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Long-term economic consequences of Covid-19 fallout

takno

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This was actually introduced by Darling toward the end of their time in power. Like all stealth taxes, even though it is deeply unfair, there is nothing in it for anyone to remove it.
It came in as part of the substantially-increased personal limits under the coalition government
 
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JonathanH

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Like all stealth taxes, even though it is deeply unfair, there is nothing in it for anyone to remove it.
I imagine a lot of the affected people who are paid between £100,000 and £125,000 just sacrifice earnings above £100,000 into their pension arrangements.

If higher rate tax relief on pensions gets removed at some point as seems likely, that would become more of a challenge for the affected individuals (as of course does hitting the lifetime allowance). The perception is that the Treasury sees this tax relief as a inappropriate subsidy to the higher paid.

There are no votes to gain in anyone removing the 62% band. I'm not sure a 52% tax band from £50,000 up for a fixed period of five years from 2021 to 2026 to address Covid costs would have led to too many votes lost either.
 
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bramling

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Here's one of several articles that talk about it:




He revealed this at the end of February last year, before Covid restrictions were a thing anywhere in Europe, so I can very easily see this policy having to be binned were it put forward.

At the moment the triple tax lock staying as it is seems to be a high priority for Sunak, even with the change in circumstances; while the personal allowance freeze technically goes against this, it's not an outright tax rise. Come the run-up to the next election though we may see changes in policy. I don't know if the Tories can do this, but raising taxes like income tax can be sold if their purpose is critical/important, such as all extra revenue going into healthcare improvements.






Sunak himself is now worried about rising interest rates:


In this article (not quotable directly under copyright terms) he's talked about rising rates destabilising public finances as something that "keeps him up at night", while defending some of his budget measures.

The bit about interest rates is certainly interesting. It seems we can infer from this that Sunak’s Covid response is predicated on interest rates remaining low, which I’m not sure is something they should be relying on as a given. If they are, he’s just chucked away the generally acknowledged central tool for dealing with inflation.

I imagine a lot of the affected people who are paid between £100,000 and £125,000 just sacrifice earnings above £100,000 into their pension arrangements.

If higher rate tax relief on pensions gets removed at some point as seems likely, that would become more of a challenge for the affected individuals (as of course does hitting the lifetime allowance). The perception is that the Treasury sees this tax relief as a inappropriate subsidy to the higher paid.

There are no votes to gain in anyone removing the 62% band. I'm not sure a 52% tax band from £50,000 up for a fixed period of five years from 2021 to 2026 to address Covid costs would have led to too many votes lost either.

I don’t agree on the latter. That would be straight away hitting “Basildon Man”, which notwithstanding “Red Wall” is the Conservatives main demographic for electoral success.
 

DB

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I don’t agree on the latter. That would be straight away hitting “Basildon Man”, which notwithstanding “Red Wall” is the Conservatives main demographic for electoral success.

And they probably won't be relying on retaining the 'red wall' seats anyway - getting those was largely the result of Labour having an increasingly unpopular leader who consistently tried to sit on the fence as regards Brexit.
 

bramling

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And they probably won't be relying on retaining the 'red wall' seats anyway - getting those was largely the result of Labour having an increasingly unpopular leader who consistently tried to sit on the fence as regards Brexit.

Yes agreed. Much as Starmer seems to be doing his best to keep them blue, I think it’s a fair prediction a good number of them will return red next time round.

The last thing the Conservatives need to be doing is hitting middle incomes.
 

JonathanH

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I don’t agree on the latter. That would be straight away hitting “Basildon Man”, which notwithstanding “Red Wall” is the Conservatives main demographic for electoral success.
The point I was making is that that demographic don't have anywhere else to go, if tax is their primary consideration.

The most recent data I can find on distribution of earnings is from 2017-18 - https://www.gov.uk/government/stati...1-to-99-for-total-income-before-and-after-tax. The release for 18-19 shouldn't be far away.

Percentile point
Total income before tax
2017-18
8850,600
8952,600
9054,900
9157,700
9261,000
9365,000
9470,200
9576,800
9686,000
9798,600
98121,000
99175,000
 

bramling

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The point I was making is that that demographic don't have anywhere else to go, if tax is their primary consideration.

The most recent data I can find on distribution of earnings is from 2017-18 - https://www.gov.uk/government/stati...1-to-99-for-total-income-before-and-after-tax. The release for 18-19 shouldn't be far away.

Percentile point
Total income before tax
2017-18
8850,600
8952,600
9054,900
9157,700
9261,000
9365,000
9470,200
9576,800
9686,000
9798,600
98121,000
99175,000

They do have places to go - they can think “stuff it I may as well vote Labour”, or not vote at all, both of which would be harmful to the Conservatives. This is especially true in the London area where incomes tend to be that bit higher (and cost of living higher accordingly).

The Conservatives don’t need to shed that many votes to lose their majority, a cooling down in England (bearing in mind they will have been in power 14 years by the next election) and perhaps the SNP fad in Scotland going stale (which is surely inevitable at some point), and all of a sudden their position is very dicey indeed.
 

brad465

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The IMF have upgraded the world growth forecast for the next 2 years:


The International Monetary Fund is now forecasting a stronger economic recovery this year and next.
The IMF has upgraded both its UK and global forecasts compared with what it projected in January.
But the British economy is still predicted to return to its pre-pandemic level of activity only in late 2022.
The agency also warns that recoveries are diverging dangerously within and between countries.
The new UK forecast is for growth of 5.3% this year and 5.1% in 2022. Both figures are upgrades, though the latter is only marginally higher than the January forecast.
The recovery follows last year's pandemic driven contraction of 9.9% which was the deepest of any of the G7 major developed economies.

'Fairly modest'​

Bringing in the two predicted recovery years, the UK's performance over 2020 to 2022 would be ahead of one of the G7 countries, Italy.
The new global forecasts are growth of 6% and 4.4% this year and next. Both are upgrades, a fairly modest one for 2022.
That mainly reflects up-rating to the forecast for developed economies, especially the United States.

'Diverging recoveries'​

In a blog on the forecasts, the IMF's chief economist Gita Gopinath says a way out of the health and economic crisis is increasingly visible. Vaccinations, she writes, are likely to power recoveries in many countries in 2021.
But she is also concerned about how those recoveries are diverging.
Countries with slower vaccine rollouts, more limited support from economic policy, and those more reliant on tourism are likely to do less well.
The first two of these are particular issues for developing countries. Many have less access to vaccines, and they also tend to find it more difficult to finance economic and health policy actions.
Among emerging and developing economies, China has already returned to pre-pandemic levels of economic activity. But many others in the group are not expected to do so until well into 2023.
The report says the cumulative losses in income per person over the period 2020 to 2022 are likely to be 20% for those countries, compared with a less severe but still large figure of 11% for the developed world.

'Reversed'​

The report also says that gains in poverty reduction have been reversed. It says people counted as extremely poor are likely to have increased by 95 million last year, with a rise of 80 million in the number who are undernourished.
The IMF says the divergences are occurring not just between but also within countries. Income inequality is likely to increase as young people and those with relatively low levels of skills have been harder hit in both developed and developing countries.
Women have already been affected as they account for a large share of employment in some sectors, such as tourism, where there is a lot of personal contact.
The pandemic has also had an impact on workers whose jobs are vulnerable to automation. That is a process that has been accelerated as a result of the health crisis.

However, the last section particularly caught my eye, about an extra 95 million worldwide now being put into poverty. Now I don't know what the death rate of poverty under international definitions is, but if only 1 in 10 died from poverty related problems, we're looking at 9.5 million extra deaths, over 3x the current covid death toll globally, and that's before getting onto the simple fact all those in poverty will have a lower quality of life overall.
 

brad465

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Hospitality UK has found a new meaning for the term "long covid", to describe what the economy faces due to the debt that's built up in hospitality and other associated firms:


Hospitality, retail and leisure firms are facing huge levels of debt as the economy reopens, industry bodies have told the government.
Kate Nicholls, the boss of Hospitality UK, warned of "long Covid for the economy, if you're not very careful".
Speaking to the Treasury Select Committee, other trade bodies said government support had not been adequate during the pandemic.
Ms Nicholls told MPs that the industry had amassed £2.5bn of rent debt.
She added that the hospitality sector was coming out of lockdown with another £6bn worth of government debt accrued through schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS).
"While government measures have been really helpful in terms of setting out a framework for easing the burden of government backed debt, we're not seeing that translated through on the ground by banks" she said.

Rent debts​

Ms Nicholls told the committee: "We've got £2.5bn of historic rent debt, which currently falls due in one hit on 1 July when the moratorium ends, so we urgently need those moratoriums extended."
She added that one in five of her members are saying there will be insolvencies and site closures, if the issue is not resolved.
A commercial rent moratorium - a temporary ban on evictions - was introduced in March 2020, but comes to an end on 30 June.
She told MPs it was particularly worrying for businesses with multiple sites: "If you've got 50 sites in your hospitality business, you've probably got 50 different landlords, and all it takes is one landlord to be recalcitrant and to not concede or negotiate, and it could be enough to trigger insolvency across the whole of the estate."
Concern was also expressed about the next stage of the reopening of the economy.
Step four of the government's roadmap for lifting lockdown restrictions on 21 June would see all legal limits on social contact removed, nightclubs allowed to reopen and restrictions on large events and performances lifted.
Ms Nicholls said the uncertainty around this date was not helping the industry and its financial recovery.

"While we've got restrictions that are uncertain about 21 June, we can't lift those moratoriums without facing a real calamitous impact on those businesses," she added.
She added that there was strong demand among consumers as restrictions eased, but most firms were still operating at a loss due to capacity restrictions.
Helen Dickinson, chief executive of the British Retail Consortium (BRC), told MPs that rent debt was a problem for her sector too.
She said protections over historic rent needed to be kept in place, to give landlords and tenants time to negotiate over the coming months.
"The end of June is upon us imminently and therefore the decision does need to be communicated as quickly as possible", she told MPs.
"We've lost around 5,000 shops during the course of 2020. Whether we lose more shops going forward than we need to, will depend on the rent moratorium decision, and what happens with the business rates review."
Ms Dickinson told the committee that footfall into retail locations is still down 30% on where it stood pre-pandemic.
 

The Ham

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Hospitality UK has found a new meaning for the term "long covid", to describe what the economy faces due to the debt that's built up in hospitality and other associated firms:


Add to that the need to pay staff more and train a lot of new staff to overcome the current shortages (for instance one pub local to me isn't currently opening its kitchens until 1600 as they just don't have the staff and as of Friday had no plans to open earlier) and many will either need to put up prices or go out of business.

The reason being is that there's reports of head chefs working in supermarkets for less than the 70 hours they used to do but still getting broadly the same money, so why would they go back?
 

takno

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Add to that the need to pay staff more and train a lot of new staff to overcome the current shortages (for instance one pub local to me isn't currently opening its kitchens until 1600 as they just don't have the staff and as of Friday had no plans to open earlier) and many will either need to put up prices or go out of business.

The reason being is that there's reports of head chefs working in supermarkets for less than the 70 hours they used to do but still getting broadly the same money, so why would they go back?
Most pub chefs were on alright but very unspectacular money. If they had still been making that money they might have hung around, but a year on 80% of it isn't that viable.
At the same time it's always been a high turnover job, with new people being pulled in all the time, and there's been no chance to recruit people.

Supermarkets, Covid marshalling and going back into education are all going to be more appealing, just because they are all recruiting and paying 100% of what they normally would.

Give it 6 months and things will probably settle down, not least because the Armageddon that's about to fall on the industry when the rent debt lands will see so many of the surviving pubs go under anyway.
 

route101

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I have noticed quite a few positions being advertised for hospitality positions. I guess a lot of people left while on furlough and they are getting replaced. Supermarket jobs were numerous during the first lockdown, not so much this year. Hard to get a full time contract.
 

kristiang85

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I have noticed quite a few positions being advertised for hospitality positions. I guess a lot of people left while on furlough and they are getting replaced. Supermarket jobs were numerous during the first lockdown, not so much this year. Hard to get a full time contract.

Apparntly many businesses are finding it hard to recruit and struggling to get operational again.

Yet unemployment has skyrocketed in the past year.

People are addicted to state help now. Some of it is being conveniently blamed on Brexit by the FBPE types, but with so much domestic unemployment it makes no sense that there should be so many jobs around.
 

Eyersey468

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I have thought for months that a lot of the surviving pubs etc may well go under before the end of the year especially the smaller ones. I think the fallout from 3 lockdowns will last for years.
 

kristiang85

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I have thought for months that a lot of the surviving pubs etc may well go under before the end of the year especially the smaller ones. I think the fallout from 3 lockdowns will last for years.

It will. Especially for city centre pubs whose bread and butter are the post work crowds (and restaurants that rely on lunchtime business meeting trade).
 

takno

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Apparntly many businesses are finding it hard to recruit and struggling to get operational again.

Yet unemployment has skyrocketed in the past year.

People are addicted to state help now. Some of it is being conveniently blamed on Brexit by the FBPE types, but with so much domestic unemployment it makes no sense that there should be so many jobs around.
It's a difficult market for employers to meet employees at the moment, and doubly-so to meet employees with relevant skills. A lot of the vacancies are at the less-skilled (but rarely entirely unskilled) end of the market, and a lot of the unemployed people are used to earning rather more. There are also a lot of seasonal employers looking for staff to cover the staycation demand, and such jobs are typically not within a hundred miles of where the centres of unemployment are.

I'm sure that Brexit will be having some impact. It certainly hasn't helped by causing a lot of the lower-skilled workers, and specialists in areas where we were already struggling, to leave the country. I doubt it's the most significant cause of anything at the moment though. I don't think we'll really be able to say much with any confidence for another six months - really need the Covid dust to settle a bit.
 

nlogax

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I'm sure that Brexit will be having some impact. It certainly hasn't helped by causing a lot of the lower-skilled workers, and specialists in areas where we were already struggling, to leave the country. I doubt it's the most significant cause of anything at the moment though. I don't think we'll really be able to say much with any confidence for another six months - really need the Covid dust to settle a bit.

It already has, as has been demonstrated by Tim Martin's lightbulb moment re. the very thing he campaigned and voted for has actual ramifications for Wetherspoons' post-lockdown rehiring plans.

Covid and subsequent lockdowns coupled with the B-word have produced what looks to be a perfect storm of an employee base not aligned with the jobs that businesses are looking to recruit for now that things are finally on the cusp of returning to normal. My fear is this will take longer than a few months to settle down, this is a long term problem that the UK has created for itself.
 

RuralRambler

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I have noticed quite a few positions being advertised for hospitality positions. I guess a lot of people left while on furlough and they are getting replaced. Supermarket jobs were numerous during the first lockdown, not so much this year. Hard to get a full time contract.

I have a few hospitality/tourism industry clients who furloughed their staff whilst they had to close. When they came to reopening and recalling the staff from furlough, many staff handed in their notice as they had found other jobs (and were still claiming the furlough from the original employer). That's left the businesses having to recruit unexpectedly at very short notice, and must be contributing to the dramatic fall in numbers claiming furlough over the past month or two.
 

Nicholas Lewis

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I have a few hospitality/tourism industry clients who furloughed their staff whilst they had to close. When they came to reopening and recalling the staff from furlough, many staff handed in their notice as they had found other jobs (and were still claiming the furlough from the original employer). That's left the businesses having to recruit unexpectedly at very short notice, and must be contributing to the dramatic fall in numbers claiming furlough over the past month or two.
It was dam right stupid to allow people on Furlough to get another job. A lot of people have done very well out of this crisis and it will be the ordinary folk that will pay the price whilst the well off business owners have been insulated from all the fall out.
 

RT4038

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It was dam right stupid to allow people on Furlough to get another job. A lot of people have done very well out of this crisis and it will be the ordinary folk that will pay the price whilst the well off business owners have been insulated from all the fall out.
Weren't a lot of the people doing this 'ordinary folk' ? (whatever that means?)
 

The Ham

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Weren't a lot of the people doing this 'ordinary folk' ? (whatever that means?)

Indeed, also whilst it would have cost the government money, it would generate taxes and also make the economy stronger (and therefore generating more taxes) than otherwise would have been the case.

However any such "abuse" of the system is likely to be short lived and limited in scope.

For instance, whilst in January there was a spike in support to 4.7 million people on furlough this was down from the early period of the scheme where it was supporting 8.7 million people.

Whilst those figures are large, there's over 30 million tax payers in the UK and so overall the numbers still on furlough in January (and it's likely to have taken again now) aren't going to be that significant. Then those who are then on a second job is likely to be smaller still.

However any such second job would be being taxed at full rate as their tax free allowance would be being used for their furlough payments (if it's not, then they're earning very little and the furlough payments wouldn't be that large). As such the government would be taking about 30% in PAYE payments of the second job's income.

Whilst that total is likely to be less than they were earning or even than their furlough payments, that's still likely to be reducing the overall cost to the government.

It should also be noted that without furlough a fair amount of the costs would have been needed anyway through other benefits.
 

Nicholas Lewis

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Indeed, also whilst it would have cost the government money, it would generate taxes and also make the economy stronger (and therefore generating more taxes) than otherwise would have been the case.

However any such "abuse" of the system is likely to be short lived and limited in scope.

For instance, whilst in January there was a spike in support to 4.7 million people on furlough this was down from the early period of the scheme where it was supporting 8.7 million people.

Whilst those figures are large, there's over 30 million tax payers in the UK and so overall the numbers still on furlough in January (and it's likely to have taken again now) aren't going to be that significant. Then those who are then on a second job is likely to be smaller still.

However any such second job would be being taxed at full rate as their tax free allowance would be being used for their furlough payments (if it's not, then they're earning very little and the furlough payments wouldn't be that large). As such the government would be taking about 30% in PAYE payments of the second job's income.

Whilst that total is likely to be less than they were earning or even than their furlough payments, that's still likely to be reducing the overall cost to the government.

It should also be noted that without furlough a fair amount of the costs would have been needed anyway through other benefits.
Redundancy costs would have been borne by employers and they would have got basic benefits which are less than furlough. However, tax raising employment would have been devastated and companies probably would have gone down insolvency route to avoid paying out so furlough was right approach. However, its a coarse tool that now needs to be refined to areas that are still restricted and force companies to be realistic about what there future is.
 

brad465

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The rumour mill has been moving recently with regards to Johnson and Sunak being at odds over how the covid costs are to be paid for. The Telegraph front page yesterday suggested a pensions raid on lifetime allowances, with multiple options regarding allowance limit changes and/or employee contributions being considered.

Also in the Financial Times there have been recent reports that due to a rapid rise in average earnings growth, which is currently 5.6% and by July could be 8%, which would make the next State Pension move an expensive £4bn if the Triple lock is honoured. Johnson has vowed to stick to it according to No.10 sources, but Sunak and the Treasury are saying that to do so will require tax rises and/or public spending cuts elsewhere.


Senior government figures have discussed a year-long suspension of the triple lock pledge, arguing ministers could cite unusual circumstances for breaking a promise contained in the Conservative party’s 2019 general election manifesto. But the prime minister’s spokesman doubled down on the pledge on Monday, saying five times that the triple lock promise would be kept. “We have made a commitment on triple lock and plan to stick to that commitment,” he said.

This backs the Government into a corner: allowing the state pension increase to happen and associated costs would look very damaging in the public eye, but breaking the triple lock would enrage the older Tory voter base.
 
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Philip

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The government will probably borrow to help pay the costs; Tories won't set very high taxes and cuts to services and jobs will be unpopular and possibly lead to them losing the next election.

The economic fallout in this country is hardly on the level of post-war Britain or the 2008 recession anyway.
 

The Ham

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Whilst it would harm the wealthy, which wouldn't go down all that well with Tory Voters, there's a fairly easy way of reducing pension costs.

If they were to bring in similar rules to that in the child benefits system, where anyone earning enough to pay the higher tax rate would auto defer the start of their state pension.

Anyone reaching state pension age would still benefit from no longer paying National Insurance, they just wouldn't get a pension until they earn less.
 

DelayRepay

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Whilst it would harm the wealthy, which wouldn't go down all that well with Tory Voters, there's a fairly easy way of reducing pension costs.

If they were to bring in similar rules to that in the child benefits system, where anyone earning enough to pay the higher tax rate would auto defer the start of their state pension.

Anyone reaching state pension age would still benefit from no longer paying National Insurance, they just wouldn't get a pension until they earn less.

I am not a Tory voter, but I think this would be unfair. It penalises people who've worked hard to save for their old age. I think this change would only be fair if people were given 20+ years notice, so they could adjust their savings plans accordingly.
 

RuralRambler

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Re pensioners, the answer is to charge the 2% nic rate on occupational pensions. It wouldn't affect state pensions and wouldn't affect pensioners with small pension(s) - if the NIC threshold is used as it is with employments NIC. A win-win - lower income pensioners don't pay it. Higher income pensioners pay just 2% of occupational pensions over the NIC limit. That makes it that you'd need pension income of £20k or so to pay it, and only then on the excess over that ~£20k.

Either that, or reduce the tax free lump sum - reduce it from the current 25% to say 20%.
 

The Ham

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I am not a Tory voter, but I think this would be unfair. It penalises people who've worked hard to save for their old age. I think this change would only be fair if people were given 20+ years notice, so they could adjust their savings plans accordingly.

Mostly it would only impact those still working and/or had been paid a significant amount into their pension by their employer, as it would (if the rules were the same as the child benefits) those earning over £50,000 a year.

We could even have a longer sliding scale so it only reached £0 at a higher level.

However, the other thing to remember is that I didn't say they wouldn't get it, rather it would auto defer. By deferring your state pension you increase the payments your receive when they then start. As such for some being forced to defer it would mean that they are better off later on.
 

greyman42

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Re pensioners, the answer is to charge the 2% nic rate on occupational pensions. It wouldn't affect state pensions and wouldn't affect pensioners with small pension(s) - if the NIC threshold is used as it is with employments NIC. A win-win - lower income pensioners don't pay it. Higher income pensioners pay just 2% of occupational pensions over the NIC limit. That makes it that you'd need pension income of £20k or so to pay it, and only then on the excess over that ~£20k.
That is the best suggestion i have heard yet.
 

brad465

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Many probably knew this already, but now the Public Accounts Committee have revealed the cost of covid measures will be beared by taxpayers "for decades to come":


Taxpayers will bear the costs of Covid "for decades" - and an inquiry will not come soon enough to learn lessons from the pandemic, MPs have said.

In two new reports, the Public Accounts Committee said No 10's response to the crisis has exposed UK taxpayers to "significant financial risks".

The MPs also attacked government spending on unusable protective kit.

The Department of Health said there are "processes" in place to ensure spending gives taxpayers value for money.

In the cross-party reports published on Sunday, the PAC said the taxpayer will be exposed to "significant financial risks for decades to come" with the estimated cost of the government's measures having already hit £372bn in May.

UK government debt is now over £2.2 trillion, or about 99.7% of GDP - a rate not seen since the early 1960s. In June alone, debt interest cost £8.7bn.

In one example of future Covid costs, the PAC says taxpayers could be liable for an estimated £26 billion as a result of bad loans to businesses.

PAC chairwoman Dame Meg Hillier said: "With eye-watering sums of money spent on Covid measures so far, the government needs to be clear, now, how this will be managed going forward, and over what period of time."

What will be interesting to see is if this increases levels of anti-restriction sentiment for being a huge reality check on the financial costs of support measures and shutting the economy down.
 

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