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Long-term economic consequences of Covid-19 fallout

Yew

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There are some very high marginal tax rates in the "squeezed middle" due to the thresholds for student loan repayments, higher rate tax band, child benefit claw backs (over £50k), and the withdrawal of the personal allowance on incomes between £100-£125k. At lower levels you have the withdrawal of some benefits, i.e. losing free prescriptions, council tax relief, tax credits, etc. A graph of marginal "tax" rates including all these factors (and NIC) looks like a jagged mountain range. In any sane tax system it would be a gradual curve. So many points on a rising income scale where the net "take home" pay is less than half of the marginal increase in pay due to a promotion or overtime etc. Not only that, but there is the hassle factor that people want to avoid, i.e. having to fill in a self assessment tax return to repay some child benefit, or having to deregister/re-register for tax credits or UC if you temporarily earn over the threshold then income falls back again and you have to return to the claims regime. So many disincentives to better themselves. And then, of course, at the top end of the "squeezed middle" you have doctors and dentists refusing extra shifts which take them over £100k as they have 62% marginal tax/nic on the earnings of that extra shift. The entire tax system is a mess and disincentivises working harder/longer etc.
How can you call 100K the 'middle?
 
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MikeWM

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How can you call 100K the 'middle?

It isn't (it is about the top 2-3% of incomes), and I've never been able to understand the idea that people may be saying to their company 'please don't give me that pay rise because I'll be paying a higher rate of tax on some of it'. You're still better off!

Having said that, I do think they ought to deal with the bizarre anomaly between £100k and £125k. It is very odd to have a 62% band just at that level, when the 'top rate' all the way up after that is 47%.
 

kristiang85

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It isn't (it is about the top 2-3% of incomes), and I've never been able to understand the idea that people may be saying to their company 'please don't give me that pay rise because I'll be paying a higher rate of tax on some of it'. You're still better off!

The only way I can see that attitude justified is if your workload goes up with the pay scale, but obviously the gap between effort>returns widens. But these days in most jobs it seems the higher up you go, the less 'work' you actually do but the more meetings you need to attend and documents to sign (certainly when I realised my career was going that way, I slowed my advancement aspirations as right now I'd much rather enjoy my day to day job and earn slightly less - however that will probably change one day, and the idea of paying more tax won't put me off).
 

takno

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The only way I can see that attitude justified is if your workload goes up with the pay scale, but obviously the gap between effort>returns widens. But these days in most jobs it seems the higher up you go, the less 'work' you actually do but the more meetings you need to attend and documents to sign (certainly when I realised my career was going that way, I slowed my advancement aspirations as right now I'd much rather enjoy my day to day job and earn slightly less - however that will probably change one day, and the idea of paying more tax won't put me off).
I think it plays into decisions. There were some very specific decisions for doctors where their pension status meant that working a few extra hours was actually losing them thousands, which is obviously a problem, even for people who would happily work for free. The situation between 100k and 120k is a bit bizarre, but probably doesn't impact people too greatly, and definitely impacts at well above any sane definition of the middle. The main concern at the top end of middle is probably the child-benefit clawback, which I think can mean there is over 100% effective tax at certain point.
 

brad465

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Something else to watch that may have partially been at play here, but most especially in America, is how extra cash is being pumped into stock funds and assets that has made stock markets completely buck the trend of a typical recession. One cause cited for this is all the stimulus cheques being given out in the US, which has seen many invest in the aforementioned fund if this extra money isn't essential spending for them. For us the Furlough scheme and/or some who've saved extra cash they don't need for other things would cause the same, but I suspect these won't go as far as the financial support in the US being more indiscriminative. Low interest rates make fiat currency savings worthless, so investments are better moves.

All this could eventually be a bubble that bursts like nothing seen before when unemployment and reduced demand for goods catches up.
 

Кряква

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In terms of GDP, I don't actually have the time to research, but I'd be interested in how many years ago we are now level with thanks to last year? My gut feeling is probably not that many years ago actually, so is GDP falling by 10% last year really that much of a problem? For the people who lost their jobs or businesses etc, of course. But as a country? I have to agree with one of the posts upthread, the only reason it is an issue for our country is because of the unstable and unsustainable idea of perpetual growth.
The problem, as you allude to, is that this isn't well distributed at all.

If everyone took a 10% income cut across the economy, you're right, most people would barely notice, because it'd knock on through everything.

Imagine someone's salary going from, say, 15k to 13.5k, and their rent, bills, etc also going down 10% or thereabouts. They'd definitely be worse off, but not fantastically so.

In reality what ends up happening is something like 5-10% unemployment (e.g. various sectors collapsing) whilst the other group barely notices or potentially makes more money than they did before.

(the percentages I use here aren't intended to add up to 10% of GDP, I'm just spitballing)

I've never been able to understand the idea that people may be saying to their company 'please don't give me that pay rise because I'll be paying a higher rate of tax on some of it'. You're still better off!

I'm not sure about the impact across the economy, but personally it plays out a bit more like this:

I can take a "hard" job and work say 40-60h plus have responsibilities outside of that e.g. on-call, weekends, etc, or I can take an "easier" job and work say 30-40h.

The way taxation works means that even though the gross salary might be more than proportional, the net hourly rate ends up being lower on the "harder" job.

Obviously earning more for the same work always makes sense; that's a different matter.

In a lot of ways though, this system makes sense.

It's better for two people to work 30 hours a week and make 50k each, than for one person to work 60 hours a week and make 100K whilst the other makes 0.

Better for societal cohesion (unemployment is bad), for the economy (propensity to spend decreases with income), inequality is lower, people are less knackered (I think that people who have to spend 100% of their time thinking about work are bad for society because they aren't able to meaningfully engage in the democratic process).

I'm not a huge fan of the way taxation works in this country, but marginal income tax is fairly reasonable.
 
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yorksrob

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The news bulletin on Radio 2 mentioned that our economy had contracted by three times as much as the USA's.
 

brad465

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There's every possibility council tax will rise on the way out of the current recession.
The main tax rises I'm hearing rumours about at the moment are freezing the personal allowance and ending the fuel duty freeze, given these are more subtle measures.
 

Nicholas Lewis

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The main tax rises I'm hearing rumours about at the moment are freezing the personal allowance and ending the fuel duty freeze, given these are more subtle measures.
Ending fuel duty freeze should have happened years ago there's been no freeze on public transport fares. This is fair tax rich have big engine cars so they will pay more compared to the proletariat that have runabouts. There needs to be some heavy taxation on online retail as their benefiting disproportionately at the expense of bricks & mortar shops. This is a double edged sword on taxation with business rates collapsing and 100ks of shop workers ending up on unemployment benefit so is an absolute necessity.
There also needs a rethink on NI being at a level that sufficient to get the NHS enlarged to deal with this situation again as well as recovering the backlog. People will have to accept some loss of disposable income and if sold properly by politicians majority will support it.
 

brad465

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Ending fuel duty freeze should have happened years ago there's been no freeze on public transport fares. This is fair tax rich have big engine cars so they will pay more compared to the proletariat that have runabouts. There needs to be some heavy taxation on online retail as their benefiting disproportionately at the expense of bricks & mortar shops. This is a double edged sword on taxation with business rates collapsing and 100ks of shop workers ending up on unemployment benefit so is an absolute necessity.
There also needs a rethink on NI being at a level that sufficient to get the NHS enlarged to deal with this situation again as well as recovering the backlog. People will have to accept some loss of disposable income and if sold properly by politicians majority will support it.
Yes I agree generally, albeit I'm slightly biased as someone who doesn't drive (I'm licensed, but don't own a car). From what I'm hearing we might get somewhere with online taxes as the Biden administration seems more open to it than Trump's lot ever were, having been in discussions with other OECD countries about it.
 

takno

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Yes I agree generally, albeit I'm slightly biased as someone who doesn't drive (I'm licensed, but don't own a car). From what I'm hearing we might get somewhere with online taxes as the Biden administration seems more open to it than Trump's lot ever were, having been in discussions with other OECD countries about it.
Online taxation is happening sooner or later whatever happens. Leaving Europe may have delayed it slightly if only because it created quite a lot of other issues to worry about, but it's clearly on everybody's radar.

For physical goods it isn't even particularly difficult to enforce and definitely doesn't need international agreement - the companies have substantial operations in the UK, and can easily have laws enforced against them based on thst. You need to enforce payment of duty and VAT on all the retail imports, based on the actual price paid rather than the label claiming it's a $5 gift, possibly by forcing Amazon and eBay to collect the taxes at the point of sale. For the bulk of the unfair competition against shops you then add a 2-5% online tax on stuff for delivery.

Personally I'd rather it wasn't enforced against digital services. There are fewer competition issues arising there, and I think tax is best collected on wealth, income, or on activities which have substantial negative impacts on other people. However, even digital services are starting to come under a degree of national control, with a gradual move towards paid-for services provided by companies with global operations, rather than murky foreign multinationals offering everything for "free" and raking it all in on advertising.

Tl;dr the need for American cooperation on this has always been rather overstated, and we really need to stop making excuses and get on with it
 

Кряква

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Online taxation is happening sooner or later whatever happens. Leaving Europe may have delayed it slightly if only because it created quite a lot of other issues to worry about, but it's clearly on everybody's radar.

For physical goods it isn't even particularly difficult to enforce and definitely doesn't need international agreement - the companies have substantial operations in the UK, and can easily have laws enforced against them based on thst. You need to enforce payment of duty and VAT on all the retail imports, based on the actual price paid rather than the label claiming it's a $5 gift, possibly by forcing Amazon and eBay to collect the taxes at the point of sale. For the bulk of the unfair competition against shops you then add a 2-5% online tax on stuff for delivery.

Personally I'd rather it wasn't enforced against digital services. There are fewer competition issues arising there, and I think tax is best collected on wealth, income, or on activities which have substantial negative impacts on other people. However, even digital services are starting to come under a degree of national control, with a gradual move towards paid-for services provided by companies with global operations, rather than murky foreign multinationals offering everything for "free" and raking it all in on advertising.

Tl;dr the need for American cooperation on this has always been rather overstated, and we really need to stop making excuses and get on with it
Mmm.

I must admit that I'm confused as to why Amazon isn't being taxed out of the wazoo in the UK as it stands. The only reasonable explanation I can come up with is that there are backhanders.

What possible benefit does it have to the UK Government for us to have our high street collapse and be replaced with offshore everything? It makes no sense at all.
 

brad465

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Mmm.

I must admit that I'm confused as to why Amazon isn't being taxed out of the wazoo in the UK as it stands. The only reasonable explanation I can come up with is that there are backhanders.

What possible benefit does it have to the UK Government for us to have our high street collapse and be replaced with offshore everything? It makes no sense at all.
When Trump was in office, the UK Government would have allowed Amazon to go by its business tax free because no digital tax was very much a condition for a trade deal with his administration. Now talks have stalled for the foreseeable future under Biden, who is also more keen it seems on the tax going ahead, really our Government should be going ahead in cooperation and they will look bad if they don't.

As the need for tax revenue has increased considerably in light of the Covid debt build-up, this will now be one of the most supportive measures to help, but until Covid came along and Trump left office there was little traction available to bring this tax in.
 

takno

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Mmm.

I must admit that I'm confused as to why Amazon isn't being taxed out of the wazoo in the UK as it stands. The only reasonable explanation I can come up with is that there are backhanders.

What possible benefit does it have to the UK Government for us to have our high street collapse and be replaced with offshore everything? It makes no sense at all.
I don't think it's as complex as backhanders. Companies like Amazon, which is basically just a fancy version of the Kay's catalogue, have managed to attach themselves to the technical revolution, and are seen by politicians and a lot of other people as being part of a glorious future utopia where everybody is happy and finally has a jetpack. Politicians don't want to be seen as luddites, and as long as Amazon can keep gibbering on about AI and technological revolution, they will be too scared to tax them as the glorified shopkeepers they actually are.
 

Кряква

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I don't think it's as complex as backhanders. Companies like Amazon, which is basically just a fancy version of the Kay's catalogue, have managed to attach themselves to the technical revolution, and are seen by politicians and a lot of other people as being part of a glorious future utopia where everybody is happy and finally has a jetpack. Politicians don't want to be seen as luddites, and as long as Amazon can keep gibbering on about AI and technological revolution, they will be too scared to tax them as the glorified shopkeepers they actually are.

Isn't it blindingly obvious that all of the money is leaking out of a hole in the bottom of the ship, though?

Thought experiment: I roleplay as some sort of (obviously unrealistic) evil mastermind upper-class stereotype.

I want to basically exist in a state in which most of the country do things that end up with a bit of money falling into my pocket, so that I can lord it up. I also want to maintain social stability.

Amazon seems to achieve neither. I derive no financial benefit from them, and they trash employment figures, making people angry.
 

brad465

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Deliveroo want Eat out to Help out to be run again:


Takeaway firm Deliveroo and 300 restaurant groups are urging the government to run Eat Out to Help Out again when restaurants finally reopen.

They said the discount scheme, which gave 50% off meals in August, would boost demand for ailing restaurants.

They also said other urgent support was needed to stop "viable" hospitality firms failing despite optimism about the vaccination programme.

It came as one worried pub boss called for pubs to be reopened by April.

Young & Co's Patrick Dardis accused the government of a "lack of respect" for the sector and of basing the decision to close pubs on "unproven" science - a claim which experts dispute.

From what I've heard last time it didn't make much difference to those that ran it's finances long term, and some even dropped it as there were issues with the scheme in their eyes. I think a VAT relief though should continue.
 

NorthOxonian

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Deliveroo want Eat out to Help out to be run again:




From what I've heard last time it didn't make much difference to those that ran it's finances long term, and some even dropped it as there were issues with the scheme in their eyes. I think a VAT relief though should continue.
There's definitely a case for that, once we reopen. My gut feeling is it should be pitched at a lower discount than 50% off though. There should be a sweet spot where it balances demand effectively throughout the week - 50% off makes Mon-Weds really busy but Thurs-Sun quiet, 0% off the opposite. If hospitality businesses can have seven good days trading a week (rather than three really busy days where they're turning people away and four quiet days), surely that's best for them?
 

initiation

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There's definitely a case for that, once we reopen. My gut feeling is it should be pitched at a lower discount than 50% off though. There should be a sweet spot where it balances demand effectively throughout the week - 50% off makes Mon-Weds really busy but Thurs-Sun quiet, 0% off the opposite. If hospitality businesses can have seven good days trading a week (rather than three really busy days where they're turning people away and four quiet days), surely that's best for them?

All good points. Getting bookings for places was difficult at times. Perhaps a 25% or 30 discount would be more appropriate.

Also hoping for a drink out to help out to assist non-food pubs.
 

Nicholas Lewis

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There's definitely a case for that, once we reopen. My gut feeling is it should be pitched at a lower discount than 50% off though. There should be a sweet spot where it balances demand effectively throughout the week - 50% off makes Mon-Weds really busy but Thurs-Sun quiet, 0% off the opposite. If hospitality businesses can have seven good days trading a week (rather than three really busy days where they're turning people away and four quiet days), surely that's best for them?
Better to adjust tax rates for 12mths to provide same value then each business can set it prices to match likely demand otherwise expensive places are being subsidised for people who can afford it anyhow.
 

Kite159

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Deliveroo want Eat out to Help out to be run again:




From what I've heard last time it didn't make much difference to those that ran it's finances long term, and some even dropped it as there were issues with the scheme in their eyes. I think a VAT relief though should continue.

Agreed about the VAT relief continuing, maybe until the rest of the year.
 

brad465

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Sounds like there might be a dog fight in the Tory party in the build-up to the Budget:

Rishi Sunak under growing pressure to avoid tax rises​



I can't copy text from the article under FT copyright rules, but in summary Sunak is looking at various tax rises in the March budget, with corporation tax rise and a personal allowance free being touted to take effect later in the parliament (not specified anymore than this on timings). There's also speculation further tax increases are planned in the autumn budget when the recovery is hoped to be underway properly. Changes to capital gains tax and pension tax relief are being suggested by Treasury officials, while a number of backbenchers in the Tory party are against the idea of any tax rises in the near future, including David Davis and John Redwood in this article.

It does look like they're trying to avoid touching the tax "triple lock" of income tax (beyond a personal allowance freeze), national insurance and VAT like in their manifesto at this stage.
 

Nicholas Lewis

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Sounds like there might be a dog fight in the Tory party in the build-up to the Budget:

Rishi Sunak under growing pressure to avoid tax rises​



I can't copy text from the article under FT copyright rules, but in summary Sunak is looking at various tax rises in the March budget, with corporation tax rise and a personal allowance free being touted to take effect later in the parliament (not specified anymore than this on timings). There's also speculation further tax increases are planned in the autumn budget when the recovery is hoped to be underway properly. Changes to capital gains tax and pension tax relief are being suggested by Treasury officials, while a number of backbenchers in the Tory party are against the idea of any tax rises in the near future, including David Davis and John Redwood in this article.

It does look like they're trying to avoid touching the tax "triple lock" of income tax (beyond a personal allowance freeze), national insurance and VAT like in their manifesto at this stage.
With the suggestion £250B has accumulated in peoples banks accounts over the last year we know thats going to be largely skewed to well off people they need to raid tax off those people. Yes some Tories will whinge but lets be honest those sort of people aren't going to go out and vote labour even if they do it.
I also reckon majority of people would accept a tax rise that is used to fund NHS improvements so they have resources to deal with this again and the a backlog that has arisen on treatments.
 

takno

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With the suggestion £250B has accumulated in peoples banks accounts over the last year we know thats going to be largely skewed to well off people they need to raid tax off those people. Yes some Tories will whinge but lets be honest those sort of people aren't going to go out and vote labour even if they do it.
I also reckon majority of people would accept a tax rise that is used to fund NHS improvements so they have resources to deal with this again and the a backlog that has arisen on treatments.
I reckon if you think they can raid my savings that I've collected by working 60 hour weeks, so you can pay for the the year off they've given everybody else, you've got another think coming. The money is there to pay for a house it hasn't been practical for me to buy all year, and if the government go dipping into it then don't imagine I'm going to ever voluntarily a single penny of tax I can avoid ever again.
 

Yew

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Indeed, we shouldn't be bearing the burden of Borises choices. It's time for investment based economics, and use that to pay for the folly of Lockdowns.
 

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