose, based on that the debt effectively doesn't exist already...........

[TeePee]

So the Budget is in. Tax increases, with a hope to raise an additional 8,000,000,000 GBP a year.

Nice idea. Also, the Government has spent 403,000,000,000 GBP on the direct costs of the Lockdowns. Should have that paid off in 50 years then.

350,000,000 a week for the NHS? Not for another 22 years.

There's also the missing 280,000,000,000 GBP from last years GDP. Your total bill is about 25,000 GBP per household. Grab your checkbook.