How Worse Off Will You Be After the Budget?

26:35And in some sense, debate about what the government might do is good. I'm not against debate, obviously, in that business. But I've never seen a budget like this that has more speculation about what may or may not happen. I think that's come at a cost. Has that come from inside the government, do you think? Or have the media just kind of hit bullseye? I think some are a few things. So I think it's partly the government, partly the things like the Rachel Reeves speech that we talked about, where as you listen back to it, it was a very funny speech. It was kind of a speech that said nothing in some sense, but it led everyone to think that what she was saying is that the world's worse than we thought, we might raise income tax.

27:11But she didn't say either of those two things, really. So it wasn't the finest piece of clear communication. So partly the government has been testing the water about different things and adding to this. Partly it is the media speculating about things. Actually, there's a whole cottage industry now of companies that have been trying to work out what the headroom is going to be and what the fiscal rules are going to look like. I think it's partly the combination of the decision that Rachel Reeves gave herself that tiny headroom. Once she had that, everyone knew that small changes could blow her off course.

27:41And that's why everyone sort of knew it was worth speculating because she might have been blown off course. Also those tax locks that she had going into the election. Once she'd said, I'm not going to do much on income tax, national insurance, VAT, corporation tax. Once you've ruled out the big things, that's why you're getting speculation about all the little things she might do. I think it's a kind of toxic combination of tying your hands really severely, having real headroom, not going to help with the disability cuts. Again, the Chancellor had already got rid of a lot of her headroom. Once they said they couldn't get disability cuts and the winter of fuel payments through parliament that was already six seven billion people knew that she'd lost i think that also fed into this this sense of like well she's going to have to do something what's she going to do i think it's all those things combined have meant this has been a particularly bad time for speculation and when you don't have a broad tax rise like income tax you give rise to like small interest groups to really get noisy i guess because everyone's thinking i'll go have my my buy to let on my farm or and and they raise they raise the noise yeah Lots of little groups, each of which worry about what's going to happen to them.

28:40They all talk about it. It's also the case that just mechanically, if you just look at what are the big tax bases, it's income and spending. And if you want to tax a smaller tax base, capital income or farms or interest, it's just mechanically harder to raise a lot of money. So you either have to raise a small tax by a lot, and that worries people, or you have to do what Rachel reads about and raise lots of taxes, lots of little taxes by a lot. So again, you're into the world of just more things being affected than if you just did one big tax. I think the mansion tax is kind of the amount of noise it attracted versus how much it raised.

29:15Yeah, really small. It dominated the headlines, didn't it? Yeah. What do you think of that tax? So I think if you want to tax, well, I think a few things. If you want to tax people with wealth, richer people, actually taxing their properties rather than their income is less distortionary than taxing their labour supply. something to be said for that. The background, the fact that council tax, I mean, we all know it's out of date, based on 1991 values, which is absurd. It's regressive, meaning that people at the top pay a smaller share of their property values than people at the bottom, for no particularly good reason.

29:49Not that it has to be progressive, but regressivity is very hard to defend. So I think you can make a case for doing something at the top. I don't love that it's a new bolt-on tax, and that now we basically have two property taxes. We have council tax that's still based on 1991 values and is still regressive, plus this new bolt-on tax that will be based on new values. But now we have those new values. We won't use them for council tax. That's really bizarre in my mind. And it adds a lot of complexity. And it's quite a lot of complexity for not very much money, like you said. I mean, in public finances terms, it's a rounding error.

30:21So if it were a step towards a better council tax, we revalued, we did it properly, made it proportional rather than regressive, I'd be really happy. I sort of fear that I'll still be here in five years' time saying we've got two property taxes. One is based on 1991, one is based on 2026. And it's just a bit of a mess, honestly. And they haven't indexed the value. So now loads of people that are getting dragged into it that weren't. And yeah, you know, in 20 years time, everyone's living in a two million quid house or something. But maybe they won't. Maybe what they'll do is just say, well, your house was worth this in 2026.

30:50It'll just be that forever. I mean, so we're still basing our tax on 1991 value. So how long will this one last? I don't know. The year 6 ,000. Exactly. At what point would we just say that actually 1991, there was so far away that it has to change? So look, I don't think as taxes go, it's not the most distortionary. You can make a case for fixing property taxes. What I don't love is, I say, the bolt. I mean, people ask me with increasing frequency, why have we got a tax system that is this long and complex? And this is the answer in some sense, that when polishes come along, they want to do something, rather than fix what we've already got, they shove something else on top and they like tweak something rather than just we're like, okay, let's just revalue this and redo it properly.

31:26You bolt things on. Before you know it, you've got a tax system that looks like it's a tax system, so the thing's bolted on for the last 60 years. It's the same with the cash ISA stuff and now the changes they're suggesting on stocks and shares ISAs. Okay, T, talk to me about your attitudes towards risk. I mean, I like a bit of risk in my investments, but I definitely would say since the podcast, I've toned it down a little bit, not quite as gung-ho and like carefree as I was in risk. Yeah, shooting from the hip all the time, weren't you? Yeah. I think personally that you should take risks, but it should always be in areas where you have a unique skill set, an edge, expertise, like your job, things like this.

32:03One area that I wouldn't take any risks is compliance. Yeah, the risk changes you grow in business, and you need to be on top of it, which is why we partner with Vanta. Vanta automates a lot of risk processes and helps you see your risks in a centralized platform so you know what really needs your attention. Besides risk, the main thing Vanta does is automate compliance with security protocols you need to scale, like GDPR, HIPAA, ISO 27001, and SOC 2. The beauty of Vanta is they make it easy to prove you're compliant with these standards, saving you up to 90 % of the time it takes, and on average half a million dollars.

32:37If you know what these acronyms like SOC 2 are, you probably need Vanta. You can book in a demo at vanta.com forward slash making money. There's a link in the description. what i'd like to ask is the credibility of these tax rises so if you look at them and how they're staggering in you've got like coming in april come in in 2027 coming in 2029 yeah is it realistic that the chancellor probably in an election year or around an election is going to whack up taxes on on the public yeah so i think it's definitely the right question to ask because you know chancellors in general of all political parties don't tend to want to be doing big tax rises and spending cuts pre-election.

33:14They tend to want to do the opposite. What might be a bit different this time is that the threshold freezes are pretty stealthy. Most people don't notice them. And there won't be a point at which people's taxes jump up on their payslip. Inflation will carry on dragging them into more tax and more higher rates, but it won't necessarily feel like a big change on any given day. So you could argue that actually now that's baked into the system, that will just happen. Fiscal drag will just behind the scenes quietly increase tax revenues. It won't feel like a big thing on April the 5th at one day. The other tax is, you know, things like the salary sacrifice on pension contributions being changed, the mansion tax.

33:53For the people affected, they're quite big deals. But for most people, they're not a big deal. So again, maybe you get away with that because it's a relatively small number of people being taxed. Same with the tax on electric vehicles. So I suspect you might get away with it in the sense that they will be followed through on, I expect, or at least I can see how they could be followed through on. But it will still add to this sense of, yeah, there's lots of bad, the pain is coming later in the election. I think actually the risks might be more, what it, I mean, I said the OBR had this big increase in forecast revenues.

34:26What if they don't materialise? Because you don't see them in the data at the moment. You don't see this big increase in tax revenues this year so far. The OBR think they're going to come in future years, what if they actually don't materialise, then you've got to do something about that. What if actually on the spending side, what if spending pressure keeps going? What if actually you don't want to shave back spending in the next spending review? I think in some sense, the risk is more around what if a Labour government going into election wants to find more money to spend, then what do you do?

34:53This is typical of these kind of forecasts and the way they structure them. And it's always like, we're going to spend loads of money up front, and then we're going to save money in five years. And then that never comes. But this is like a reverse isn't it it's like we're going to raise tax loads yeah but that features into their overall budget it all feels on the never never it does and actually there's a cracking chart that um the obr created a while ago now um and it basically shows and this is this is back from like 2010 i think so it's not just this government um governments always basically say they're going to get the debt down um in like three or four or five years and all the forecasts show this nice like downward slope what actually happens is this because they always say they're going to do it in five years time when five years time it's like oh actually maybe just another five circumstances exactly so in some ways you're always pushing it back so that's one of the problems of having a fiscal rule that's always about the future um that it's always you never get to the future in some sense right the future is always in a future point in time and it's always possible to push those things back so yeah i think there is a danger that we get to um near the election and there's other big things just to give you one example defense spending there's a commitment to raise defense spending to three and a half percent of GDP.

35:57To get from where we are now to that would be about 35 billion if you wanted to get all the way. That would be a bigger tax rather than we've just had in this budget. Now, the government could just not fulfill that commitment, but if it wanted to, that's a really beefy tax increase or a spending cut somewhere else. And that's just one example of something we might want to do. I mean, you know, the NHS waiting lists are still high. There's still aging, there's social care, there's other things. It's possible that actually things will still feel not brilliant and there'll be a case for spending more or doing something different.

36:27And none of that's in the forecast right now. Do what the French do, which is one sixth of defence spending is pensions. And that gets them to the spending requirement just because they spend 25 % of everything they spend on pensions, but they stick it in the budget. So they're Ministry of Defence budget. But go on, mate. Does that fiscal drag question as well? Follow up on the fiscal drag. You mentioned earlier that the government haven't been communicating everything that they've been doing and why they're doing it. But in the other way around, we have a very smart listener called someone smarter and someone smarter than me said a freeze sounds better than a tax rise to people who don't understand tax why is this allowed to be framed that way and i when i saw the freeze i was like yes and then i was like no no i read into it i was like oh this is not good no so why why do they get to the average i mean i'm on a podcast and i still got tricked by a finance podcast so how is the average person meant to understand what's going on we had the rucker wise amendment back in the day which was like sort of banned it and then it's got back in again.

37:22So basically what happens is that inflation is a tricky thing here. So what happens, you have, think about the personal allowance. That's the point at which you start paying any income tax. And what would happen in a normal world is that you set the personal allowance, which is currently what,£12 ,000 and something,£500-ish. And then inflation happens. And when inflation happens, that gets less valuable. So you move up and on with inflation each year. So if your wages rise just with inflation, nothing happens to your tax bill. you just move up. The freeze means that you stick with it in cash terms.

37:54So the personal ounce has been£12 ,500 for a few years, and will continue to be£12 ,500 for more years. So as incomes go up with inflation, so not because you've got smarter at your job or because you've worked harder just because of inflation, more and more people get dragged into paying income tax, more of their income is subject to income tax. And the same thing happens with the higher rate threshold. That's frozen. So more people are dragged over that threshold, not because you've had progression and you've got... That might happen too, but just because money in some is less valuable. Inflation means that a pound today is not worth the same as a pound tomorrow.

38:31So that's kind of what fiscal drag is. I mean, I think given the structure we have, calling it a freeze is fine, and that's what it is. You're freezing in nominal terms the structure of the tax system. It's like freezing it in time, in history. You have a historic tax system, but money is worth a different amount in future. But it's clearly a tax rise. I mean, to give you a sense of scale, if you take the freezes that were announced before this budget, they were already due... In fact, roll back a little bit further. Rishi Sunak first announced a freeze to some thresholds. At that point in time, the particular set of freezes that he announced were due to raise about£8 billion.

39:06Roll forward to just before this budget, the set of freezes that had been announced at that point were already going to rake in around£40 billion by the end of the parliament. Now this government's increased them, so they're going to raise another 14 billion. So by the end of whatever the year it is, 2030-31, you're going to have something like 54 billion more in tax revenues than you would have had if those thresholds had just moved with inflation. Now also worth saying that we actually don't know exactly how much it will raise because we don't know what inflation is going to be. And that's one of the problems with this whole way of doing things.

39:40I think it would be fine for the government to say, I want to change the threshold. I want to move the personal allowance down so that more people pay income tax and they pay more tax. But the government isn't saying that. It's saying, I'm going to freeze it in nominal terms, in cash terms, and I'm going to let inflation set the structure of the tax system. Whatever that is. Whatever that is. And if it's higher, we'll get more revenue. And if it's not, well, you know. So I think that is a very horrible way to just outsource the setting of the tax system. But it has a huge effect. We have something like by the end of 2020, 2030, something like another 5 million people paying any income tax, another roughly 5 million paying higher rates of income tax.

40:21It used to be back in the early 90s that 4 % of people paid a higher rate of income tax, of like 40 % or above. It's going to be something like 18%. That is a humongous change. What do you think is right or wrong? That is a humongous change in the shape of our system that's happened in this very I mean imagine if the government had stood up one day and said I'm going to change it so that it's no longer 4 % of people it's going to be almost 20 almost 1 in 5 people paying a higher rate that would have been like all over the front pages but it's happened in this kind of chipping away slowly kind of way so I think they get away with it partly because people don't understand it as well I think they cut out the bag a bit and I think that that tool is becoming less effective for them and they're getting it thrown in their face I think the public are waking up to it aren't they because a lot of people talk about it now it's on the BBC you know i bang on about it yeah and i and i think it's seen with real kind of it's like you're lying yeah you're just lying if you do it for one year you don't really feel it once you had it for like 10 years plus more people realize that hang on a minute i didn't use to pay tax like it used to be the case i can't make the exact numbers now that minimum wage workers who work full-time didn't pay income tax now it's something like you only have to work about 18 hours a week on average over a year to start paying income tax so there are whole groups of people who just thought of themselves as not taxpayers who are now taxpayers.

41:38There are people who never thought they were anywhere close to the higher rate threshold who are now seeing that they're starting to face that 40 % rate or the 100, you know, above 100. Working class jobs are now higher rate taxpayers, which really... So I think that's where it's, you know, you're right. More people are now noticing it because it's changing, it's changing things for them. And because people like ours are saying, hang on a minute, this is a tax increase. So did they break, did Labour break their promise to not increase taxes? I know, I just wanted you guys to put it. employer's an eye point.

42:08I'm actually really surprised this is even a debate, honestly. I mean, the working people thing, I think actually is a bit of a red herring in like, I think all taxes are on working people at some point. And actually, Rachel Reeves herself said last year, it's a tax on working people. So that I think is just put that to one side. But just more straightforwardly, the manifesto says no increase in national insurance, full stop. It wasn't no increase in the rates of national, it was just no increase in national insurance. And then freezing the thresholds, including the national insurance thresholds, increases national insurance.

42:37So did the employer national insurance rise. So does the change in salary sacrifice pension contribution. After the budget measures, we will get more revenue from national insurance. People will pay more national insurance. If that isn't an increase in national insurance, what is? So in some sense, I just think based on the kind of like fair use of the English language, it's a breach. So I'm sort of surprised that there's any debate at all about this, because I don't see in what world it's not a breach, honestly. But there is apparently a debate about whether it is or not. I saw she sat down with someone the other day and carved out the state pension and said, if you only receive state pension, you'll never pay tax.

43:11Because we're getting to a point now where the state pension is going to cross over into a taxable position. What struck me about that was you said that a lot of the spending is welfare. We're essentially increasing the tax on work or on income to fund the triple lock state pension increase. and pushing people into a taxable position on their state pension because of that triple lock, would it not be easier just to say, oh, we're going to just increase the tax-free threshold at the bottom end and scrap that, not keep uplifting that triple lock? Yeah. I mean, yes, basically. I think triple lock is an awful policy regardless.

43:45It should just go. I think whatever you think the level of the state pension should be, and people could differ on that, it's just a rubbish way to design tax policy. So another option, I mean, imagine that you wanted to keep the state pension in line with average earnings. That's basically, you pick a level, say 30%, or whatever level you want to pick and say, well, keep it in that. Just pick it to average earnings. And then if you want to, I mean, we did a big report on this. You could smooth it with inflation over time if you're worried about high inflation periods. You don't need this horrible ratchet effect that the triple lock gives you.

44:14So I get rid of that policy regardless of what else they want to do. But you're right, we're in this weird situation. They've said, if a state pension just trips you into tax, you won't have to pay tax. But what about the people who get a little bit of other income? What if you get 50 quid from somewhere, I don't know, interest in your bank account or something, and therefore you're tripped over by your 50 quid plus your state pension? Well, then I think you're taxable. So how are you going to administer this? So you have a big cliff edge between people who are just in and just... I sort of agree, if someone just owes a couple of pounds in tax, it's sort of not worth the administration to go and collect a few quid.

44:51But the minute you have that kind of boundary, you'll have very similar people being treated very differently depending whether they have any other income. It will just be easier to just not have the personal allowance trip the state pension. And people misunderstand tax bans anyway and how tax is treated. And you see that people believe that all of their income will be taxed at 20%. So you'll create incentives not to save so that they can be well under the line. And it's just like the wrong behaviours. yeah another behavior that i want to look at with you is is the salary sacrifice stuff because again this seems to be raised tax today from basically saying to certain groups of people we don't want you to save into a pension so that we can then fund the pensions of people who are retired today or the welfare bill yeah how big a deal is the salary sacrifice thing how how bad is it going to impact people yeah so i think salary sacrifice one of those it's an anomaly in our current system, actually.

45:45And I think the problem I have with this big picture with this reform is that there's no good underlying justification for kind of what the government's trying to do. So at the moment, you have employee contributions. So if you and I just shove our money into a pension, that do attract national insurance contributions up front. So your employer pays national insurance before they pay your wages, you pay your employee national insurance, and then you put money into a pension. And you have these salary sacrifice contributions that basically you say to your employer, I want to put some amount of money into my pension, they reduce your salary, they do it for you, and you get a big tax relief.

46:19But not everyone gets access to that. So it's already the case that actually there are lots of employees whose employers don't offer that, and therefore they have to pay their national insurance. So I think the first question is, why do we have this big difference? Why do some people get full national insurance up front, and some people get no national insurance up front, depending on whether they have an employer that offers this scheme. That just seems to me really hard to rationalise. More broadly, why are we treating employer and employee contributions so differently? I don't think there is a good reason to treat them differently.

46:49So I think you first need to decide, do you want to treat them like employer contributions and have no NICs or employee contributions and have NICs? Once you've decided that, then you can start to do a salary sacrifice. But before you decided that, I think it's very bizarre, actually. So what they've done with the salary sacrifice is say, well you can put up to£2 ,000 a year through this salary sacrifice mechanism, get your tax breaks and also for the first£2 ,000 you're taxed like an employer contribution, no NICs, above that you're taxed like an employee contribution, full NICs, with this new complexity around this£2 ,000 and how to administer that which people aren't going to find easy to understand I don't think.

47:25Because they'll have to trip into another scheme basically, there'll be salary sacrifice first, then a normal scheme. Then you'll have to just make employee contributions or you'll have to pay your nicks on it. So you've got to work out what to do and how to manage that. I mean, look, I don't think you can, I don't think, I think salary sacrifice is odd. It's odd because not everyone gets it. But I'm not sure how capping it and having this now, like, some's treated this way, some's treated that way is very easy to understand. Bigger picture, I think what we should be, the starting question should have been, how do you want to treat pension savings?

47:59Now on employer contributions, it is the case that they are the largest form of remuneration that never has national insurance attached to it, either on the way in or the way out. So think of income tax. There's no income tax on the way in. There is income tax on the way out after the lump sum. That makes sense. We could do that for national insurance and say, no national insurance on the way in, national insurance on the way out. I quite like that idea, honestly, for a couple of reasons. It would be simpler on the way in. It would be like, you know, no one pays national insurance on the way in, but you pay it on the way out.

48:29So it's paid at some point, but it's kind of deferred until the end. That would also mean that you could start raising tax from the people today, older people today, to contribute to the services we want, and not only from future savers. This way of doing it is basically saying, we're taking away some of these tax breaks, but we're taking them away not for the people who benefited in the past, they're keeping those tax breaks, we're taking them away just for the next generation of taxpayers. Now, it's a political choice in some sense. But that is a choice. It was a choice. You could take it away from either end, and it's a choice to take it away from younger savers rather than from people who've benefited in the past.

49:04And now we have this more complicated system where we've got this kind of halfway house. So, I mean, look, is it good or bad? I say, I think you can't answer that without the government telling us, how do you want to tax? Do you want it like an employee one or like an employer one? Because now it's just this weird halfway house. But looking through all of that, it clearly reduces is the incentive to save relative to today for the people who are using salary sacrifice contributions. It's also the case that employers, including me, will have to work out what to do when they've got staff who are making big salary sacrifice contributions.

49:35One thing you could do is say, okay, we'll just give everyone higher employer contributions and lower salaries. But that also implies less choice for the individual. Because if your employer just says, well, everyone gets a higher pension contribution and a lower salary, that will be great for some, but not great for others. And lots of individuals want to vary their pension contributions over time, like you save less when you're saving for a house and you put more in other times. So if employers do respond like that, that might sort of reduce the effect on savings, but at the expense of individuals have less choice.

50:08And that's not obviously a good thing. Do we have the most complicated tax system in the world? Oh, we're up there. Good. Maybe there's a worse one out there. I haven't looked at all of them, but we've got to be up there. Yeah. Martin asks, how much does the complexity of the tax system cost every year? How many loopholes exist? I haven't got a nice clean pounds billion number for you, but lots. I mean, lots and lots. I mean, it costs money in the way you would expect in the kind of just compliance costs. So individuals and businesses have to spend actual pounds money hiring accountants or lawyers or help to actually just navigate the system.

50:41That is going to be a huge cost. I mean, we're thinking, if you think of individuals, maybe it's like you have to pay your accountant, but businesses spend fortunes trying to work out like how to comply with corporate tax legislation or how to apply with VAT legislation. So that direct financial cost is going to be really big. But there's another cost, like an economic cost, where people are not purely making the best commercial decisions. They're making decisions that are driven in part by tax. And often, not because the government knows best and is navigating you towards a better decision, just because it's screwing up your decision and making you do something for a tax motivated reason rather than a commercial reason.

51:18And again, all those, at an individual level, they might all be relatively small. Maybe you set up for a company rather than a self-employed person, or maybe you take a dividend out or a capital gain out rather than a wage, or they'll look small at the individual level. But run that across what we've got now, 68 million people, I don't know, millions of people. They're a really big cost. I think the complexity of the tax system comes with a stonking great big cost. And sometimes it's a shame that people like me, there's not an easy way to put a pounds billion number on that. But if we could move to a world where you got rid of a lot of that, I think we'd have higher growth, higher productivity, higher living standards.

51:52Yeah, the fact that tax lawyers get paid so much kind of speaks to they shouldn't exist really. It should be easy to kind of navigate on your own and you shouldn't have to pay millions of pounds. Yeah. Well, there are whole bits of tax legislation that shouldn't exist. There are lots of tax legislation that's about policing boundaries where the government has put a really big boundary in the tax system where which side you are determines your tax treatment. And then you have all this compliance administration trying to... IR35 is an example of this, where people who know about this will be screaming at me about how much they hate it.

52:21And they should hate it. It's basically trying to work out when is a self-employed person a self-employed person and when they're an employee. In my mind, you should be able to literally press delete on that entire body of legislation by removing the big boundaries between people. But we don't. because we have these boundaries. And actually, you know, salary sacrifice is another boundary. There's another boundary, like the cash ices and stuff. There are all these boundaries you've got to work out what's this side and what's that side. It just adds a huge amount of energy. The one boundary that I think we could have looked at was the cliff edges around, you know, income tax and if you exceed 100K.

52:53And I think the salary sacrifice for many people was just a way for them to not cross that level so that they can not get a marginal tax rate that shoots up to thousands of percent on kids and stuff. But they seem to have closed. Yeah. Well, I can still look. people can still do that in the sense of, you know, if you're somebody facing that£100 ,000 cliff edge, especially if you're a family with children who has access to childcare, you can still make employee contributions and keep yourself below the threshold. You'll have to pay some national insurance. This is not financial advice, people should get better financial advice, but you'll have to pay some national insurance.

53:24But it will still be beneficial in plenty of cases to pay the national insurance on those contributions, but keep your childcare entitlement. So it's not that you can't save in a pension, you just can't save in the most tax efficient way. And it's still the case that it's still there's still, you know, you still have a lump sum tax. It's not a lump sum anymore, is it? But like, there's still a 25 % tax free element. So there is still an incentive to save in a pension. It's just been reduced. And because it's only the NI, I want to add some balance here is the amount that people are going to miss out on, let's say you're whacking the full 60k a year or whatever in, it's a, is it going to be a big amount of extra tax on that?

54:02Yeah. Like a grand or whatever, is it? Yeah, so I'm not trying to do the numbers in my head quickly. It depends on where you are. So, and also on how the employers respond. So, if at the moment you're based, imagine if you're a high rate taxpayer, you're getting tax relief on employers' national insurance contributions at 15%. But because national insurance has got this weird structure, you're only like, it's a 2 % national insurance, employee national insurance. So, in some sense, it depends what the employer does. If the employee only has to pay 2%, that's quite a small number. If what happens actually is that the employer basically reduces wages to get back that 15%, then it's a bigger deal.

54:38And I expect it will take some time for a thing to adjust. But look, for some people who are making very large contributions, it will be material, but there will still be a tax advantage to put money into a pension relative to other things. Okay, perfect. Thank you. One thing, one narrative that I saw emerge, there's always stories around each event. And I think the big one this time was the bond market and and how you know we're in the pocket of the bond market you've spoken before about being radical with with tax reform we saw this trust try uh it didn't go that well do you do you think it's possible to actually be bold yeah and i think so i think it's two bits to that i mean yes absolutely i think it's possible um the bond market is a bit of a separate point in the sense that look we have very high high debt we have high debt interest costs I don't think we're in hock to the bond market.

55:25What really is going on is that we can borrow more, but it comes at a really big cost. And therefore, if we do borrow more, or if the bond market investors don't believe that we're going to get our debt down, they'll just charge us more for our borrowing. And that's fine in some sense. We could just pay more, but that's really expensive. So I think keeping an eye on the bond market basically means keeping an eye on your interest rate you're being charged. And I think everyone can understand that, right? You want to borrow, but you want to know how much it's going to cost you to borrow. It's not that you can't do it.

55:50It's just that you shouldn't do it. I mean, the Liz Truss episode is a different issue because it wasn't just about changing taxes. It was having like no plan for cutting and it was throwing away institutions and stuff. Look, I think we absolutely could be bold on tax reform. I mean, it's not rocket science. People like me have been writing for decades on how to do it. I think you need the political will to make the case for a better system to be able to say, yes, there will be losers. Here they are. But there'll be winners too. And here they are. And we're all winners from a system that's less complex, that has less compliance burden, that doesn't distort behaviour as much.

56:24But if you think technically, you know, do we know how to reform property taxes? Yes. Do we know how to reform capital taxes? Yes. This is not rocket science. I mean, it would be fiddly. You'd need to have some new legislation. But I don't think it's beyond, you know, the wit of the wit of people to be able to do this. I think you just need a chancellor who's got some vision and is willing to say, I'm going to make this better. and I'm going to do some things that are not just bolting on stuff. I'm actually going to wipe away a load of stuff. In some sense, I actually wonder if bigger is easier in a sense.

56:52I think all the time you're doing a small thing to a small group, they feel picked on or it feels like you're margin. If actually you said, look, here's a reimagining of our property tax system or a reimagining of how we tax landlords or property income more broadly or investment income, I almost wonder if it's easier to go bigger, start with a here's how it would work and then delete a lot of stuff underneath rather than keep trying to tweak towards it. But no, I think if we adopt the attitude that we can't do it, it's too hard, then we've failed, right? If you believe you can't do it, then you can't do it.

57:25I think you have to start with a can-do, of course we can do this, then work out how to do it rather than always tell ourself, oh, it's too hard, we can't do it, or just tweak this. I think part of that point about being ambitious for the country is about saying, of course we can do this. We do lots of complicated things. Of course we can reform the tax system. So why is that lacking from the current government? Yeah, and not just the current government. I mean, recent governments haven't had a great attempt at this either. I mean, the Conservatives didn't do any better in some sense. And I don't know exactly what's going on.

57:55I think partly it is political short-termism, never feeling like now's the right time. Partly it is that the public finances have been tougher in recent years. It's much harder to reform taxes while you're raising taxes than it is to reform taxes while you're doing giveaways. Because all the time you're raising tax, you're going to make more losers. And if there's more losers than winners, they shout. I think it's partly just that nobody's sort of found the political interest in it. No one's found the way to make it a good news story. So I think it could be a good news story. I think being on your moral high horse and say, I'm doing this for a good reason.

58:30I've got a principled reason. I've got a vision. I'm going to make the country better. I think turning that into a good news story could be the way to go. And so far, no politicians, that's not the battle they're choosing to fight. So I think we should keep calling for it. I think we should keep asking our politicians to do better in some sense. But they haven't so far. Do you not think if they did fix the council tax, for example, like everyone would be, they would understand, even obviously the rich, wealthy people might have to pay a bit more. But don't you think everyone would say it makes sense, it hasn't been updated since 1991.

58:59This is an easy win and we can make more money. Yeah, look, I think some people would absolutely hate it because they would have really big increases in tax bills running to the thousands of pounds, and they'd hate it, right? So I think what you'd have to do is make the principled case for it, highlight the winners. So actually, people always point to the people at the top who will be paying more. There are plenty of people in parts of the country who actually, if you made it proportional, would be paying less. They are tax cuts. I mean, I think it would be easier to do it in a revenue-neutral way that said, I'm not raising any money overall.

59:30This is just a pure redistribution across houses. and then you have winners as well as losers. Or, you know, go, it's why I'm going bigger, go full hog and actually do council tax and scrap stamp duty at the same time so that actually people at the top get, you know, some winners and some losers. Because they might be bounced then. They'll be like, oh, we can move because we're not paying much winners. Yeah, and stamp duty is an awful tax, right? So actually, I wonder if rather than these little like bolt-on taxes, if you just said, we're going to revalue, here are the winners, here's why it's currently unfair, we're going to have this we could get rid of stamp duty whether actually that wouldn't be easier to do as one big big bang um but it's more transparent than being like we're going to freeze everything and then actually everyone's paying more i think so yeah i mean so i think actually just being just explaining things to people is actually underrated just tell people i mean you know not everyone's going to love it they're not let's say there are plenty of people who are benefiting from the current broken tax system and of course when you reform it you'll be taking it away and make some people worse off you're not going to not make losers but the flip of that is that there are people who are currently winning from the broken system not because we wanted them to be winners just because they accent are winners and the only way to fix it is to take that away from people so i think you have to make the principled case for it um and it is tricky because look people aren't tax experts this stuff is not you know conducive to a quick 10 minute bbc headline you have to find a way to communicate it but i think we could have a crack at that honestly i think someone should have a go but when you have the ear of the government like they look at your research and you probably speak to people in very senior positions they're desperate for growth and you're there saying well you could reform tax and get some growth there and it's you know you're not relying on foreign investment or building massive ai data centers you're just rewriting paper why don't they why are they not listening yeah and look i mean i think they are listening in part there are some things like the evs is a good example again to get credit where credit's due we've been saying for a long time at ifs that look you can see that fuel duties are declining politics as a government's own plan to get rid of electric vehicles there is still a big cost imposed by electric vehicles in the form of congestion you probably should start getting a tax on them start a small level so at least you've got the tax to build up and they've now bitten the bullet they've done that right so it's not perfect it's not quite how i've designed it but you know they've made a move so they do make moves sometimes i think part of it is um it's quite a lot of work um and part of it is that in some sense there's not you have to do quite a lot to make it show up in the forecast.

1:01:57So I think from the political point of view, you could do some things that I would say, great, tick, but it wouldn't be quite big enough to show up in the forecast. And therefore you couldn't really point to it in a way that's easy to explain. My point is that you shouldn't wait for those things that are really big because there aren't many of them. You've got to do lots of small things and keep adding them up. But that's not going to give them headrooms or... No, exactly. You have to do it for the reason that says, OK, I'm not going to see it in the next two, three years, maybe. I won't be able to put it in the forecast.

1:02:23But if you do enough of them, We'll have what really matters, which is actual growth, actual high living standards. And in five, six, seven, eight, nine, ten years, we'll start seeing the power. So it's partly a political cycle point. It's partly about doing things that aren't going to show up in the next two years, but will show up eventually. It's one of the reasons why it's disappointing that this government hasn't done it early in the parliament, because in some sense, the easiest time to do it is right after you're elected. You've got a big majority. You've got some time for these things to start showing some effects.

1:02:50once you get close to an election saying i'll do something that affects in five years time it's just as exciting for politicians that they're not worried about five years they're worried about the election cycle so um and i think we should keep pushing i think it's the right thing to do but um i think it's hard to get politicians excited about doing lots of small technical things that might add up we're surprised there wasn't more changes to pensions what with torsten bell who was quite bold before coming into uh before coming to politician he had some radical forms and there was a lot of rumours wasn't there about tax-free cash lump sums and things like this yeah um am i surprised i mean look i think the speculation about pensions is really damaging because it's a long-term investment i think the government just needs to i mean ideally would have already got a plan set it out shut down the speculation so this is what we're doing nothing else is going to change all stop worrying about it and stop you know panicking um they've got their i think they call it their pension review their pension commission they've got some big review of pensions um so i guess they want to go away and think about it again i hope i did let they done that faster um but in some sense no i'm not so surprised because it's a big technical area you don't want to be doing lots of ad hoc flipping and flopping a solid sacrifice in some ways is the part of problem is they didn't start with what they wanted they just start with this moving of the boundary um but it means that people keep speculating about what's going to happen i mean it's not just a pension tax treatment it's also things like the state pension age and the triple lock and i think the government's committed to keeping the triple lock for this parliament which is which is sad um so no i'm not that surprised but i think this government and the next government just needs to get a plan for pensions communicate it clearly and then stop um because i think every time people are constantly worrying about what's going to happen it's bad for bad for savings are there any other areas of the budget that you think are damaging that we haven't touched upon?

1:04:38Obviously, the fiscal drag. Yeah, I mean, look, it's a relatively small one in pounds, billion terms. But again, it made me sort of feel a bit sad that there's been this increase in taxes on interest income, dividend income, property income. And that, for my mind, is a classic example of one of these things where if you just increase rates, you get a trade-off. So you increase rates. Some of those incomes are now taxed more similarly to employment income. That reduces some distortions. You've raised some money for some people that they want to tax politically. But the tax base is badly designed.

1:05:11And therefore, because of that bad design, the higher rates mean you've disincentivised savings and investment. And the reason I'm sad about that is partly because I just don't like disincentives, but also we could have done better. We could have changed. I won't launch into a tax lecture, but we could have designed those tax bases in such a way that we didn't have to have those downside effects. So what I'd much rather seen the government do is say, we have grappled properly with this. We've changed a set of allowances. We've designed the tax base in a way that we've written about many times before.

1:05:38We've done this. And now with that in place, now we can increase some rates and we won't disincentivise investment. Instead, it's just another classic, we've just put some rates up and without changing anything structural. So they argue on the savings side. So this is any interest you earn on cash above the personal savings allowance, that basically it's not exposed to NI. So they're kind of whacking on, but it's a return, isn't it, on an investment? There's lots of investment returns that aren't subject to NI. You might call me cynical, but do you think that the reduction of the cash size limit and that increase on that side is just to generate more tax revenue from cash savings than it is this point around, we want people to invest, so we're going to try and push them into stocks and share sizes?

1:06:21Yeah. I mean, overall, this is not a big budget for savings and investment, right? They've increased taxes on savings and investment, and they haven't done the tax-based reform that you would need to do to stop it being a disincentive, so it's a disincentive. Actually, on the cash ISA, on the interest income, again, starting with the sort of big principles, I don't think actually we should be taxing that interest income at all. So stocks and shares, I'll come back to, I think they're different. But if all you're doing is putting your money into a cash ISA or a cash bank account and just saving it until tomorrow, so it's regular interest, no high returns, then I think that's just, you're being compensated for the delay in having to get your money out tomorrow.

1:06:59You're transferring a pound a day to a pound tomorrow. And because of inflation and other things, a pound tomorrow is worth less than a pound a day. And therefore, if all you're doing is smoothing your spending over time, I wouldn't tax you on that at all, actually. So I would actually have, you know, I'd be very happy with a cash that had no limit on it, or actually with no tax on interest income. Now, dividend income, property income, other investment incomes are different because they're not just transferring money to tomorrow. They're also the returns to labor or effort or luck or other things.

1:07:29And you do want to tax those things. But on the interest income, I think it's straightforwardly moving the wrong direction because it's increasing a tax on something I think shouldn't be taxed. On the cash ISA thing, I can see why you might think that some people are not taking advantage of stocks and shares ISAs or investments. But if the problem there isn't probably an information one, people don't have the information they need or they don't have the confidence they need to invest in it. It's not clear to me that just saying, well, I'm going to stop you saving in cash is going to help. I mean, some people will still be able to save and they'll be below the limit and therefore it'll have no effect on them.

1:08:04Other people will be above the cash limit, but they won't necessarily put it into stocks and shares. They might just save less overall. And there are some people that at some points in time probably should be in cash for a period. Like if you're about to buy a house, you might want your money in cash for a short period while you're doing something. So I'm not sure, it's not clear to me that it will get people investing into stocks and shares. And if it does get some people into stocks and shares, it has a cost for other people because you've manipulated their savings patterns in ways that you don't necessarily intend.

1:08:36And again, there's now a boundary. We now have to police the boundary and work out what's a cash saving and what's a stocks and shares saving, which might sound really obvious, but actually isn't always obvious what's cash and what's not cash. So there's been more policing around that so it's not clear to me this is a step in the right direction you could argue step in the wrong direction do you remember the conservative britice plan that was floated yeah it was like an extra five grand if you only invested in uk companies yeah and i think a lot of people probably would take that now i would take that with both hands people at the time were like oh it's a stupid idea but actually it's a bit more carrot than it is stick and you know by cutting down from 20k to 12k that's a that's a who said there's not many people saving 20k a you in cash anyway so those kind of people that you're trying to push the other way there might be people saving for a house say that you're now just penalizing and they go in they're putting everything they possibly can in towards trying to get a house in london or whatever uh at least the brit isa because if the chancellor's saying i want investment because i want people to put money in the uk market there's so many steps from reduced cash isa to i'm putting money into the footsie 100 it just doesn't seem like a i think you've got to work out first like why aren't people putting more money into investments?

1:09:46Because there are higher returns on those investments. People are missing out on them sometimes. Why aren't they doing them? And sometimes it might be because actually they want to buy a house and they're waiting to do that. In other cases, it could be, like we said, they don't have the information, they don't have the skills, they don't have the confidence. And actually, maybe we should tackle that more directly, help people work out. Because it is a bit of a complex system. It's not entirely obvious to people. There's lots of choice. How do you choose? Help them work out. How do you make those choices?

1:10:12how do you you know how do you decide how much to put your money into safer assets how much to put in riskier assets depending on your own circumstances and how much risk you can bear um i'd like to see the government helping before they try to manipulate it through through these fairly blunt limits i think yeah like the distribution of returns and how to expect them is a key one because if you're coming from a cash iso position where that money just lands every month or year and you move it into the stock market and it drops 10 you're like what the hell you're pulling your money straight back out again yeah we shouldn't be doing right so usually.

1:10:42So yeah, I think it's that point about helping people be ready for it rather than me. So I guess we'll see. But like you said, a lot of people, I mean, most people aren't lucky enough to be able to save 20 grand a year in anything, whether it's cash-wise or anything else. So for a lot of people, this won't actually affect their limits. They're way below the£12 ,000 limit. It won't affect their choices. For the people who are, also people often, they're not necessarily putting the same amount of money in every year, right? You might get an inheritance one year for example and put a chunk of money in um but not do it every year so now you might just wait until next year and shove it in next year so it won't it won't affect everybody um but for those there are special limits you get like a one-off limit for around certain inheritances don't you for ice as well you can use the ice for allowance but it's more complex i was going to say good thing it's nice and simple as an educator on these products it just makes me wince at the videos i'm going to have to make of like isis for beginners and i'm like well you've got this scenario and this scenario but oh no the interest on the cash in this one and that one and people are just gonna be like forget that i'm just gonna go stick it in a bank account and you know pay and like they'll miss out which is i think it's a real shame yeah yeah have we got any more listeners questions mate i think we've got that one on the back end loaded one we've got a couple down here this bonus question oh yeah that's that michael one yeah the last one yeah what's michael got for us michael bit of doom and gloom

1:12:05given the aging population low productivity and rising public service costs what single politically realistic policy would improve the uk's long-term outlook oh i'm gonna be unpopular and give like a politician's style answer i'm saying i think we need to stop thinking that there is a single policy that's going to do that for us i think part of the problem is that we have this attitude like what's the one thing we can do to move the dial. If there was that one thing, we'd have found it, right? I think this is the issue that politicians have. They're always looking for that one thing. And it just doesn't exist.

1:12:35You've got to just do the hard yards in lots of policy areas. Like, look, planning is an issue in this country. We're not very good at, we make planning very, whether that's for roads or houses or nuclear power plants, and the government's already tackling that. So if you had to start somewhere, I'd say that planning was a good place to start because it's so restrictive. And if you can ease that and get more building, then that will help with growth. So in some sense, they found the thing that might have been the single biggest, and hopefully they can deliver on that. Outside of that, I think it's, I mean, take a different example.

1:13:07I always use a tax example. Take the education example. What's going to make us more productive is making sure that our young people get the skills they need to go into the future workforce. Now, that's always hard because what's the future workforce going to look like? I mean, I've got little kids. What do my little kids need to make sure that in 18 years' time they're ready for the labour market? Don't know. So it's hard to design education policy. But we also know that the outcomes of children at the age of five and six, basically you can predict very heavily and worryingly heavily at that age how they'll do when they're 18.

1:13:40So it really matters if you get it right at that age. We need to think hard about how do you get children at all ages the right skills? How do you get them equipped for the labour market? How do you get them equipped from AI, where now AI is going to transform probably education and the skills you need. But you also need a system that doesn't flip flop around every six months. So the government, you know, has been changing a lot, the further education system, the kind of vocational system, no one knows what that system is. But as an example, where there isn't a magic button there, you have to have a sensible set of plans about education, put them in place, leave them alone, or have them adapt in a sensible way.

1:14:14And that would help. Then you have to do the equivalence on competition and regulation and everything else. So I think the message is let's not get hung up on the policy. Let's have more kind of a dogmatic at every turn we have to be asking, how do you design this set of policies to make sure we have good investments in people and places and capital? And if we did that systematically, I think that would move the dial. I think if we're always looking for the kind of the holy grail, the one policy that will make it all okay, we're going to be disappointed. Okay. And the final question is, how as a citizen of this country with one vote, can I kind of influence that sort of decision making?

1:14:55How can I make them, the politicians I vote for show up in that way? Yeah, great question. I mean, look, in some ways, listening to this kind of stuff is good, right? You're getting more informed about things. I mean, I think policy advisors often say, well, we couldn't do this, voters wouldn't like it. We couldn't do that, voters wouldn't like it. And my response is always, are you sure? Have you asked them? Maybe they would. So in some sense, using whatever mechanisms you've got, whether it's, I don't know, talking to your MPs or whatever else it is, and asking for more in some sense, you know, making it the case.

1:15:25I think it needs to be, politicians need to be able to confidently say that if I did this to tax reform, voters would like it. So I think it's partly voters, all of us getting informed enough to not be tax experts. I'm not saying anyone should go out and do what I did, spend 18 years studying the tax system, but to know enough to be willing to call for some of this stuff. And maybe not be fooled in by people promising simple solutions to the big problem. Yeah, because there isn't one. I mean, look, you can always think of taking the triple lock away even. That's a big kind of totemic policy. And I do think it's a rubbish policy.

1:15:58I do think it should go. Actually, imagine the government deleted it. It wouldn't have had much effect on the next five years, honestly, because in the next five years, it isn't due to effect very much in terms of be very costly. Now, 50 years out, it might have a huge effect, but no one's going to get credit for that at the moment. So even if you think of these big kind of iconic policies, even then deleting some of those wouldn't have a big effect in the here and now. You have to do them for the future. So again, I think you have to do lots of these things and call on lots of changes. Well, thank you so much for your time today.

1:16:30Thank you. You want a biscuit? You're going to pick one of my... I want one of these big ones. No! You bought three packets of biscuits? Yeah, you bought 300 biscuits. No, but they're all one type. One type. You bought like, you bought the whole of booths with you. Ginger biscuits. I feel bad enough. I feel like you've been, I wasn't thinking of it as, I do have kids, yeah. You take a load of these home for them. Great. I'll have a couple of caramel wafers and I'll have a ginger biscuit. What we got for you. Two off the top, three on the bottom. Yeah, yeah, great. Everyone's a winner. I'll have a caramel, mate.

1:17:00I'm getting into some of these plantain shits. No one wants one of them. Leave a hard pack, mate. No one's going for your savoury bananas, mate. Mate, everyone very much. I'm going to try it.