Why working is a mug's game

Cliff D'Arcy
by Lovemoney Staff Cliff D'Arcy on 01 September 2011  |  Comments 36 comments

Our tax system strongly favours rich savers and investors over workers, but you can defeat it!

Why working is a mug's game

In 2009, one of my young nieces got something of a financial shock.

In her late teens, she started a paid job for the first time, working a few hours a week in her local Next store. Her jolt came at the month-end, when her first payslip arrived, as a fifth (20%) of her wage had been taken by the taxman.

Taxing stuff

Hence, my niece called her dear, old Uncle Cliff for advice. I explained that, as this is her first job, she needed to complete a P46 form and return it to Next. Her employer would then send this to HM Revenue & Customs (HMRC) to correct her tax code.

Eventually, my niece's tax code was corrected from 'BR' (which deducts basic-rate tax at 20% of all her earnings) to 647L, the tax code for the basic personal allowance of £6,475 in 2009/10. This prevented income tax being deducted from future earnings (because they were too low), plus her overpaid tax was refunded. All's well that ends well.

Taxes on income

In the UK, our taxes on income are rather higher than those levied in most developed countries. Indeed, at 52% of earnings (see below), tax deductions for high earners are up there with Sweden (which has a top tax whack nearing 57%) and Denmark (over 55%).

In my view, earned income is taxed much too heavily, while unearned income (earnings from sources other than work) and capital gains are taxed far too lightly.

To show you what I mean, let's start with a breakdown of income tax and National Insurance contributions (an income tax in all but name) for the 2011/12 tax year:

Income tax allowances and rates

Basic personal allowance

£7,475

Basic-rate tax on first £35,000 of earnings

20%

Higher-rate tax on next £115,000 of earnings

40%

Additional-rate tax rate on earnings above £150,000

50%

Our tax system is fiendishly complicated, so this is not a definitive list of tax rates and allowances. Even so, it covers most UK residents.

Things get complicated for higher earners, as their personal allowance is withdrawn at a rate of £1 for every £2 of earnings above £100,000. In other words, those earning above £114,950 get no personal allowance whatsoever.

Also, the higher tax allowances for 65-to-74 year olds (£9,940) and the over-75s (£10,090) are withdrawn by £1 for every £2 of income above £24,000 a year.

National Insurance rates

As well as income tax, almost all earned income attracts National Insurance contributions (NICs).

You pay NICs if you're employed or self-employed and aged between 16 and normal retirement age. Currently, this is 65 for men born before 6 April 1959 and 60 for women born before 6 April 1950, but this is rising.

Again, like income tax, the NIC system is hideously complicated, but here are the basic NIC rates for weekly earnings in 2011/12:

  • Employed workers pay 12% Class 1 NICs on their weekly earnings between £139 and £817. Earnings above £817 a week attract NICs at 2%.
  • Self-employed workers pay £2.50 a week in Class 2 NICs, but only if their yearly profits exceed £5,315. Also, they pay Class 4 NICs at 9% of taxable profits between £7,225 and £42,475 a year and at 2% of profits above this range.

Tax takes a third of most adults' earnings

As I said, the UK's tax system is incredibly complex, so calculating exactly how much tax an individual will pay is no easy task.

However, only one in 10 workers earns more than the threshold for higher-rate (40%) tax, which is £42,475 a year. Hence, most of the UK's 25 million employees lose 32% of their before-tax income to HMRC, made up of 20% basic-rate tax and 12% Class 1 NICs.

Similarly, the majority of the UK's four million self-employed workers pay income tax at 20%, plus £130 a year and 9% of their profits in NICs, which is a combined tax rate of around 30%.

In other words, the government takes roughly a third of most adults' earnings in tax.

Unearned income is taxed less

In contrast, the taxes on unearned income are much simpler.

Of course, unearned income is still taxed, but only at the usual rates of income tax that apply to earnings. However, with no NICs to pay on unearned income, it enjoys a big tax advantage over earnings.

Also, there is a special 'starting rate' of tax for people with savings but low incomes. This is charged at 10% on savings income of up to £2,560, but only for those with non-savings income below this limit, plus their personal allowance.

In effect, income from savings interest, share dividends (the cash paid to shareholders, often twice or four times a year), pension income, property rentals and so on is far more valuable than earned income. Also, as this income tends to flow regardless of whether you're working, it's doubly welcome.

In addition, the taxes on share dividends are lighter. Basic-rate taxpayers pay no extra tax on company dividends, making them a valuable source of earnings for small-business owners.

Above the £42,475 threshold, dividends attract an additional tax of 22.5% of the gross (before-tax) dividend. For those lucky few earning above £150,000 a year, dividends attract an additional tax of 32.5% of the gross dividend.

Capital gains are taxed lightly

Another bonus for well-off Brits is that Capital Gains Tax (CGT) is charged at a lower rate than income tax. You make capital gains from selling shares, property (but not your main home), bonds and other assets at prices higher than their buying costs.

Above a generous CGT nil-rate allowance of £10,600 in 2011/12, the standard rate of CGT of 18% applies on gains which, added to your income, keep it below the higher-rate tax threshold. For those earning above £42,475 a year, CGT is a modest 28%.

Time for a flat tax?

In short, it's quite clear that unearned income and capital gains offer significant tax advantages over earnings. As a result, you could argue that working is a mug's game!

Why tax the working population so much? After all, of the UK's adult population of 48 million people, 29.3 million work. Thus, with over three-fifths (61%) of adults in work, why tax work so much higher than unearned income and gains, which involve much less personal effort?

The simple answer is that, thanks to ceaseless lobbying and self-interest, our tax rates have been created to favour better-off Brits (including MPs and top civil servants), business owners and, in particular, the very rich.

To simplify the tax system and make it fairer to all, reformers urge the UK to adopt a flat tax. With such a system, all income and gains below a generous threshold would attract no tax, with a flat rate applying above this limit.

For example, a tax-free threshold of £12,000 would give every adult a tax-free income of up to £1,000 a month. All income and gains above this level could be taxed at, say, 35%, which would benefit the vast majority, including those on lower and middle incomes. However, tax-dodging tycoons fear a flat tax, as they would have to contribute lots more to the UK's coffers.

How to become a (legal) tax dodger

If you're fed up with ever-rising taxes, there are countless ways you can hit back. To get you started, here are Ten legal ways to dodge tax.

In my view, the two simplest ways to dodge tax are: first, get an ISA to protect future savings interest, share dividends and capital gains from tax. Second, pay more into a pension, which bags you tax relief at your highest rate. As well as lowering your tax bill, these pension contributions will boost your pot to live on after work.

Lastly, I'll leave you with a quote from Albert Einstein:

"Preparing my Tax Return is too difficult for a mathematician. It takes a philosopher."

More: Save and/or invest inside an ISA | The 20 best savings accounts | Five reasons not to buy a pension

Enjoyed this? Show it some love

Twitter
General

Comments (36)

  • This_is_me
    Love rating 21
    This_is_me said

    Just because you have not saved much doesn't mean that you should take away the income that I get from savings that I made from INCOME ALREADY TAXED and that provides for my family now that I have retired. Maybe you think that pensioners should just exist on benefits.

    Report on 01 September 2011  |  Love thisLove  4 loves
  • thefiddler
    Love rating 2
    thefiddler said

    Given that you are mainly comparing the relatively low paid with the super-rich, your arguments have some validity. But what about the squeezed middle? We use our own brains to select (AND carry all the risk on) small investments from INCOME THAT HAS ALREADY BEEN TAXED, in order to provide for ourselves and our families in old age (because the state that takes our taxes can't/won't). We are certainly not what I would call rich (comparisons with the populations of less wealthy/fortunate nations excepted). How on earth is it fair that any profit we make on those investments should be taxed as well? And don't even get me started on inheritance tax.....

    Report on 01 September 2011  |  Love thisLove  2 loves
  • grelly
    Love rating 27
    grelly said

    "In my view, earned income is taxed much too heavily, while unearned income (earnings from sources other than work) and capital gains are taxed far too lightly"

    We need a better definition of "unearned income". Most of my investments have struggled to match inflation in the last ten years and yet get taxed as though they are unearned income, rather than a depreciating asset.

    Only the portion that exceeds inflation should be taxed at all.

    Report on 01 September 2011  |  Love thisLove  3 loves
  • Bobski
    Love rating 20
    Bobski said

    When the state pension was started people (Well most i guess) thought it a good thing.....You pay into a pot retire................and then after a couple of years die! ......... I am thinking the Gov made a bit out of this.

    Then People started to live longer.....BUGGER!

    I somtimes wonder if paying into a pension is all its cracked up to be. As long as you live a number of years after you retire (Or guarantee it for a set time) your ok. But what about the people who dont. What happens to the money you had been pumping into the system for all those years?

    Sorry....Just my rambling

    Report on 01 September 2011  |  Love thisLove  0 loves
  • naterbox
    Love rating 13
    naterbox said

    Surely most people's 'unearned income' comes from shares, property etc which have been bought with 'earned income'. Tax has already been paid on that money, and now we're being taxed again. Are you suggesting we keep our savings under the mattress?

    Don't get me wrong, I don't object to paying tax, as it helps pay for everything we take for granted, like hospitals, the police and public transport.

    I feel that people who evade paying tax, or who are too lazy to work, (I don't mean those who are unable to find a job,) should be barred from using the services our taxes pay for. EVERYONE should contribute if they wish to reap the benefits. It's like having a bank account where if you don't pay in, you can't withdraw.

    Report on 01 September 2011  |  Love thisLove  2 loves
  • mtjearly
    Love rating 20
    mtjearly said

    I always think that means-tested flat rate tax would be much fairer - applied to both individuals and companies. It would also mean that you could scrap some of the ridiculous benefits which are handed back. It makes no sense whatsoever to pay HMRC to take taxes in, and then give some of it back again.

    I accept that this is unrealistic though as big business would desert us in droves if there weren't loopholes to exploit to reduce their tax burden.

    Report on 01 September 2011  |  Love thisLove  0 loves
  • Mike10613
    Love rating 626
    Mike10613 said

    This is why Warren Buffett said the super rich should pay their fair share. He pays just 17% while the others in his office pay more than double that. In the US they have payroll tax rather than National Insurance. NIC's together with income tax and the myriad of indirect taxes like VAT hit the low paid unfairly. NIC's are a tax, even the bloody TV licence is a tax.

    Did you notice the BBC put something good on last week?

    Anyway, I love work; I could watch it all day...

    Report on 01 September 2011  |  Love thisLove  0 loves
  • Spikus
    Love rating 25
    Spikus said

    Being taxed on already taxed income is normal. They call it VAT which you currently pay at 20% for much of what you buy. But you buy stuff with income that has already been taxed. This is just one example.

    Flat rate tax is a great idea but it will never be implemented in the UK.

    A better idea would be to tax all earned income by companies from UK people and companies. Then Google et al couldn't get away with paying a tiny portion of income earned from us and not pay tax on it by basing the company in Ireland. If companies like this paid what is fair out of what they earn from us then our national debt would be substantially lower.

    Tax is massively overly complicated. What we need is politicians with the guts to sort it and sod special interests.

    Report on 01 September 2011  |  Love thisLove  0 loves
  • damicol
    Love rating 16
    damicol said

    I rarely if ever hear of the simplest way yet to avoid tax.

    I havent paid income tax since the late 70's. realising that it is entirely avoidable..

    It certainly does not mean that I dont work or that I do not have money to spend.

    I work for no pay. No pay, no tax. No N.I. In fact I have no involvement with the tax system in any way and I doubt after all these years that the IR even knows I exist.

    But every year I take out an unsecured loan from a finance company based in HK, and I repay the loan over 5 years at a rate equal to bank base rate. The loan is guaranteed effectively by a third party and this year I took out a loan of just over $HK 20 million.

    Sufficient to repay all prior loans and interest and sufficint to keep me in the lifestyle I am accustomed.

    It isnt the easiest structure to set up but it certainly is not that difficult, and of course, all cash recieved by way of personal loans taken out is non declarable. Non taxable, and certainly is no business of the IR the circumstances of my personal loan applications.

    And it is certainly outside their jurisdiction regarding the source of the loans from the HK based finance company.

    All the loans are on standard loan agreements and every loan agreement is separate but in fact form part of a separate agreement that was made many many years ago that has no loan attached but effectively guarantees the loan applications will be completed.

    How the exact mechanism for that is done is between the finance company and another offshore company that I provide free services to, save for certain expenses.

    Anyone who willingly works labouring for half the year to see every penny you earn for that go directly to a government that hands the fruits of your labour to almost anyone without any acountability such as pakistan to buy its nuclear subs, the EU or even to that sudanese immigrant with a dozen kids who is living in a 2,000 pound a week mansion.is insane when they earn far less than those on the recieving end who do absolutely nothing for the largesse spread by those who take your earnings. Corrupt politicians and african dictators all have a hand in stealing yoiur labour to enrich themselves.

    Well there is one who who is not the least bit interested in working to fund their lavish lifestyles and I simply refuse to it

    Do not believe any rubbish about pensions, They are all scams designed with one thing in mind, and that is to seperate you from control of your own money. and put that control in the hands of other people who can do almost what they like with it.

    Cash is king and cash kept overseas is even better, taking advantage of currency rates, but even that I do in a way that I recieve no income from gains or interest and threfore have no additional investment income to declare.

    It goes elsewhere and if I need cash I simply up the size of my persoanal loans.

    If you are self employed or running your own business I can absolutely tell you that you will never get this information from your tax advisor or accountant as they cant earn a commission.

    But I was in Corporate Finance for over 20 years and I know how it works wthout the leaches or other peo[ple telling me it cant work.

    I know for a facft it can be done and It has worked perfecly well for close on 34 years now for me.

    Report on 01 September 2011  |  Love thisLove  3 loves
  • develyn
    Love rating 7
    develyn said

    Dear Damicol,

    But there is always the currency risk. A colleague had a mortgage in Dutch Guilders (this was some years ago). He as doing fine until we devalued. Then he was sick as a parrot. Instantly he was having to pay a lot more.

    Report on 01 September 2011  |  Love thisLove  0 loves
  • psheehanuk
    Love rating 0
    psheehanuk said

    Damicol...what sort of work do you do? Surely it depends on the sector you are in?

    Report on 01 September 2011  |  Love thisLove  0 loves
  • amwell44
    Love rating 77
    amwell44 said

    No such thing as "unearned income" in my view and therefore no reason why the tax rate should be any higher than it already is. The real scandal in this country is that the higher rate tax threshhold is far too low and 40% is much too high a tax rate for people on modest incomes, from wherever the income is derived.

    If you are a self-assessment taxpayer, you will soon see the difference between PAYE, which you hardly notice, because you never receive the money deducted from your salary and self assessment, where you receive a tax bill from HMRC, and/or you have to estimate what you will owe them and pay part on account. At 40% it is likely to be a big lump sum, probably the biggest bill you have to pay and if you ever get even one year behind, HMRC will pile on the penalties and interest (plus harrassment) and before you know it you will owe more than the amount of the annual taxed income you are receiving.

    A fair system? Not likely.

    I also haven't mentioned Inheritance Tax yet, but I shall, because it is iniquitous, if you have never experienced it; not just the 40% rate on assets derived from TAXED income, or inherited from a TAXED estate, but the fact you must pay tax in cash on non-cash assets, such as the family home, or other property, within a tight timescale, or you will have to add penalties and/ or interest - at much higher rates than bank rate. If you are forced to sell property to raise tax money, then you bear all the expenses of sale, which are non-deductible from the probate valuation. The taxman's take on an estate left to two or more beneficiaries will easily exceed their individual shares - outrageous!

    I look forward to the Conservatives fulfilling their promise to abolish IHT for all estates below £1 Million, as soon as economic conditions allow.

    Report on 01 September 2011  |  Love thisLove  1 love
  • kstein
    Love rating 5
    kstein said

    "All income and gains above this level could be taxed at, say, 35%, which would benefit the vast majority, including those on lower and middle incomes"

    How do you calculate that exactly? By my calculations even for a poor £4500 tax free up to £12000 tax free, a flat rate of 35% would leave people up to the 40% threshold worse off! I dont see your reasoning here.

    Report on 01 September 2011  |  Love thisLove  0 loves
  • ronat42
    Love rating 71
    ronat42 said

    Damicol, for all of your crowing about how clever you are you forget on thing. A fair proportion of the other 50 million of us are having to pay extra tax to cover your evasion and you deserve no more than to be classified as being in the same group as the bankers and other legal criminals. It may be some sort of mitigation to think that you pay taxes via purchases and services but I imagine that much of your spending goes abroad. Perhaps you would be happier living abroad as you show little commitment for this country.

    Report on 02 September 2011  |  Love thisLove  2 loves
  • oldhenry
    Love rating 343
    oldhenry said

    Do not forget the Death Tax at 40% which comes in to have a final bite of your assets that you have scrimped for all your life.

    Of course the 'rich' can avoid these by setting up trusts to ensure wealth is carried down generations. But you have to plan well ahead. No wonder so many who become rich scarper off to become tax exiles. Tax is robbery - there is no other way to look at it. You buy services that you require but have no choice in paying tax to agovernment that then decides how it will spend your money.

    Report on 04 September 2011  |  Love thisLove  0 loves
  • ronat42
    Love rating 71
    ronat42 said

    Oldhenry, How do you choose to pay for the police services, judicial system, armed forces, central government etc. on the sort of basis you suggest. Let's keep this rational please.

    I agree that there is a lot wrong with the tax system but the difficulties arise from lots of people who think that they are a special case and others who do everything possible to avoid paying their share. On top of all of these we have the idle layabouts and other scroungers. Do not forget what the world would be like without the services mentioned above. Why is it wrong that those who benefit most from living in a safe society should pay the most in taxes. If we all contributed to the values that define our society instead of taking more than our fair share the taxes that you complain about could be reduced considerably.

    Report on 04 September 2011  |  Love thisLove  0 loves
  • edwardmk2879
    Love rating 65
    edwardmk2879 said

    Some good comments on this thread, but financial problems start with politics. The problem is that politicians want power. To get power they need to be elected. To get elected they need a majority. Many of the voters expect something for nothing, so the candidates make promises with money they don't have. That needs to stop.

    Here is my election manifesto. Eliminate the government whip, and insist all MP's are allowed to vote according to their own constituency requirements and their own conscience like Switzerland. This would greatly dilute the influence of the Prime Minister and Cabinet on new legislation and incidentally make it more difficult to go to war. ( It would also greatly reduce the amount of new unecessary legislation being passed.)

    Next let's have a strategic plan to move towards sound monetary policy. Plan to bring back the gold standard by 2020 and make it very hard for the government to create new money. Creating new money defrauds everyone, especially those on low and fixed incomes. Certain priviledged Banks like money printing, as they take massive commissions off the newly created money. To see Gordon Brown crowing about how he had raised the minimum wage by 20p/hr when his rampant borrowing policies were setting the stage for the current high inflation in the UK is galling.

    The government does waste vast sums, and then expects everyone to bail them out by higher taxation. There are no consequences of any import to members of a government that overspends other than de-selection. They just leave office, and everyone else picks up the pieces. MP's should be made accountable for overspending like directors of a private company. Why should the electorate have to pay higher taxes because ministers overspend? Government overspending and lack of long term strategy is the greatest damaging force to the economy and the working man. The solution to their fiscal ineptitude should not be more taxes on the working man. I'd index link the personal allowance, and use the same index to peg MP's pay.

    Then let's have honesty in statistics. Try telling motorists that inflation is only 3%. Per month possibly! When government doesn't like the figures, they change the way they calculate them. I'd ban "off the books" accounting completely. Enron directors went to jail for that, so why not Gordon Brown?

    Finally, Banking reform is urgently needed. I'd ban interest rate hikes on existing contracts. I'd also ban mortgages for less than the full term of the mortgage..

    That's a start. Much more could be done if we had ethical and caring representatives in the house.

    Report on 04 September 2011  |  Love thisLove  3 loves
  • Blewyn
    Love rating 4
    Blewyn said

    A few posters on this thread seem to be confused between wealth tax and income tax. Although the term "income tax" is used in the UK strictly for tax on salary or earnings, the tax levied on profit / dividend / interest is also a tax only on that income. Just because you once paid income tax on a sum of money you earned, doesn't mean that all future income generated by that money (or more accurately, by others using your money) or asset you might have purchased with it should be tax-free. Why should it ?

    The Lib Dems are pushing for a proper wealth tax BTW.....

    Many posters are against the high level of IHT. So am I. ALL inheritance should be completely confiscated. Let's level the playing field.....

    Report on 05 September 2011  |  Love thisLove  0 loves
  • edwardmk2879
    Love rating 65
    edwardmk2879 said

    Blewyn,

    I don't think you've thought through the consequences of your proposal to confiscate ALL inheritance. Bit extreme don't you think? Do you intend that no-one could use their mainly limited inheritances to help anyone of their choice with a few thousand towards the myriad of good private causes that operate more efficiently without government interference? Your 'solution' of levelling the playing field is the worst form of socialism born of envy and like many socialists I suspect you confuse equality of opportunity with equality of outcome. Your suggestion would create further disincentives for many people to work. It would cause many talented people to leave the UK. It would de-stabilise society and destroy the charitable works of many kind independently wealthy people. Inheritance tax was first introduced to break up the massive monopoly estates of the landed gentry, many of whom ( but not all ) were a curse on their communities. Inflation, caused by banking and Government policy, has over the last 100 years caused very modest estates to be caught in the same net. Inheritance tax should be index -linked at a figure we could all argue over, but the confiscatiion of 100% of everyones hard won already taxed lifetime earnings would simply further encourage the rapacious appetite of the inept government apparatus. Most industrious people would find 100% confiscation of their assets a very unfair proposal. What does your own analysis suggest would be the net benefits to the inhabitants of these islands?

    Report on 05 September 2011  |  Love thisLove  3 loves
  • Blewyn
    Love rating 4
    Blewyn said

    Edwardmk2879,

    I confess, I didn't think through every last little detail of my proposal to level the playing field (such as the problem of how to address foreign investment - should we allow investors from countries allowing inheritance ?) but I stand by the rather obvious truth of the right and proper meritocratic justice inherent in the idea. If that makes sense.

    If it's the 'politics of envy' to resent those who swallow up a disproportionate amount of the fruits of our collective labours because they received wealth from others with no effort required on their own part, then there's nothing wrong with that. As any economist knows, wealth not only benefits the owner, it harms everyone else. It's an obvious moral truth that the greater part of the fruits of any labour should go to those who labour, and while capital is necessary to catalyse the labour into innovative action, it's hard to justify inheritance as part of the grease in the wheels. Give an inheritance to one guy, you take away from another, simple as that.

    I agree there might be some severe problems if disinheritance was applied to the UK alone. People would naturally seek to move out (not necessarily a bad thing) in order to find another country where they could use their capital to ensure their children are given an unfair advantage in life.

    Who said it should be given to the government ? I say let all estates be split equally among all the citizens of the country. So every month everyone gets a small cheque. Handy :-)

    A level playing field for all, and an incentive for people to spend their money while alive rather than building massive tranches of capital that push assets out of the reach of everyone else. Those who are financially successful would have more incentive to carry out charitable works (you can't take it with you). It would lead to a far more effective allocation of talent and ability in the labour force (everyone in the same place on the starting grid, no free passes for toffs etc), leading to more effective management and leadership across all sectors of government and industry....I could go on but I actually work for my money and duty calls.....

    Report on 05 September 2011  |  Love thisLove  0 loves
  • TBoneBod
    Love rating 12
    TBoneBod said

    Stamp Duty:

    Up to £125,000 Zero

    Over £125,000 to £250,000 1%

    Over £250,000 to £500,000 3%

    Over £500,000 to £1 million 4%

    Over £1 million 5%

    Why is this tax not implemented in the same manner as income tax? How annoyed would a company director be when his/her salary hits £150,000 and they're taxed at 50% of ALL their earnings? It's crazy! This is why there are few houses being sold just over the thresholds. It should be incremental, as with income tax. Of course, I'd like it to be wholly non-existent. But that's not going to happen, is it..?

    Report on 05 September 2011  |  Love thisLove  1 love
  • edwardmk2879
    Love rating 65
    edwardmk2879 said

    HI Blewyn,

    I think we both agree that the current system is unfair and needs to be radically altered, but I don't think that asset confiscation at death is fair to families that have worked hard and paid taxes for all of their lives. However, I do certainly agree that toffs should not get a free pass, and massive inheritances should not be allowed to produce rich brats to behave badly. Confiscating every families wealth at the death of the wealth owner and distributing it to every citizen of the country is surely an extreme form of communism rather than a meritocratic event? I did think about it, and although superficially attractive, it is really just another form of redistribution of wealth under the general heading of increased taxation. If every citizen of the country was of equal merit, it would be fair, but they are not, and so it isn't.

    I'd increase the death duty threshold to £1m, and have a sliding scale above that. Then index link it to some fair and scientific calculation for the rate of inflation.

    I disagree that giving an inheritance to one guy is stealing from anyone. If the person gifting the wealth earned it fairly, they should be entitled to give it according to where they see merit. That kind of gifting may grease the wheels in beneficial way none of us can truly measure without a controlled trial or a pilot study.

    As for economists, they are very conflicted creatures, and not to be relied upon at all. As a group, they pretty well all disagree with each other. Are you Austrian school, Keynsian, etc, etc.

    I truly don't understand how wealth benefitting the owner is a bad thing. They took the risk. Many attempt being owners and go bankrupt trying. No-one would bother with the stress of starting up a company and running it if they got paid the same as their workers, and any worker is free to start up their own business. Some start-up owners get paid less than their staff for years before success occurs if it ever does. Also, in most company structures, most of the wealth generated by the company does go to the workers. The best way to ensure workers get paid more is for government to tax them less on their wages. Most British companies are in serious trouble, with wages being their largest overhead, and uncompetitve with the Far East

    As to assets being priced out of reach, that is inflation, again caused by governments and Bankers printing money and depreciating the currency.. Confiscating wealth from the genuine ethical producers and giving it to everyone is what goverments already do too well and too often.

    Report on 06 September 2011  |  Love thisLove  1 love
  • nickpike
    Love rating 309
    nickpike said

    But how else are we to pay for the benefit scroungers and immigrants?

    ISA's are no good for the serious saver. Pensions are a gamble.

    Now, gold over 40 years is a better bet.

    Report on 06 September 2011  |  Love thisLove  0 loves
  • Blewyn
    Love rating 4
    Blewyn said

    Hey Edwardmk2879,

    Families don't work and pay tax - individuals do. Just because your father has worked all his life and paid his taxes doesn't entitle you to some free money (his estate), giving you an unfair advantage over Johnny from next door, whose father didn't save as much. You should both be rewarded according to what you yourselves achieve, not what your parents (or benefactors) did.

    It's not communism to confiscate estates - quite the opposite, it's a rigid implementation of capitalist competition, ensuring equality of opportunity, and helping channel the best talent into the appropriate positions in the workforce by removing inherited privilege. Everyone starts at the same place on the starting grid. That's perfectly meritocratic.

    Giving wealth to someone is taking wealth from someone else. This is a basic, 1st day of class rule in economics about which there is no disagreement among the various schools of economic thought or ideology. Short-term resource availability is fixed compared to money supply, so if you divert a sum of wealth to one person his spending power increases. He can now afford goods that were previously out of his reach. Consequently (the good supply being fixed in the short term) someone else, who was previously able to purchase those goods now cannot, because the price has gone up (more demand and same supply=price increase).

    Wealth benefitting the owner is not necessarily a bad thing....it all depends on how that wealth was earned (whether it was earned at all) and its effect on everyone else. Someone who has been a surgeon for 20 years having a pot of cash with which to cruise the world is great, and good on them. Someone who has a fortune that was amassed by his great-grandfather and lives of the interest without lifting a finger.....is a different matter. Such a person contributes nothing yet consumes more than an equal share of the fruits of our collective labours. Not only that, but their persistent tranche of wealth blocks or restricts everyone else's access to those fruits or assets, but increasing prices. Put simply, you work and they enjoy the benefit. That IS a bad thing.

    There is a long established history of people setting up companies in the UK and taking a salary like the employees....in fact many companies are owned and run by the employees. There is no real moral when it comes to how much a company owner should make - after all there is no upper limit so why should there be a lower limit ? Someone starting a business is taking a gamble in the hope that they will make so much money they will never have to work for anyone else....fair enough, but it's your gamble, no-one else's.

    There will always be somewhere in the world where workers are cheaper than the UK. Some countries (India, for example) have such poor government and high corruption coupled with a tribal culture that they can never stop trying to outbreed each other in a perpetual and lemming-like quest for dominance. It is not incumbent on the working people of the UK to make life as easy as possible for businessmen by dropping their rates to maximise shareholder profits. If you can't make a profit, then you ain't got no business in business..

    Actually inflation can be GOOD for asset prices, not bad. What happens is that as prices inflate, so do salaries. The existing block of wealth in the economy (savings and assets) drops in value relative to earnings, so working people end up with a higher proportion of the economy's wealth in their pockets, improving the distribution of purchasing power. Put simply, salaries rise relative to house prices, because savings stay the same (or at least rise a a slower rate).

    Right now we have a situation in the UK where young people are asked to study for longer and more intensely than ever before (or more accurately...to gain more qualifications than ever before and spend more tima and money doing so), go into huge debt in order to do so, and then we ask them to work in places where houses are priced out of their reach, so they have no choice but to rent. That's a crap deal, a racket really, and our people deserve better.

    Report on 07 September 2011  |  Love thisLove  0 loves
  • amwell44
    Love rating 77
    amwell44 said

    From the tone of some of the posts, you would never guess this website has been set up to discuss, broadly, wealth creation and individual prosperity. All sorts of crypto-Marxist loons always come crawling out of the ether with the most outlandish and frankly, stupid and ignorant, suggestions.

    Amazing that these bloggers grew up in a liberal democracy and a country offering some of the best opportunities available in the World - such that the World is clamouring to get in! Yet they want to drag us back to the dark ages of Socialism (Died1989 and good riddance) and State terror, because that is what it would take to enforce, for example, confiscation of assets. By the way, does that apply to footballers and lottery winners?

    Don't we all want to get on and prosper? Why do some wish to do down those who have? So what, if wealth is inherited? Don't you want to pass on whatever you have to your children?

    Disgusted with the low standard of debate.

    Report on 07 September 2011  |  Love thisLove  3 loves
  • matchmade
    Love rating 38
    matchmade said

    Cliff, what about taxing capital gains on house price inflation on principal private residences? If house price rises were taxed as capital gains, as they used to be before t1965, this would help stop stupid rises in house prices and encourage people to invest in more sensible areas than their personal housing.

    Report on 09 September 2011  |  Love thisLove  0 loves
  • Poorpensioner
    Love rating 36
    Poorpensioner said

    But I have already paid tax on the income that I managed to save some of.

    The tax on my savings income is the Government's second bite at the money I earned by work - same with VAT, fuel tax, etc.(Oh, and the VAT on the fuel tax - a double tax on the tax!).

    They get virtually all of it in the end.

    Report on 11 September 2011  |  Love thisLove  1 love
  • Blewyn
    Love rating 4
    Blewyn said

    Poorpensioner - The tax on your savings interest is NOT a second bite, it is a first (and only) bite at the interest income only. If you don't get any interest income, you will pay no tax on your savings.

    Report on 22 September 2011  |  Love thisLove  0 loves
  • Blewyn
    Love rating 4
    Blewyn said

    amwell44 said

    All sorts of crypto-Marxist loons always come crawling out of the ether with the most outlandish and frankly, stupid and ignorant, suggestions.

    That's what internet forums (fora ?) are for...so people like you can guide the loonies back onto the path of enlightenment and understanding.

    Amazing that these bloggers grew up in a liberal democracy and a country offering some of the best opportunities available in the World

    Opportunitties that were won, nurtured and preserved by successive socialist (in the British sense, meaning left-wing capitalist) governments after WWII. Prior to that, the class structure (inherited wealth) kept people in their places. Since the election of the Milk Snatcher in 79, the country has regressed back to the class-divided mess that we see today.

    So what, if wealth is inherited? Don't you want to pass on whatever you have to your children?

    I'd rather they got a fair crack at the prizes, to be honest. Earned wealth is far more satisfying.....

    Report on 22 September 2011  |  Love thisLove  1 love
  • charles125
    Love rating 53
    charles125 said

    Yes, plus 20% VAT equals a huge and massive tax rate of 52% for all lower rate tax payers.

    Report on 28 December 2011  |  Love thisLove  0 loves
  • ckbadger
    Love rating 2
    ckbadger said

    Damicol, I would be surprised if your inventive scheme doesn’t fall under the IR35 legislation. I hope you exercise a little more discretion about publicising your tax evasion in real life than you do on internet forums.

    I believe everyone should minimise their tax liability as much as possible through legitimate means, but I personally would never wish to be in a position where I was taking advantage of the services paid for by taxpayers without making any contribution myself. It sickens me that there are so many people who are quite content to do just that. It is equally sickening just how much tax is deducted from the earnings of the working population.

    I have every sympathy for those who are unable to work due to a genuine disability and those who have found themselves unemployed as a result of the recession. But I find it disgusting that there are people who have never worked a day in their life with a better standard of living (funded entirely by the taxpayer) than some people in lower paid jobs could afford to sustain.

    A country should never be in a position where earning an honest living is considered “a mug’s game”, and where an individual may well be better off being bone idle.

    Sorry that this has become a bit of a rant (and only 2-3 months after everyone else!) – it’s a topic I could easily complain about for days on end. But I will spare you all for now!

    Report on 29 December 2011  |  Love thisLove  1 love
  • leah AKA global leah
    Love rating 17
    leah AKA global leah said

    ckbadger is so right about the people that have never worked in their life and have a better standard of living than the working class.

    I work and do as much overtime as I can just to keep every day things above board, my partner unfortunately cannot work due to an illness that's been ongoing all his life, but only been diagnosed in the last 3yrs. The annoying part is, some of his friends who are alcoholics and drug users, and they are the ones that can afford the latest top of the range mobile phone, biggest televisions, latest game consoles and even some go abroad for holidays!!

    My only two vices are smoking and go out to have a meal that's not on special offer once every 3 months, that's IF nothing breaks down and need replacing in the house. The only help I get is working tax credit, and only because there is only one income and 2 people living in the same house.

    As for this 20% tax that myself and other workers have to pay, I gain about £1 for working 4hrs of overtime, what is the point of that? No wonder there are so many people working "on the side" such as pizza deliveries, so they don't have to declare that little bit of extra income! (I personally don't do deliveries, I have enough trouble with direction as it is)

    Report on 30 December 2011  |  Love thisLove  2 loves
  • sodit
    Love rating 135
    sodit said

    Once upon a time the Conservative government of the day introduced a scheme where basic rate taxpaying savers paid no tax on the income from their savings... then along came a Labour government [that's right the people who claim to represent the interests of the ordinary (wo)man in the street] and they modified the scheme so that tax breaks go to higher rate taxpayers, but there is no longer any benefit to the basic rate taxpayer for using the scheme.

    Report on 02 January 2012  |  Love thisLove  2 loves
  • DaveDB
    Love rating 14
    DaveDB said

    As usual there are two sides to every question... 1) There has to be some incentive to save and invest and it is pretty obvious there is not enough incentive now as so few people are saving for their pension. 2) I have capital gains that have accrued over years of saving which are purely due to inflation as the underlying share value in today's money is far lower than when the shares were purchased. I am all for fairness but taxing inflation is a step too far, inflation should be discounted before tax. We are continually hearing that investment is needed for jobs but no returns for investors means no jobs and the higher the risk the higher the (net) return must be.

    Report on 02 January 2012  |  Love thisLove  0 loves
  • krustallos
    Love rating 45
    krustallos said

    Have any of you people ever tried living on the dole? I suspect if you had ever been forced into that position there would be a lot less of this perpetual moaning about scroungers.

    Besides, there don't seem to be large numbers of unfilled job vacancies out there, so if some people are prepared to volunteer to exist on the breadline that's fortunate for everyone who wants to work really, isn't it? Otherwise supply and demand would push wages down even further.

    Report on 02 January 2012  |  Love thisLove  0 loves
  • leah AKA global leah
    Love rating 17
    leah AKA global leah said

    Krustallos... I WAS on the dole after from 18 until 20, then again from 31 until 37 (I became a single mother with 2 children) So Yes, I have tried living on the dole, and no, it wasn't easy, and the only way I did manage was the fact that I had a friend that was in the same situation, but her "pay day" was different from mine, so we would borrow from each other until we got paid again. Not ideal, and certainly couldn't save any money... I tried to get a part time job, but back then, there weren't as much help either, everything you need, such as child care, you had to provide the money yourself.

    I have started working via agencies 9yrs ago, and on a permanent contract for the last 5, one thing I can proudly say, EVERYTHING that's in my house are paid for, absolutely nothing is on HP at all... and that's where my saving has done with working. Even as far as managed to go away for a week last year (even though it was near the end of the season, so the prices were crazy cheap) But there's no way I can afford at seasoned time, because the prices are just extortion-ally stupid, but yet, dolers can afford to go away ABROAD in peak season?

    I am not debating living on dole is easy, I've been there myself, so I know it isn't, but I still managed to find a job through agencies, even just as temporary, but yet day in, day out, I get the people from work, telling me the government should sent the Polish people back to their own country because they're taking all the jobs! GIVE ME A BREAK! The company that I work for, the last 2 years that they've been taking on agency workers, we got less than 5 British people there, and none lasted more than a month, because they've said they won't work for pittance.

    NOBODY wants to work for pittance, but jobs nowadays is not about just money, it's about pride, I don't know about the rest, but I know I feel a lot more pride knowing I've got a job and not having to rely on the government at all time.

    Report on 02 January 2012  |  Love thisLove  0 loves

Post a comment

Sign in or register to post a reply.

Our top deals

Credit card
company
Balance transfers rate and period Representative
APR
Apply
now

Barclaycard 31Mth Platinum Visa

0% for 31 months (2.99% fee) Representative 18.9% APR (variable) Apply
Representative example: Assumed borrowing of £1,200 for 1 year, at a Purchase Rate of 18.9% (variable), representative 18.9% APR (variable). Credit available subject to status. A Balance Transfer fee of 3.5% will be applied, then reduced to 2.99% by a refund (terms and conditions apply). Plus an additional £20 fee refund on balance transfers over £2000.

Barclaycard 30Mth Platinum Visa

0% for 30 months (2.89% fee) Representative 18.9% APR (variable) Apply
Representative example: Assumed borrowing of £1,200 for 1 year, at a Purchase Rate of 18.9% (variable), representative 18.9% APR (variable). Credit available subject to status. A Balance Transfer fee of 3.5% will be applied, then reduced to 2.89% by a refund (terms and conditions apply). Plus an additional £20 fee refund on balance transfers over £2000.

MBNA 30Mth Platinum Credit Card Visa

0% for 30 months (2.89% fee) Representative 18.9% APR (variable) Apply
Representative example: Assumed borrowing of £1,200 for 1 year, at a Purchase Rate of 18.9% (variable), representative 18.9% APR (variable). Credit available subject to status.
W3C  Thank you for using One Flew Over the Cuckoo's Nest