Budget Day 2024

Budget Day today. 30th October 2024

The first budget by a female chancellor so expect lots of comments about her hair and outfit. Rachel is an LSE alumni. Let’s hope they churn out better graduates than PPE at Oxford does. it’s also the first Labour budget in over a decade.

In the summer when Rishi Sunak called the election I did wonder why he did that given he could have done this budget. But I think one reality that they knew was that they’d have to raise taxes and cut spending and that would then be just before an election which wouldn’t look good. As it was, they were crucified anyway but still, why make it even worse. What this has done is allow them to force Labour to do all the unpopular decisions and allow them to throw mud at them.

Labour, supported by the independent OBR has said that the Tories were spending £40bn more on day to day departmental expenditure than they were getting in taxes. So endlessly borrowing. A party who still lives off a reputation for fiscal responsibility running a clown show. Anyone with any sense knew that taxes were going to have to rise. The Tories had already risen taxes more than at anytime since WW2, Labour had no real choice other than continue that path. Only rabid tax cutting billionaires were going to deny this reality.

Rachel has to deal with the peculiar shit show where she has to lie to the electorate to get voted in. She has to promise not to raise all sorts of taxes and get utterly boxed in. Only to then deal with the issue once elected. That’s our fault and we only have ourselves to blame for that. If voters aren't prepared to hear honest words about paying for decent public services through higher taxes then its our fault. Not the politicians.

She also has to grapple with a world that no longer believes in taxes. A world where the wealthy elite wants a strong military to protect them because they’re not brave enough to fight to protect themselves. But they don’t want to pay taxes for anything else because they’re don’t need to. They’re fine. They don’t want to pay for roads, schools, hospitals, cancer treatment, police forces, social services. All the things awful poor people need because they’re can’t pull their socks up and get rich and buy these things themselves.

I don’t have the constraints that Rachel has. So here is my Budget.

Basic State Pension Age

The first cut I would make is to the age at which the state pension is paid. It’s currently on the rise to 70. I would lock this to average life expectancy minus 5 years. It was never planned to be a benefit paid for 40 years to both men and women and the time for that generosity has gone. Its a massive ponzi scheme and we need to deal with it. Kids today are paying the pensions of the retired through higher taxes on top of which they're forced to save for their own retirement as well, an additional 3% payroll tax and not to mention their education they’re also paying for at 9% plus any private medical bills they opt to pay for. There are no golden final salary schemes anymore that companies are having to pay for out of their current profits, also suppressing pay for current employees, we have to unwind ourselves from the situation we’re in.

Basic State Pension

The Basic State Pension in the UK is £8.814 per year.

The UK has always had a woefully low Pension in comparison to European pensions and it needs to be increased. This makes the triple lock, locking pensions to price rises and pay rises vital to retain as a basic minimum.

As an aspiration it should rise over time to the National Living Wage (NLW). Previously I would have said this minus mortgage costs given that pensioners should have paid off their mortgage. But given that our future pensioners will be renters it should remain as the NLW. This would increase it to £25,369 which in itself is a massive transfer of wealth to the older generation but we should aim for this once we've linked the pension to life expectancy. Its a generous pension but it would probably be used to pay for care home costs anyway.

If it ever reached this level it should taper off based on an income and wealth measure. It should not be paid to wealthy people.

Winter Fuel Allowance

It was right to abolish this. We should not be paying benefits to billionaires. That said. We give billionaires billions in land subsidies so it’s swings and roundabouts. But it’s gone now. It was right to drop it. It was strange politically and the timing and a bit of a dead cat.

Personal Allowance

The Personal Allowance is the amount of income someone being taxed in the UK can earn before paying tax.

The current rate is £12,570. Effectively a 0% tax rate band.

My golden rule is that the Basic State Pension should never exceed this threshold so that the Basic State Pension never gets taxed. The Tories froze this rate a couple of years ago and said it would remain frozen until 2028. Rachel has confirmed she won’t change this. This created fiscal drag where inflation increases pay and earnings and therefore tax because the 0% rate isn’t keeping pace. I would be happy to keep it frozen until the Basic State Pension reaches £12,570 and then the triple lock on the pension would keep raising this 0% band and politicians would not be able to meddle with it.

Income Tax Rates

Rachel hasn’t changes the Income Tax rates. They remain as follows:

Personal Allowance - 0%

Next 37,699 - 20%

Next 74.869 - 40%

Everything over - 45%

Tax rates in the 1970’s were 90% and more on higher earnings. Thatcher and Regan introduced the neo-liberal dogma that low taxes would solve everything and in that 40 year experiement we have seen a significant rise in inequality and a significant decline in the services that we all rely on and which helped turn this country round after the war and create massive opportunities for those immediate post war generations. We need to change. So my tax bands would be:

Personal Allowance - 0%

Income over Personal Allowance

Next 20,000 - 10%

Next 40,000 - 20%

Next 80,000 - 40%

Next 150,000 - 60%

Everything else - 80%

At the rate of the current personal allownce this would mean people on the average salary of £30,000 in the UK would be paying 10% income tax on only £20,000 of that income.

If the Personal Allowance and Basic State Pension reached the level of the National Living Wage, it would mean that pensioners with a private pension of £20,000 would also be paying 10% tax only on that pension and. Nothing in the first place £25,000. That’s a substantial tax cut.

These rates would mean that footballers and higly paid executives of global companies will pay the 80% rate. What we saw in the 1970s is that people didn’t pay such high wages as it wasn’t worth it and that sounds like a good thing to me. We had many decent companies and many were well run without the excessive pay.

Employers National Insurance and Apprenticeship Levy

I would abolish this.

Employees National Insurance

I would ablish this.

Student Loans

I would abolish this and write off the debts.

TV Licence

I would abolish this and send 1% of the income tax take to the BBC. Although I would do substantial reform of the BBC including scrapping local news.

Employment versus Self Employment

Without Employer and Employee National Insurance there is no real difference between being employed or self employed and nor should there be. I would therefore merge the rules as to what tax reliefs are available for workers. Everyone receiving money from a company should be paid via a ‘payroll’ where all the money is subejct at the point of payment to the taxes set out above. All employed and self employed individuals would be treated the same when working for a company/business. This would remove all the avoidance around employed, self employed and personal service companies and any preferencial treaatment for Partners of Limited Liability Partnerships.

Council Tax

I would abolish this and add a local tax rate to income tax for everyone with the money going directly to councils based on taxpayers in their areas. Maybe this would be between 1-5% on income tax.

Value Added Tax

I would abolish all exemtions on VAT and increase it to 20%. This is a big increase in tax for the less well off but I would make sure that they are better off overall from the changes to taxes and benefits. But this change would essentially remove the whole industry around VAT avoidance.

Capital Gains Taxes

I would align this to income tax so that there is no difference in treatment between income and CGT. This would remove the need to pretend certain things are capital and not income.

Bus Fares

Labour said that taxes would not impact working people. But the people on the lowest income use the bus to get to work or to travel for personal reasons. They are not in their Audi shooting down the motorways. Labour increased bus fares by 50%. This has been the most ridiculous change of this budget. Buses are good for the envionment and aimed at working class people. It should be linked to 25% of the hourly rate of the National Living Wage so working people only have to work 30minutes each day to pay for their travel to get there and back.

Road Usage Tax and Fuel Duty

Road tax is levied on petrol and diesel cars and is reducing. It’s long over due that we moved to a system of road useage based on the time you are on the road, the time of day, the congestion you cause, your engine size, and age. Large expensive cars can pay more, small electric cars less, but they still pay and would pay more to drive short journeys at peak times than longer trips off peak.

Land Carbon Tax

A basic rule within the tax system is ‘the polluter pays’. Polluter has a wide meaning it doesn’t mean emissions from a car engine it means damage to society or the environment or even yourself in the case of smoking and alcohol. Large land owners since 1066 have been damaging the environment. They need to pay. A tax should be levied on environmental destruction of land. The tax can be low or zero where land access and environmental stewardship is the best it can be.

Inheritance Tax

The surprise in this budget is Rachels move to reduce IHT for farm land. I think over the next few weeks this could wip up into a storm but at present its not the top of the news. But any move to get land owners will attract an aggressive push back so we shall see.