Your taxes are about to go up (again)

22:53So there was no more dividend to come. But also now this government has chosen, and I expect other governments might make a similar choice, to start increasing defence spending. So now we're in a sort of an unusual position of trying to increase defence spending and health spending at the same time. And that puts pressure on government. I also said there's also just been underlying pressures on what the government is trying to do. So I think the starkest example of this is the disability bill. So we give some benefits for people, there are different types of benefits, people with various types of disabilities.

23:25And both the number of people claiming those benefits and the cost of those benefits has gone up hugely. Is it 10 % of working adults, like adults that are available to work are on disability benefit? Yeah. So you take one room, you get 10 people in a room, one of them will be on, which seems mental in a way. I don't know. I mean, I don't want to speak to people. That's a lot of people. And importantly, that has been a big increase. So I haven't got the exact numbers in front of me. But it's been something like, you know, it used to be sort of like 30 billion. We're now something like 60 billion.

23:56It's going to go up by even more. So part of the answer to the, well, hang on, haven't we had all this austerity and these cuts? There have been big cuts to bits of government. But there are some bits of government, health, defence, disability, that are actually going up quite a lot. Now, the local government one, I think the word local government always sounds really dull, but it's actually really fascinating. So think about your councils and what happens in your local area. People immediately think, I think, of like bin collection and libraries. And they do do that. But actually, a lot of what local government does is social care for adults and children.

24:27And what you've seen is a big increase in the cost of social care. So actually what's happening is that there's been an overall squeeze in the budget. but even within a budget they're having to put so much more money into into social care for adults and children that everything else is getting really really squeezed and most people in that area won't see that spending because most people at a given point in time aren't receiving social care for adults or children um but those who are that that bill is growing so again it's an example where there has been a squeeze overall but some demands on the state are going up really quite a is that why birmingham can't get their bins collected because the money's going to the social class side of things.

25:03Broadly, I mean, every council's got their own specific set of circumstances going on. I think Birmingham has some other things about what they invested in. But yeah, the big picture story is that local government has had a budget squeeze, but the demands placed on local government have been increasing. A similar issue is going on with education. There's been a huge increase in the number of children with special educational needs and disabilities. Huge. Last time we recorded, Tamay, and you were having some real dramas with your accountant so how's that been going mate? They're sacked so drama sorted.

25:35They're a big corporate firm they didn't really reply to my emails very quickly like took a week or two at times and they charged me way too much I mean I've got pretty simple taxes and yeah they were charging me thousands they saved me some money but yeah I had to move on. Slow and expensive. Pretty much yeah. This is one of the reasons that we're really happy to be partnering with Tax App. It's a tech platform that makes self-assessment simple whether you're self-employed like me a freelancer or a director like Demo, big dog. Instead of sending endless emails, bills and spreadsheets to your accountant, you just connect your bank, answer a few questions that are only relevant to you and your tax return can be ready in as little as 15 minutes.

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27:57There's a link in the description though, so you can just click that. Why are these increases coming for social care and children with these needs? How do people suddenly become more ill? More needing of social care or more? Especially when the NHS is getting more money than ever, you'd think it would be looking after people. And like more information, medicine's getting better and, you know. Yeah, I think there are a few things going on. I don't think we have a full decomposition. I think partly it looks like there's some evidence that people are getting more unwell in terms of disability. So there's been a big increase.

28:28So part of the disability has come through mental health. And there's some evidence that mental health has worsened. So it's, you know, there might also be some issues, I think about children's special needs, of greater recognition or diagnosis. Autism and ADHD. Autism and ADHD. speech and language problems more generally. So partly it could be a recognition of problems that were there anyway, but have been recognised. And part of it could be a genuine increase in need. And I'm not sure we have perfectly bottomed out exactly the splits. But they're good examples where there are just growing pressures on what the government has to do.

28:59There are also other things, again, getting a bit into the weeds, about the productivity of the government. So you put in some things into government, like inputs, money and wages, and how much you get out the other side, a lot of services like the NHS and the justice system are just less productive than they used to be. So for a given amount of input, resources, money, you're getting less out. And again, it's going to vary why that's happening across different services and it's not fully understood. But that also matters because you're not getting as much return as you used to. But again, I think the important point for people to take away from this is that these are the kind of choices we have to make, right?

29:31Do we want to put more money into the NHS or social care or special educational needs who should be supported for their disability how should we support them the government had a plan they had to u-turn on the plan then we could debate exactly what the system should look like but i think we've got a system that's going up so fast i think it has to be right to ask is that system doing what you want it to do all the people with mental health problems are they being well supported by this system would another kind of support be better who should be getting support i think those are debates we should be having um and we maybe we'll decide that yes, system's working as it should, everything's fine.

30:04But I think we should be having those debates about what the government should do. Yeah, because the one thing that when you look at the data about the long-term disability or sickness benefits, people just don't come off them. It's like a trap. They get into that system and they get stuck. And that's a real shame, isn't it? If someone in their 20s is all that labour and output that they had, that potential just gets kind of wasted. We should be looking to try and stop that, right? Rather than going for more money. I think what's really hard about the disability debate is that people are in lots of different kinds of situations.

30:33So there'll be some people who might have, you know, a very acute physical disability that's not going to go away. They're going to have a lifelong condition that means they have higher costs of living. And you might think that actually you want to permanently support that person in that cost. And then you can put other people with all sorts of different conditions, but other people might have, you might have a person in their, you know, late teens, early adulthood with an anxiety disorder, for example. and you want to think, I think you're right for that person, it can't be just right to say, well, you've got a permanent condition, we'll just give you some money in some sense.

31:05You might want to give them some money. The rest of your life. But you surely have to also think about how can we support that person more holistically to try to think about how can they manage or overcome some of those things. But I think what makes it hard is that in these debates, everyone will have in their mind the stereotype of the person on these benefits. And the reality is you're trying to design a system for lots of different kinds of people. and you have to have a system that's going to work for different combinations of things. So why did Labour struggle to get through their welfare reform bill and do you think they're going to go at that again?

31:36Because this seems like an obvious part, because it just doesn't seem sustainable to me that 10 % of people that could work aren't. So I think the problem they basically had was they were trying to save£5 billion, which in some sense is a lot of money and it could have been a big change for some individuals. Actually, the disability bill would have still been going up over time. It's just it would have been going up less quickly than it otherwise would have done. And I think it basically, they didn't get it through their backbenchers because it was seen as being done as a cut for cut's sake and not as a more principled look.

32:08Anti-Labour of it. Not as a principled look of like who should you support and how you should support them. It was just of a, well, just cut back generosity. And that's why it didn't get through, I think. I mean, they have a review now being led by Stephen Timms that's meant to be looking at the system. although he said that his aim is not to cut the generosity it's to think about um is the system well designed to help people but like i said i yeah i think when you've got a bill that's going up so quickly even if you want to decide ultimately that it's fine i think it has to be right to look at that and say this system is clearly going to more people than it was ever designed to go to originally who is it going to what are they getting and how do you support people like some people have disabilities and they're in work some people are out of work we have different ways of supporting those kinds of costs?

32:51What's the right balance between those things? How can you help people who are disabled to get into the job market or to stay attached to the job market or, you know, to have adaptations that help them go? I think it's all these things you need to think about. And it's not just, there's not just one lever, like more money, less money. There's all sorts of things that go around. And there are other important things that people in this space would talk about, about like, I don't know, dignity or like what the system asks of you or what you're required to go through to get these benefits. I think people's experience of interacting with that system also really matters.

33:20So I think a kind of a broader look at the system and how it's working is right. But I also think when you've got a bill that's going up so much, we should as society be asking, what do you want to spend on those kinds of things? What about our OECD peers? Are they seeing similar pressures within their welfare systems like that? Or is it just us? So other people, I haven't got all the figures, but other people, other countries are seeing some increases in health related issues. Their systems are kind of different. They're not, they're not that has seen a particularly high increase in some of the bills.

33:50But our broader welfare system is different too. So it's a bit like you're not comparing like for like in some sense. But we're not entirely alone. So some of the underlying increase in health problems look like they're real in some sense and other places are getting them. But other systems look different in how they support people. Yeah. My own personal experience is that all of these systems, all of the parts of government spending feed into each other. And we often forget that. So I won't hop on about it but I had an incident where some stranger just punched me in the first side of the head on a night out I didn't know him it was like an unprovoked attack and you know I was fine like mentally but I could see how someone might come out of that and be so anxious that they would never want to leave the house again and and that's because and that person it took 12 months to go to court they were found guilty of like GBH for an internal whatever but the prisons were too full so they didn't go to prison they were ordered to pay me 15 ,000 pound they paid 300 quid and then and they've never done anything since.

34:47So, you know, there was no punishment. I went to hospital. It took 17 hours to get the brain scan because they were like, sorry, there's another 30 people here who need emergency brain scans. And the doctor said, if you want to get served quicker, just pass out, and then you'll go to the front of the queue. So I was like, all right, great advice. You know, you need an emergency brain scan, but it's going to take a day. But anyway, you could see how the different components, I'd never really considered that the court and prison system could lead to people, you know, falling out of work, But for someone like me, who is highly productive and pays a lot of tax, at that moment, I might have slipped out of the system and become a nervous wreck and being like, I can't leave the house anymore.

35:24And it feels like we go, oh, we'll just cut the prison and court budget. And that won't impact the amount of people that work. But it does. It all ripples. It's like one big system, isn't it? It is a big system, yeah. And there's lots of overlaps between the ones you've mentioned. Also, the overlap between social care and health care and, you know, interactions between, think about children, whams at home, whams at school. So, there's the formal education system. There's also all the support networks that go to parents around that. And these things are all interacting in important ways. But it's also important, it's a good example, that it's not just about money.

35:58I mean, money obviously makes things easier. and if you know if there was if there was more growth in the economy had a bigger economy it would be easier to spend money on things but take the court system um we've actually been doing lots of work on that recently back at the ifs and that's an example where uh it looks like you know productivity took a big hit during during covid um and some of that you might be understandable like you know courts were closing or whatever um but actually if you think about now how do we get rid of the backlog because there's a big backlog in court system and that causes the kind of problems that you experienced right and people it makes people people really notice that right most most of us aren't interacting with the court system most of the time but when you do it's because something's happened in your life that's unpleasant and that needs a resolution and you want justice and you want to want to get through that as quickly as possible so the backlog i think really matters for how people experience what the state is doing um but actually if you just threw money at the problem it's not obviously going to solve the problem i mean it might help But you need courtrooms and you need judges who are already trained to take.

36:56So you can't just immediately get tons more judges, right? So you have to think about, you know, in that backlog, how do you prioritise who gets to go into the court system? Or how do you think about the resources that are needed for those things? So I think it's a good example, which we put earlier, is that you need really good policies that need lots of detail. You need to do the hard yards and think about in an area, you need specialists to think about how do you manage the court's backlog? How do you manage, you know, not just how much money do you pour into the NHS, but how do you manage the interaction between GPs and other local services?

37:27And how much money do you put into capital equipment and IT versus nurses? And how much middle management do you need? Because, you know, it matters how you're doing the rotary and all these things. I think whatever money you're going to spend, you've got to have really good policies that mean that actually the state is working really well. And that's much harder, right? I think what politicians need to do is find a way to work. But growth would make those things easier. And here are the things we need to do to get growth. And if we had growth, these things would be easier. I think putting those things together for people, which is difficult, right?

37:56Because, you know, growth is this really big, abstract concept. But I think if we started there, people might be more willing to talk about, like, you know, why should we all expect? I mean, I think it'd be great if we expected, and demands of our government, a really big budget, that had a lot of tax reform in it, and that actually made some losers. Because tax reform basically means you want to take something from somewhere and move it somewhere else, even for a given level of revenue. So you should expect there to be some losers because currently the system is unfair in ways that people are kind of unfair winners of some system.

38:27I think we should be demanding our politicians like, yeah, I want a better tax system. I don't want a tax system that is doing this much damage. I expect my government to tell me how you're going to fix it. And instead people are like, politicians do these and they pick them in isolation. You know, the inheritance tax on farmers. A lot of people felt sympathy for the farmers because they felt they've been targeted, they've been picked on. Actually, I think it was a really good case that the reform was moving the right direction and moved towards a better tax design. But it wasn't framed as a tax design problem.

38:54It was like a make system. It sounded like we need some money. We've picked this group and it's the farmers. And of course, then everyone feels sympathy for them because they thought, why have you picked on them? They're making our food, et cetera. So I think if we had a broader debate, people might be more likely to demand of their politicians bolder action and accept that it's going to be some costs along the way. and I think I think if you start with a bigger picture of it again I'm not a politician I'm not trying to be elected but I think if you start with a bigger vision about what we're trying to do and have these kinds of conversations people would then not only expect but desire a government that said I'm going to do bold things you should expect me to be doing bold things because that's what it's going to take to move the dial so why don't they yeah I was about to say because the IFS you guys like from your podcast and everything you say it's all very on the nose it's very like logical it makes sense I don't think many people disagree with it but are the politicians just too worried about being re-elected?

39:44Like, why don't they want to make bold changes and reforms? Yeah, I don't know, honestly. I think there's a few things going on. I think it's, you know, this stuff is hard, right? And I think when you're talking about these kinds of policies, whether it's for children or for tax or whatever, details actually kind of matter quite a lot. And therefore, it's hard to do the kind of poster version of it that says, you know, here's the thing you put on a bumper sticker around the election. I think you need details. And of course, there's always somebody out there in the spectrum that's making it a case.

40:16There's an easier solution out there. There's a kind of, here's a problem, you just need a wealth tax or you just need this. So in some ways, you're competing with much, much simpler narratives. And I'm saying there's a more nuanced, more complicated narrative. And I think that just makes it harder to find a way to convey. I mean, we've been talking about this for, I don't know, a while now, right? It's not the 90 second soundbite that you put on a TV screen. I also think we're in a bit of a bad equilibrium where we're sort of, I think there are a bunch of things that are just put in the too hard bucket.

40:42and I think they're put in the too hard bucket because politicians think of them one at a time so if I take pick any tax reform um and you pick it like inheritance tax on farmers you pick that and you say well that that looks really difficult if you do it on its own we saw they did it on its own and it was really difficult but it's because you're looking at it in isolation I think actually the mistake they make is they look at things in isolation and on their own they look kind of difficult I think if you stop with a much bigger like actually we're going to reform the entire our way we tax income.

41:08Big bang, all of it. Then I think actually, in my mind, it's harder technically, there's more things you have to do, there are more policies to design, there's more legislation you've got to change, there'll be more losers along the way. So in some sense, it's bigger, and you're going to upset more people. But I think that that broader view allows you to make a principled case as to why you're doing something that could be better for the country. Whereas if you're just doing IHT on farmers, it's really hard to make a principled case. It's just, it looks very targeted. So, but I think partly it's just, so partly I think it's that the debate has lots of simple narratives out there and you're competing with simple narratives.

41:44I think that politicians sort of feel they have to compete on those terms. And partly is these policy debates are hard and technical and you have to find a way to communicate that. I was going to say, it's a communication problem. I think I'm more optimistic about people actually than a lot of politicians seem to be. I think, I mean, they're busy, right? And I get it. People are trying to get their kids off to school, they're trying to get their laundry done, they haven't got time to be sitting and being a tax expert. So I get that people are trying to run their lives and lives are hectic. So I don't think people should be expected to be tax experts.

42:15But I do think people want to be part of these big debates we're having, at least to know that these debates are happening in a sensible way and to not fall into this, well, it's either this or that. I think they get these simple narratives aren't quite right. So if I apologize... People want to listen. I think so. Stan Needle and people like that, and they're getting popularity. They don't want to be a tax expert, but they want to hear from them. And they want to hear from people that have like, you know, that are highly credible, that clearly know their stuff, but can communicate in a way they understand.

42:42I think it's one good thing. Sometimes, you know, people talk about the, you know, fewer people get their news now from just, you know, turning on the TV and watching a mainstream channel. More people listen to podcasts. They listen to longer form interviews. I think that's good. I think people are more engaging. Not everybody, but, and obviously TikTok's not that. You know, there are some things that are just, you know, you get your 20 seconds or whatever. But I think in general, people do want to have more engagement with topics. So I'm sort of, I'm more optimistic that you could have conversations with people.

43:09But look, it is hard. And, you know, I think Labour's, seeing that with the current government, Labour went into the last election feeling like they just had to win the election. And therefore, they would sort of try to do it at any cost. And I think they thought, and I'm not a politician, but I think from the outside, it looks to me like they thought the kind of least risky way to do that. We'll just say, we won't do anything. There's no tax rises here, no borrowing. And look, we'll even say, here's a list of things we won't do on tax. And they got through the election. Well, they hadn't really worked out.

43:36If you win the election, what are you going to do? Because you might get to a budget. You might need a big tax increase. What are you going to do at that point? And it's almost like they hadn't thought, well, when we get there, we'll worry about that. But of course, they did get there. And they're going to get there again in the autumn, I expect. And I think that's, it's coming home to those decisions before the budget, before the election to just get through the election, I think kind of coming home to roost now because they've taken so many things off the table, they're going to have a really tough job raising big sums of revenue.

44:04Not because raising big sums of revenue is hard in some sense. You could put up income tax or national insurance or VAT and you could relatively straightforwardly, whatever you think of those measures, get money in the door. It's hard because when you've ruled out such a long list of things and you're scrabbling around with little taxes and you're saying, we're not going to do reform, we're not going to do this, we're not going to do that, then you're left with a really difficult bunch of decisions. So I think it was a mistake going into the last election personally, ruling out so much. We said this at the time as well.

44:28This is not a retrospective. The minute they had their manifest and they said, we're not going to do these things, I'm on record saying that's a mistake. You don't know what the world's going to look like in two years. You don't know what policy you might want to do. You might want to do reform. Why tie your hands? It's like being a trades person and saying, I'm going to leave half my tools at home. I don't know what job I'm doing today. I might need to fix a sink, but I'm leaving my wrench at home because I'm just going to leave it at home. You wouldn't do that, right? So why is the Chancellor taking a whole bunch of really important tools and shoving them in the drawer and saying, no, I'm not going to touch those?

44:59That just seems to me to be a bizarre way of running things, honestly. The next budget, do you think we're going to get more tax? Probably, yes. I mean, again, not because we had to. It is a real choice. But I think, you know, what's happening, the government will get an assessment from the Office of Budget responsibility about whether or not they're meeting their fiscal rules, which is basically, are they getting enough money from tax revenues to pay for day-to-day spending? And I think what's going to happen is that unless they do any policy change, the answer will be no, you're not meeting that rule.

45:31And that's for a few reasons. One is they've U-turned on some things. They were going to save some money. They've said they're not going to save some money from disability benefits, for example. And the OBR, like the official watchdog, actually has a very optimistic assessment of growth relative to other forecasters. And therefore, if they just move back in line with other forecasts, they just downgrade their growth expectations, that basically means you've got a gap now between how much you're raising, how much you're spending, that under Rachel Reed's fiscal rules, she'd need to fill. Now, she could cut spending, given that they just settled spending in summer.

46:03I think that's unlikely, at least unlikely to do all of it. So yes, basically, I don't think it's inevitable, but I suspect we will see tax rates. What we don't know at this point what rachel reed doesn't know is how much work she's have to do i mean she hasn't got the assessment yet from the obr they haven't made a final decision she actually won't know yet i mean she'll have a sense but she won't have no yet exactly kind of the pounds billion number between of work she has to do is that why she's delayed the budget so much do you think well i don't well so the last possible in some sense it's like a you delay the budget and then you kind of work back and you always have a you always have a narrow window so i think they probably delayed it to give them a bit more time to think about things um and think about what to do.

46:42But one thing worth saying that I keep saying recently is that it genuinely gives me heart palpitations to think that tax policy is going to be decided in a couple of weeks on the back of a forecast. How is that a way to design tax policy? People like me spend decades thinking about tax policy. We think a lot about the details and the effects of policies. And obviously, policies have to make decisions. It's a political choice ultimately. But the idea that you're fine-tuning the tax system in this very micro way on the back of some forecast and you're going to make some decision in a three-week period just sort of horrifies me.

47:17I just think we should be thinking long term about what kind of system we want, how to design the taxes. We should be having a vision we work with, not what can we get away with. Is this polling well? Is that polling well? Can I scrape a few billion from here? Can I do this? That just feels like a really horrid way of trying to make tax policy. Especially when the forecast, when you look at them, it's always like, oh, we're not going to spend anything here, but then we're going to do it, or we'll make the savings in five years. And they never come true, do they? They always get there and go, oh, we were wrong on the forecasts.

47:45Yeah. In fact, the OBR has got, they did this great, and this is definitely one for the nerds, they did this great report called the Physical Sustainability Report. And it's like a big, long, deep dive into all the risks around the public finances. And one of the things I did in their most recent one, I had a chart. And what it basically showed is governments, and this is not just this government, it's previous governments too, say they're going to get debt down in five years time they're like we're going to borrow more now but don't worry in five years we're going to get that deck falling and what happens you get to that five year period and it's not falling because they're also the next five years they're they're always saying that in five years time we'll do this thing you've seen the chart and it's like i've looked at and that's what i meant earlier about the are we in a good place in a position a good debate about the debt well no because whatever rules we have the debt's not coming down even though we keep saying it will it's not um and yeah that's that can't be a good position to be in to never actually follow through on what you think you're going to do can't be i'll eat cake today and exercise tomorrow exactly it's that it's exactly that yeah it's exactly that and if you but we all know that if you keep eating cake and don't exercise then you're not going to be in a healthy position in five years time you're going to be fatter it feels like when i was doing my uni degree and i've got a deadline for friday and then i spent all of wednesday thursday night in the library like doing it when other people spent six months or like a month doing it and it's like you have all these resources you have all the knowledge and you know you're going to make these big decisions why don't you just take your time and do it properly yeah and that's something about tax i mean you know we have been we have been working on tax for decades i mean there's this big review in 2011 that was like here's how you design the tax system and there are some there are some choice but this is not about do you have it more progressive or less progressive or do you have higher level it's like the structure the design of the tax system so you know we can all agree on the design i think and then you might want higher or lower taxes.

49:27You want more or less progressive taxes. You could tweak rates for that, but you get the structure, right? So that vision is sitting there. You can go and get it on the bookshelf right now. I don't think, and we've been talking to Treasury for years and years. I think we actually know quite a lot about that. I mean, take housing as an example. We have a stamp duty. Stamp duty is an awful, awful tax. It should not be a part of a modern tax system. It basically, it penalizes transactions. You and I might want to swap houses. We want to change where we work. But the transactions tax means that we're not going to do that.

49:55That is silly. At the same time, we have a council tax that is regressive. And I'm not saying if it needs to be progressive, but actually it's lower for people in expensive houses than people in low value houses. And it's based on values from 1991. Imagine if I said to you, I'm going to tax you on your income in 1991. But then you said, well, maybe think of a child. Well, I didn't have an income. Well, imagine you did have an income. What would it have been? We're doing that. We're building houses and saying, if that house had been built in 1991, what would it have been valued? when we're doing council tax, but that's absurd.

50:27So we know how to fix that. You update values of properties, you value them what they're based on today. You have a proportional tax. It's not regressive. It's just a proportion of your value and you scrap stamp duty. It's a pre-made wealth tax as well because if it reflects the value of the home properly, you've got a£100 million house in Mayfair. That's a wealth tax that is a bit easier to maybe implement than a general wealth tax because it's like, well, there's a house there. You try moving that somewhere else and we know it's there because there's a door. Yeah. And a great example, there's obviously a bit of the debate about we need a new wealth tax, but actually the ones we have at the moment, property taxes, inheritance taxes, capital gains taxes, are all broken for different reasons.

51:04Inheritance tax is a wealth tax potentially as well, or could be structured as a genuine wealth tax. And again, that's an example where, I mean, people have very different views on inheritance tax. I think it really is kind of a political choice whether you want one or not. It's like people have different philosophies on it. But if you're going to have one, I think you should apply it to all assets. And not only to some assets and not the other assets. Because the minute you do that, you have people putting their money into assets that aren't in the inheritance tax. So, again, condition on having one, we can debate the design.

51:30We know all those things. What you need is – and actually, to be fair to the government, they have changed some things. So, like, you know, we're bringing pensions into inheritance tax and other things. So, they are making some changes. But from my mind, they're just not being bold enough and going fast enough. And they're also doing things in the other direction. So, in the last budget, we had an increase in stamp duty. and that not big i mean they must they must know because we've told them a billion times that it's a silly tax and it's not a good one to increase why did they do it i suspect because i thought politically they can get away with it because most people it's an increase on second homes most people aren't paying it most of the time and landlords and landlords so they sort of get away with it but again it's not it's not a good way to uh design a tax system do you think a new tax a new wealth tax like two percent on assets above 10 million would be a good idea on balance i don't know and i so i think there's a few things about that one is that i think we shouldn't underestimate just the practicalities of actually implementing it valuing the wealth valuing the wealth like currently we don't value houses but actually talking about wealth i bet you're at top wealth a lot of it's private businesses so you're going to value that private business every year that's we could do it we put we put a person on the moon we could we could value wealth it's not that we can't do it it's just that it's hard and it's you know takes a lot of machine we don't do it currently so just getting the machinery up and running to actually do it would be hard.

52:46I also, I think that a wealth, so you can make arguments for an annual tax on wealth, but they're really very, very subtle and specific. I think the argument is like, well, they're wealthy people tax them more. I think actually, when you look at the details, that's much harder argument to make. And basically, I think the problem with wealth tax is that you're taxing somebody who holds on to their wealth, the longer they hold it on, the more you're taxing it. That discourages savings and investments. I don't think you want to be doing that. I think what you want to do is if people are getting big returns from their wealth, so for example, capital gains, I think you do want to tax capital gains properly.

53:22And we don't tax them very well at the moment. So I would absolutely look at how you tax the returns to wealth. But I wouldn't have a new tax on top. I also think we have to face the reality that we are an open economy, if you're talking about taxing a small number of people with a high tax rate, and 2 % sounds really low, but actually it's 2 % on wealth every year. And if you've got£100 and you're only making a 5 % return on that, well, 2 % compared to 5%, it's a big number, right? It'll take 50 % of the gain over 30. Exactly. It's a much, much bigger share of the gain than it is of the stock.

53:59So actually, 2 % sounds low because we're not used to thinking about taxes on stocks, but compared to the flow, it can be a very high tax rate, which is why it has these big discouraging effects. But also, for the small number of people who are in this ultra rich category, they can move. And yes, there are some things we can do. And yes, we could still tax things that are in the UK. But I think we shouldn't underestimate that if you try and get lots and lots of money from a very, very small group, that group can move somewhere else. So it's not where I would go, I wouldn't go with a new tax. I think if you wanted to tax us about inequality and making the case for a one-off tax is actually much easier to do if you can do a one-off tax and if people genuinely believe it's one-off they really think you won't come back and do it again then economically it's very efficient you take a bit of money and no one changes their behavior that's kind of a great thing for a tax so the question on that really is can you do it in a way that's credible and people don't think well you said you won't do it again but i think you will do it again because if they think you could do it again then it discourages them and you have to do it in a way and then it's a fairness question is it fair to take some share of people's wealth and that's a political question people will disagree about that um but for my mind i think before we start thinking about fancy new taxes i would just start with fixing capital gains and dividends and how we tax landlords and how we um do inheritance tax get those taxes working better what's wrong with capital gains tax you said we don't tax it very well i feel like i'm tax very well on my capital gains well you should get your buzzer ready because this is one that's definitely in the weeds i mean look i think there's i think one way there's a way to think about this one way to think about it is when you're getting returns to something, think of an investment, there are kind of two types of returns.

55:30So one is what I would call like a normal rate of return. So think of it as like you just shove money in the bank or an investment of some sort of an ISA or whatever it is. And all you're really trying to do is save for tomorrow. And I want to say, I don't want to spend it today. I'm going to save tomorrow and buy something tomorrow. And I don't want to stop people doing that. The government shouldn't be saying, well, you should do more or less of that. It's not going to help us with any redistributive motives. So I wouldn't tax that normal rate of return. But if actually you're getting a high rate of return, because you got really lucky, or because actually, it's really the return to work, and you put lots of work into your investments, and you got returns in capital gains, or you're a business owner, and you did lots of labour, and you got your returns through capital gains, then I think those kinds of returns, we should be taxing at the same level we tax labour incomes.

56:12So if you're willing to tax me, if I'm a banker, and I do lots of work, you tax me at high rates, why should you tax me less if I'm doing the same work, but through my own company. But what that means is that the capital gains tax is now wrong in two dimensions. The tax base is often not generous enough. As an example, if you just get inflationary gains, you can get taxed on those. Why are we taxing inflationary gains? But at the same time as the base is not generous enough, the rates are often lower, not always, but usually lower than labour income. So some capital gains are taxed at zero. If you with capital gains, you get tax at zero.

56:46We have business asset disposal relief that's a lower rate of tax than labour income tax. So I think you need this sort of two-part solution. You need to fix the base and make it less distortionary to savings and investment decisions. And with that sorted out, then I would align rates across all forms of income. So whether you're a landlord or an employee or a business owner, you would be paying the same overall marginal rate. And notice, I haven't said what the rate is there. We could debate whether it should be higher or lower than current labour income taxes, but I'm just saying I'd level it across.

57:14But you can already see from that, that's not something that's easy to put on a bumper sticker or on a political poster. But currently, you have people who say, we want high capital gains rates. Well, if you just did that, you get disincentives for investment. Or people who say, we want to boost entrepreneurship through lower rates. Well, at the moment, and I've looked loads at this, I've had years and years doing the research on this, most of the lower rates aren't going to people who are particularly entrepreneurial. They're not doing things that are bad. But why are we subsidising people to be tradespeople or to be IT consultants.

57:44IT consultants are great. You need to subsidise them. You can just tax them like everybody else. But I think we get locked into this just thinking about the rates and not thinking about actually the allowances and the structure of the tax. Think about like an ISA. An ISA is a different way of doing this. But an ISA, you put money in, you get some income, you pay tax, you put money in your ISA, you don't get taxed on the way out. Well, that's one way of doing savings taxation. Another way is like a pension. So you put money in, you get tax relief up front, and then you pay tax on the way out. That's another way of not distorting savings.

58:20So there are all these different ways of doing it, but that doesn't get into the debate. We just talk about rates up and down. So look, some people capital gains are being taxed too much, and some people are being taxed too little, in my mind, relative to how we tax labour income. The problem is the capital gain applies to so many different types they could almost be called different things couldn't they like as an example i'm at a point in my life where i earn more from investment returns probably than i do from labor i would like it if the labor that i put in the work was taxed at a lower rate than the capital gain obviously i can protect most of it in tax efficient accounts but it does seem mad to me to that this passive just in the global stock market oh it's gone up by five grand pay no tax on that but you know there was a point in my life where I would work for a couple of months to earn that£5 ,000.

59:03And I would have liked it if at the time I paid less tax on that income. And that's the point, right? Whenever you talk about, you know, you want higher capital gains tax rates, even with this, you know, tax basing I talked about, people say, oh, it's really bad for entrepreneurs. It's really bad for this. And it's like, well, yeah, but we do tax some people at high rates on labour income. That has an effect on labour income, right? That disincentivises work. So it's not like here, you know, there is a choice about how you share the tax burden across different things. Again, if you want to incentivise entrepreneurs, you could find ways to do that, because the way we're doing our current system is not well targeted at targeting entrepreneurs.

59:37It's basically anyone who can use a legal form that's called a business gets these lower tax rates. But I think that's the point. We need to debate about the balance between labour and capital taxes. Again, then we could debate should the level be higher or lower overall, but it's about that. How do you compare the two of them what about um sorry we could talk about around about my problems all day long i don't want to sound kind of like oh my wallet's too heavy where is me i think sometimes business owners can be labeled as oh you're all just tax dodging this this and this but i don't think people realize how high the tax burden gets once you cross over certain income thresholds and you use the like corporation tax or even if you've got international clients and they pay you but they won't uplift for VAT but you're being charged VAT on that income you you get you there's loads of problems I say the cliff edge is a particular problem because you know it's the sudden jump in the tax and like you just don't want to be you know you have to earn a lot of money to be better off you know at some point you've got to blow past it to hundreds of thousands of pounds for it to be in the distance so if you there's also problems you know talk about what earlier if you're a business and you're starting out it's a genuine business actually you're trying to, I don't know, create something, then actually it's not always as generous up front as I think it should be.

1:00:51So actually I'd have more generous up front, like more like you're putting a thousand pounds into, I don't know, you're buying some piece of machinery or some piece of kit. I'd be more generous up front at that point around the investment. Or if you make a loss, I'd be more generous with losses than the current government is. And basically the government is asymmetric. They take a bigger share of the profits than they do of the losses. And that discourages risk-taking because obviously it's an unequal share on each. I'd be more generous than that. But once you've been more generous with losses and you've been more generous with upfront relief for investment, then I think you can align the rates without these silly kinks.

1:01:22But again, I think the debate just, it's hard because that is quite a detailed set of propositions. And it's not that the politicians don't know about it, they've heard about this. It's about, I think from their point of view, how do you communicate to people and get people on board with that? And I think actually a lot of business owners would prefer the kind of system that I might set out. but but if you do it as a change in the system if you just shove a tax rate up then then that's obviously no one's going to business aren't going to support that right but i think there are ways to change the structure more more systematically i sometimes miss the days when everything just landed in my bank account and that's what i had because it removed all of the decision the admin the accountancy fees and they're like oh do you want to do this do you want to do that it's a big head scratcher yeah and that you know at least back then it was like there's my money that's how I'm a sole trader and I've been loving it for like my whole life, but we've got a financial plan on the podcast, a friend of the podcast called Tom Ashworth.

1:02:12And I had a meeting with him and he's like, I'm like, I'm spending too much on tax. I've got all these different incomes. He's like, you need to set up a limited company. You want to meet him with Tom? Yeah. Yeah. Yeah. Decent. Was it good? Great guy. Yeah. He's changed my whole like financial life. Well, he's in the process of changing my family. But yeah, he's like, yeah, just you need to set up a limited company. Like this is the only way you can save money. I've got like four different incomes. He's like, it just makes sense. and then he's like taking me through all the steps and i've always put it off because i'm like it's so daunting like opening a limited company i don't know what to do i don't know about what i don't want to get in trouble with the government for hmrc tax but he's like it's not i'll hold your hand it's not that hard so it is um it like i like being a sole trader i'm a simple guy smart guy but a simple guy i like things just like easy i'm like sole trader money comes in i pay my tax i'm like i'm paying too much tax so i've got no choice i'd rather be a sole trader but it's more layers of the complexity yeah it's more layers of the complexity at least i've got someone to help In an ideal world, you know, the decision about whether, like, how you structure yourself should be a purely commercial decision.

1:03:05It should be about, yeah, what kind of structure do you want to operate through? And tax, in my mind, just shouldn't be a factor. It is. I think you should. No, absolutely. I agree. It should be a factor. Of course it is. Absolutely. And you should take advice. But the point is, like, that to me is a broken system. The fact that actually there's a big incentive to be assaulted. Basically, there's a big tax penalty on employment. There's a big incentive to get out of employment. and then once you're in self-employment of some form, there's often an incentive to use a limited company. I think tax have nothing to do with that.

1:03:35I think you should basically make that decision for commercial reasons and then your tax bill, your ultimate tax should be the same basically, regardless of how you've chosen to organise yourself. And it's not, it's obviously not. But people then spend a lot of time and a lot of energy trying to work these things. And also big employers, big employers know that if they can contract with self-employed workers, they avoid the employer nix and therefore you have a lot of people who in a different world would actually just be employees and they're not employees and they always have all these rules about when is an employee employee when they're not an employee or this huge amount of burden on trying to work out that that boundary in the system and it's only a boundary because of the tax if you just had no if there's no tax change at the boundary some people would be self-employed some people be employees that'd be fine it wouldn't matter but it matters hugely because whacking great tax boundary so another issue that you mentioned at the top that we face is an aging population and i think a focal point for that is is the state pension system anytime i make any content on the state pension basically anyone 40 and undergoes i'm not getting that do you do you think that's the case no i think we'll keep a state pension um i think if only because at any point in time there are pensioners and if any time you try to get rid of it there'll be people who are just about to get their pension that would be really upset so and there's a good reason the government tries to support people in their in their older ages so I don't think I think people like us can think we'll get some kind of state pension and the question really is when will we and should we start getting it um and what's the level of generosity I mean to bring back a fun fact for you that I um I'm always surprised by so I've been talking my entire career about an aging population is coming and we should get ready for it.

1:05:17But actually, it's only really about now, and I mean literally now like this year, where the ratio of older people to working age people is really starting to go up. So for the last 20 years, it's been a conversation about it's going to happen and we should prepare. But now it is happening now. We have more older people relative to work and that's going to keep going up. And that raises a whole bunch of challenges, not just for the state pension, but we have this kind of pay as you go system where a lot of people think that they're putting money into their own pension through the government like you pay your national insurance you put it into your own pot that's not how it's happening you're basically you're putting money into the tax coffers and it's paying for the current old people so our pensions will be paid not by government here not private pensions government pensions will be paid not by ours but by the next generation of younger workers so um you know that it's a challenge not just for like the level of the pension but who's going to pay and how you're going to pay that thing.

1:06:09But you can also think about, we could think about higher taxes for people while they're pensioners, for example. So the current system is very much you pay in working life and you pay, you know, less when you're retired, we could change that balance. But look, I don't think we'll see, predictions are dangerous, aren't they? But I don't think we'll see no state pension. And if anything, recently, the state pension has been really well protected. So it used to be the case that pensioners were actually among the poorest people in society. That's not true anymore. Of course you can find poor pensioners but actually on average pensions are doing better than the working age population is that the voting base is it just because it's the biggest voting base and that's got to be part of it hasn't it yeah i wonder and is short-term protection of the state pension making it long-term unsustainable i.e the triple lock i think it's making it yeah the triple lock i think is a problem um and it's a problem because so whatever you think the level of the state pension should be and again people could debate how much you think the state pension should be and whether it should, you know, how it should rise over time.

1:07:07The triple lock has this really horrible feature, like a ratchet feature, because it's always one of three, it's always the inflation or earnings or two and a half percent. And it means that whenever there's volatility in the economy, inflation happens to be higher, you're always locking in the higher levels. You're always ratcheting up the state pension. And that just ratchets up this ever increasing state pension. I think that is a problem. There are much better ways to do it. I like your link to a percentage of earnings and then it stays flat, the 30 % figure. I really like that paper. So I think, yeah, good.

1:07:36So yeah, I think basically it's something that says, look, we're going to have, we're going to pick a level, here's how it's going to rise and you have some kind of inflation protection. So if in a period where there's high inflation, you want to protect people from that and it, you know, people in retirement don't have, can't easily adjust their income. So you might want to inflate. You can sort of do it, but do it for a temporary bit. Don't ratchet it up forever more. So I think we could, I think the triple lock is a problem. I think there are things we could do that wouldn't be just ignore pensioners but have a more healthy sustainable system and it is a problem because look you look down you look down the track at the cost of older people and actually health care is a big part of the cost but pensions are a cost and it's no good I mean people need to plan for the future it's no good waiting until we're on the cusp of retirement and then changing the plan that's that's horrible way to do I think you need to be looking a long way forward and thinking about what's the state pension age when is it going to rise?

1:08:27How is that rise going to be linked to longevity? Is it going to be an automatic increase? Or is it going to be a choice? And when are we going to make that choices? And how's state pension going to rise? So people like us can plan, right? They can plan private pension provision, they can plan working lives and when you might want to retire or different circumstances. So I think I'm optimistic in the sense that we have lots of choices here. But it has been so far that this triple lock is in place. Governments keep committing to it because they think they can't get rid of it. And that is going to make pensions really pretty expensive if we don't do anything about it.

1:08:57It's the same thing, isn't it? It's the same theme of short-term politics rather than long-term thinking. But it's probably for people like us to then demand of our governments that we want them to look at the, you know, ignore what's happening to pensioners today. We'll be pensioners at some point, hopefully. We should be thinking about today, when do you move the state pension age up? And that could be in the 2040s, 2050s, right? It could be a long way in the future but we should be thinking now about when to make those decisions or how to link future pensions that aren't about old people right the currently it's about when we're going to be old people we can vote for things now that will affect us when we're older how do people make those demands you know because there's lots of sensible people saying sensible things and then the politics don't reflect it we can say we should have those conversations we should make those demands like yeah i mean i don't know i mean i don't know what you question back to you and something what do you mean we can have conversations like this and raise awareness people when they when they do meet their MPs or in polling groups or they can vote for parties that do offer this.

1:09:52Obviously, it requires a party to actually start offering this. Writing to MPs is probably a good shout. Yeah. I think engagement with certain forms of content because, you know, like certain narratives build and then I'm sure Labour are looking around going, what are we going to do? And it's the whole, they pick up the ideas that are lying around at the time, right? I think sometimes engage with these debates, right? I think often the debate is really simplistic and people think, oh, pensioners like pensioners, don't want to hurt pensioners. And it's not about trying to hurt pensioners, right?

1:10:21It's about saying we have to manage how we change the pension age over time or change the chipper log. Even just engaging in these debates and listening to these things. And I think anything that sounds sort of too good to be true or too simplistic probably is too good to be true or too simplistic. So I think partly just engaging with these bigger debates and being willing to think about, we should think now about what retirement looks like when we're older, because hopefully we will become old people and it'll matter. But there's no good waiting for 20 years to do that. Now, what I would really like for the people of the UK is just certainty around these structures so that they can plan.

1:10:54Because I feel that even though you sit there and go, oh, no, I think there will be a state pension, the vibe is this thing is going bankrupt. I mean, I've seen papers that say, oh, you know, insolvent by X, Y, Z. And then the actual pension structures on the private side, the SIPs, and it feels like they're constantly tinkering with that or threatening to. There's loads of uncertainty. So you're asking people to commit to a 30, 40 year savings plan when the rules change every year. And I would just like that to stop. So there's currently a government's doing a review of the state pension age and they should, I think, make a plan, make a clear plan for when it's going to change, which is not going to be anytime soon.

1:11:31It could be in the couple of decades time. And they should they should make some certainty around that. And actually, the pensions, the pensions tax system is a good example as well. So because we're in a situation where everyone expects the Chancellor to put up taxes, we don't know which one she'll put up. She's ruled out a lot of things. There's always this nervousness about, are they going to change pensions, taxation? People really respond to that. They start taking money out of their pensions. They start changing their behaviour. So that's a great example where we need a really clear, long run, like, here's what we think the tax system should look like.

1:11:59And it's going to stay like that for a long time. And I think there are changes we could and should make to how we tax pensions. But I think what you don't want is constant speculation that it might change. You need a very clear, we're doing this, we've got a good system, or we're not going to change it, but at least have some predictability so people know that they're not going to, to be changed every six months because i saw the review of the state pension age and it's come around quick again because they really don't they normally do them every few years or whatever and and they're doing another one and to me that just screamed oh they're going to whack it up because they're like oh god it's it's not sustainable but do you think that like torsten bell and these kind of people do you think that they're credibly going to do something there that might actually be good and not just whack the age up um i mean i don't know i have to see won't we i mean look i think I think you can see the pressures quite clearly and I think you can see the case of if you've got rising longevity you have to we have to choose not it's not them it's we have to choose at what point our retirement's going to start how much time will people spend in retirement um so I think and again it's not about choosing in the next couple of years right that's that's nailed on it's about choosing when would it move to 69 when would it move to 70 possibly um I think actually the sooner you do it the easier it is actually because the more you're making it about in the And the longer in the future it is, the easier it is to make the decision because you've got to give more time.

1:13:14The longer you wait, the harder it gets. It feels like you're changing things. Another thing they could think about, and we've written lots about this, is whenever you move the state pension age, there are issues around the people who struggle to delay their retirement for whatever reason. They've got low income, they've got a health problem. So you could do mitigations around it. So we're going to increase the state pension age to 69, 70 at some point in time. but we'll have i don't know some benefits generous benefits for people who for whatever reason for health business can't make that delay so you could do so there could be a package of things that make it a bit more palatable for example but you've got to think about them now and you've got to think of like the carrot today like what do you do for dc schemes today to say to people you're going to not be able to get a state pension until you're 70 but what we're going to do is we're going to give you a better tax break or something you know what's the yeah Well, sometimes pensions are actually, at the moment, really, they have pretty big tax breaks in pensions.

1:14:07So you don't, for most people, and it varies a bit for the self-employed, but you don't pay your tax up front. You pay tax on the way out. There's a big 25 % tax-free bit that you can take. And actually, I've reformed that. It's the salient bit of the system. But in some ways, it's actually more generous to people who are paying higher taxes and actually not very valuable at all to somebody who's on low income in retirement. I think you could readjust that. there's also for most people self-employed a bit different national insurance is never charged on that form of remuneration you get no national insurance on the way and no national insurance on the way out that's the anomaly that i would start fixing um and again if you thought about putting national insurance contributions on pensions in receipt you might think about boosting the tax base for people in retirement you could think about all these things but again not to surprise people suddenly in a few years but think about okay what how could we transition to the system so people know what they're planning for they know how to plan retirement's hard right It's hard to know how much you need and how much to save today for a house versus a retirement.

1:15:04It's hard enough without having to think about the tax system changing regularly. So I think stability is, I think we could have a better system, but I think stability is really important. So to finish up, after all of this gloom and doom and a little bit of optimism, are you optimistic about the future of the UK? I think, in general, I'm an optimist, I think. So it would be easy to say no, because you look at the current political situation, We just talked about how we're not seeing tax reform, the debate's in a bad place. I don't think there's enough movement in policy to make things better.

1:15:37So I could easily say, no, I think it's all a bit rubbish. I think I am still optimistic for a few reasons. One is that I think we actually know a lot of the answers to a lot of things. Not to everything. There's more to learn. But I think we know how to make some policies better. We do have a pretty good evidence base. I think I know how to make a better tax system. I'm optimistic that actually people out there people listening to this want to be engaged in these debates I think people have the capacity to engage in these debates so I think I'm optimistic about people I'm optimistic that we know quite a lot we know how to make things better and people could engage in these debates so that we make good choices so that's a bit of a rubbish answer it's a kind of a both way so I look at the current situation I'm not happy about it but I can definitely see a world where it could be better so I'm optimistic about that the only way is it have a biscuit it great thank you so much for your time thank you for having me awesome thank you

1:16:35before you go it's really important to remember that nothing we said there was financial advice the reason it's not financial advice is because it's not tailored to you if you want advice that's tailored to you it's worth speaking to a financial advisor as with everything financial please do your own research we really encourage that because no one cares more about your money than you I'm Damo I'm T Jack and Ben from Flowspire film and edit for us Ruth's our producer and Will is the co-founder at most see you next week