Where is Rachel's next tax?

 With Labour continuing to promise not to increase national insurance, tax or VAT as a result of their ballooning deficit, it does beg the question what will Rachel tax next?

It's clear they are not prepared to cut spending but the books don't balance.

When Labour came to power the interest rates for gilts on the colossal £2.7 TRILLION  government debt was 4.1%.  Borrowing rates  have  increased to 4.5% (spiking to 4.8% when Rachel cried). That's a lot more money to service the debt pile. And the debt pile is growing faster than when they came to power.

Government spending is is 45% of GDP (and rising) whilst tax income is about 33% of GBP (and probably falling due to exodus of thousands of millionaires each week).

So we are already spending 12%+ of GDP and therefore borrowing  money we dont have.

Starmer reiterated his pledge not to increase the holy trinity of taxes so what else is there Rachel can tax?

Well council tax certainly seems to in Rachel's sights.

Council tax is a tax which you pay for with money that has already been taxed.  Double taxation.

Since Council Tax was introduced in 1993 it has increased in real terms by 79% when adjustment has been made for inflation.  Are we getting better services than we got in 1993?  Are there fewer potholes than 1993?  

Well in March this year the average increase in council tax was 5% .

The inflation rate in May was 3.4% so that is a 1.6% increase MORE than inflation. 

Clearly this 30 year trend of inflation busting council tax increases looks set to continue.

Starmer has given council's the power to "tax" landlords some more by allowing them to introduce selective licensing.  This is basically a tax for the right to rent a property to a tenant.  In reality it's a tenant tax - landlords simply pass this cost onto tenants in the form of higher rents.

 Rachel has already targetted pensions in the autumn budget. Pension assets will be included in inheritance tax from April 2027.  This poses a risk for many small businesses using a SIPP (a pension investment vehicle) to hold assets such as the building which the small business occupies.   Under the new rules when a business owner dies the SIPP will need to settle the tax bill - not the deceased's estate.  That could mean the business needs to be liquidated in order to settle the tax bill.

It seems likely that Rachel will further tinker with pensions eg removing tax relief for higher rate tax payers.  Of course this is a disincentive for us to save for our old age. 

In the same vein it seems Rachel wants to hurt business even more than her recent job tax (employer national insurance tax increases) and huge minimum wage increase.  She is thought to be considering increasing the employer pension contribution from 3% to 5%.  So another 2% increase is wage costs.

Doubtless minimum wage will dramatically increase by another 10%.  Minimum wage is a great tool for governments - it costs them nothing.  It costs businesses money - expect yet more business failures, rising unemployment etc.

The hospitality industry is reportedly on it's knees as a result of the national insurance increases.  Doubtless this increase will kill off the hospitality industry.

So why is Rachel keen on more money going into pensions? Surely this is money that is locked away from her until the person retires?  

Well Rachel is struggling to find suckers that want to buy the government debt so in April this year she made it "compulsory" for pension funds  to invest in UK government infrastructure spending.  It's because there's £2.2 TRILLION in pension funds. However the government's track record on infrastructure spending (ie positive business case) is pretty much non existent. This pension "investment" will be £50 BILLION by 20230.  My guess is 10% of your pension pot is at risk.

There's been plenty of speculation that Rachel will target ISAs which are a tax shelter.  It's kind of the opposite of a pension. For a  pension -  untaxed money is paid into the pension wrapper and taxed when it is taken out.  For an ISA - taxed money is paid into the ISA wrapper and not taxed when it is taken out. 

There is a big difference.  Pensions are very illiquid - it's difficult to get the money out of it  until you are retirement age (therefore the government can tax and steal from it in the meantime).  ISAs are very liquid - you can move the money out pretty much instantly.  

So Rachel is not happy with the idea that your "unearned income" from ISAs is not taxed so it's likely the amount you can save in an ISA will be reduced - possibly from £20k to £5k.

Wealth taxes are also being socialised in the last week.  These are taxes on your assets/wealth. 

Say you have a house worth £1Million with no mortgage and pension pot of £1Million (or a £1M in the bank).  This is not uncommon nowadays.

Each year you will be taxed 2% of £2Million = £40,000 each year for having these.  It should be pointed out that a £1M pension may sound big but that would get you an inflation linked income (for 10 years) of £58,300. Comfortable but hardly enough for a lavish lifestyle.

One of the few things I've learnt in life is that measurement drives behaviour and this blatant theft will clearly drive different behaviours.

The problem is many public sector workers eg Doctors, politicians, even teachers, have public pension pots notionally worth more considerably than £1M. Yet these wont be subject to wealth tax - it's a two tier kier system of course. 

In this situation, if I knew Rachel was coming after my private pension, firstly I would draw any tax free income and squirrel the money away overseas eg Jersey.  Secondly I would think about buying a pension annuity (a life insurance policy that pays an income for life) in order that Rachel couldn't come after the pension each year. That's not a decision I would have made normally but if someone wants to make you a poor pensioner then difficult decisions need to be made.  

The problem is the pension fund has to last for the rest of your life and stealing 2% of it each year could mean real hardship in 30 years when 60% of it has been stolen by the government. With 2% of it being stolen each year and inflation running at 3%, you would need 5% return just to stand still.  Good fund managers typically deliver 5-7% (for a fee) so all their hard work is getting you nothing.

I would sell the house or remortgage it.  Generally wealth taxes allow for deduction of liabilities so if it has 100% mortgage then there's nothing to pay.

So the problem with wealth taxes is that's worth employing good advisers and accountants to circumvent the theft.  In this example a £40k hit each year is definitely worth paying £5k for advice to avoid paying some or all of the £40k.

Rachel would not be able to rely upon the wealth tax income - certainly not in the long term.  Worst case I would sell up and no longer live in Britain - zero tax from any sources for Rachel in the longer term. 

Measurement drives behaviour so a wealth tax would see a even bigger exodus of the wealthy beyond the current 1,000 millionaires per week moving to tax friendly countries like Italy.