Reply to: Budget march 2021

[Lance]

What are your thoughts on what is coming next for the UK - economically and politically?

economically - recession. followed by several years of reducing productivity.
politically - no idea. Too fluid.

[Pragmatist]

I think nobody predicted the invasion of Ukraine.

What are your thoughts on what is coming next for the UK - economically and politically?

[Lance]

What do you think now?

I think nobody predicted the invasion of Ukraine.

[Pragmatist]

This is 90% bulldung and reads like something right off HousePriceCrash or a Crypto site.

Also: you are Scooter and I claim my £250,000 short bet price.

What do you think now?

[Paralytic]

I suspect it will be a deferred kicking. ie. no major immediate changes, but getting us ready to feel the pain later this year/next year.

I can't see them keeping the stamp duty holiday in place (unless its some concession for in-flight purchases) - all that is doing is keeping the housing market (some would say artificially) inflated.

I'm still happy with my predictions, though the kicking has been delayed due to the Delta variant, and the stamp duty holiday went on a bit longer that i expected (but i think many people now think that was a mistake).

[ladymuck]

Just thought I'd dust this thread off and see how the predictions a couple of pages up are coming along

[Lance]

Good to see I'm not "conflating things" anymore anyway.

I'm not sure who pissed in your cornflakes, but I couldn't be arsed dealing with your attitude any longer, here or in this post, so have it from another source.
The U.K. Economy Is Broken

Well done. You've found an 8 month old article, written by a journalist, that you think agrees with you.

[Pragmatist]

Yes inflation will reduce the value in savings.
Deflation will be prevented at all costs but not by creating runaway inflation. That would be dumb.
Current government strategy is to maintain inflation at 2% and it’s not working. The MPC keep writing letters to say so.
QE is reducing the value in savings but not by inflation. It is a different effect due to buying back debt really cheap and that impacts the lending market meaning that savers can’t get a good return. Why would a bank pay to borrow from a saver when the government is handing out cash?

Interest rates are one tool. QE is another. They don’t have the same effect, but pressure the markets in a similar fashion. Which makes your argument over simplistic to the point of being wrong.

Good to see I'm not "conflating things" anymore anyway.

I'm not sure who pissed in your cornflakes, but I couldn't be arsed dealing with your attitude any longer, here or in this post, so have it from another source.
The U.K. Economy Is Broken

[Pragmatist]

Fresh blow for London as euro derivatives trading floods out
Share of euro-denominated swaps market tumbles from 40% in July to 10% last month
Subscribe to read | Financial Times

Trading in a key euro-denominated derivatives market flooded out of London last month to rival financial centres in New York, Amsterdam and Paris, in the latest evidence of the blow dealt by Brexit to the UK financial centre.

The trading of euro-denominated swaps in London dropped from nearly 40 per cent of the market last July to 10 per cent in January, according to a survey published by data provider IHS Markit on Thursday.

The shift in the trading of these derivatives — often used by investors to hedge against moves in interest rates and currencies — is another setback for London, which gave up its status as Europe’s top share trading hub to the Dutch capital after it fully left the EU last month.

If this was happening in another country - people would be out in the streets.

I think most British people don't have a clue what's going on.

They're getting their furlough and they're happy as a pig in sh*t.

[Pragmatist]

Sadly you're right. Sadly the Tories too have become (or in reality reverted to) being the party of the wealthy and big business "and the red wall" only.

Fixed your post.

[Pragmatist]

And replaced with what?

If you look at what happened in the PIIGS during a similar crisis to ours, every leading political party was wiped out.

In the 2011 election, Fianna Fáil suffered the worst defeat of a sitting government in the history of the Irish state, and one of the worst ever suffered by a Western European governing party. ... Notably, the party was nearly wiped off the map in Dublin, which had been its power base for over 30 years.

Even Labour haven't gotten back into power since the Great Recession here.

It may be possible for a new political party to emerge, which will be fiscally conservative.
The problem of course, is that a large section of the middle class will be wiped out and will probably vote labour.

On the other hand, Boris Johnson seems to have Trump-like abilities to dodge criticism.
Despite the Russia Report and the worst economic contraction of any rich country and the worst death toll, he still has an approval rating of 39% according to YouGov.
I think that's related to Brexit mainly, but once people lose jobs and suffer tax increases and austerity - that will change. That's how it always works.

Regardless, there is a huge backlash from the Tories core constituency.
Rosalind Beck, who is a Conservative Party Member in South Wales, and publishes on a website called ConservativeHome said the following:

Rosalind Beck: Extending the evictions ban would not help the vulnerable | Conservative Home
That a Conservative Government should be considering this assault on private property rights is astonishing. It is more extreme than most things Jeremy Corbyn had planned.

Which contractor-friendly gov't-in-waiting is planning to implement all of their contractor-friendly policies as a matter of urgency? If you think the Tories are bad, wait for the alternative...

Agree, I think this is a permanent change.

[Pragmatist]

The public sentiment might well be tax the wealthy, but what that usually ends up as is tax the middle classes. The wealthy will have already been able to hide their money or more likely hide themselves by moving out of the country.

Sadly I think the one comment that was spot on, which I haven't seen referenced in this thread is that made by Rishi Sunak about raising taxes now, by whichever route necessary, so they've then got time to cut them again before 2024.

I'm not sure about anyone else, but regardless of how you voted in the last few elections, the Conservatives really do need to be got out of power at the next opportunity. Everything else aside, the damage they've done to the contracting sector has been substantial, even more so that the original implementation of IR35. At least Labour eventually knew when they were beaten with it.

100% agree with what you've posted here.

There's an interesting article by an economist in that paper which you've linked to, which argues the same points as you've made:
Aligning CGT with income tax would be a mistake, warns Andersen's tax head - CityAM : CityAM
How does the UK's capital gains tax compare to other nations? - CityAM : CityAM

One catch is that the government have made it extremely difficult for British people to "leave" the UK.
I'm not referring to Brexit, but rather to the 5 year temporary non-residency rule and 'automatically' resident rules in respect of property ownership and family ties.
Post-Brexit, the UK cannot use the 'Mutual Assistance Recovery Directive' to chase people overseas, but I'm sure HMRC will work out individual agreements with partner countries.
And if you return home within 5 years of becoming ordinarily tax resident abroad, you have serious problems.
Either way, I guess we will see an uptick in people hiding wealth permanently offshore?

Even despite that, Amsterdam has now ousted London as Europe’s top share trading hub, there was an immediate shift of €6.5bn of deals to the EU when the Brexit transition period concluded at the end of last year. I think the costs of Brexit wil be far worse than anyone has even imagined.

German chemicals company BASF were singled out by Labour earlier this week for moving work to France, after receiving £1bn in soft loans from the UK government.
Then yesterday, 25 industry leaders warned the government that new regulatory system post-Brexit is driving industry overseas - this is the merely the latest in a long sequence of similar warnings from industry.
The government have their head in the sand. Boris Johnson keeps talking about a domestic plan for growth, while business are heading toward £60 billion of borrowing.



It will be the middle class footing the tax bill. But there will have to be some level of Austerity also - the economic situation is too severe to avoid it.
I don't think the government could tax their way out of this severe of recession.

I don't remember the exact figures, but I think about 300,000 people pay over 1/3 of the income taxes. A huge chunk of the population doesn't actually seem to earn enough to pay 'income' tax.
I guess tax bands will be moved to catch more, but not sure how much it will generate, and it will face the same opposition as austerity.


I completely back you in respect of thrashing the Conservatives.
If I haven't emigrated by then, I will vote anyone but Tory.

Unfortunately, I suspect IR35 is going to get worse not better. There is a belief in my industry that companies will have to react in 6 to 12 months and will find ways to bring contractors back.
What I see in practise, is that many of the technology jobs are being gradually replaced by Indian workers who accept worse pay and conditions.
Natwest have gone a step further and simply outsourced a huge chunk of the jobs to India.

I don't think the government are going to wake up and realise they've committed a terrible mistake, this is the recommendation from the Institue of Fiscal Studies:

Taxing work and investment across legal forms: pathways to well-designed taxes - Institute For Fiscal Studies - IFS
The parts of the UK tax system that dictate how different forms of income are taxed are of central importance and are not fit for purpose. There is a large, unjustified and problematic bias against employment and labour incomes and in favour of business ownership and capital incomes. The tax treatment of returns to investment is a mess: incentives vary depending on the asset type, source of finance and legal structure involved and range from large subsidies to large penalties. And this is just the start; the list of problems is long. Some problems are high profile and periodically subject to tinkering. Others are so baked into the system that they are generally overlooked, yet are no less problematic.

There is growing pressure on the current system, notably as a result of rapid growth in the number of people working through their own business (business owner-managers have been the fastest-growing part of the labour market since at least the early 2000s) and increasing strain at the boundary between employment, self-employment and incorporation. Different groups are unhappy with the current system for different reasons: some worry about exploitation of the low-income self-employed, some about inequality related to low capital income taxes at the top of the income distribution and others about complexity and disincentives to enterprise. But these disparate groups seem increasingly united in thinking the current system is not working.

In this report, we seek to give people the information and tools needed to: (i) understand the range of problems with the current system for taxing different legal forms of work and how radical reform could largely or completely fix most of them; and (ii) devise smaller reforms that would move the system in the right direction while mitigating the trade-offs inherent in partial reforms.

Key findings

Preferential tax rates for business owner-managers cannot be justified by differences in social security benefits or employment rights and are poorly targeted at incentivising entrepreneurship. The differential tax rates create inefficiency, unfairness, complexity and revenue loss.

The tax base distorts investment decisions. Subsidies for borrowing sit alongside penalties for equity investment. Risk-taking is discouraged. These problems would be more severe if inflation and interest rates were higher.

The ‘big-picture solution’ involves reforming the tax base to remove distortions to the level, type and financing of investment while aligning overall marginal tax rates across all forms of income. There is more than one way to achieve these outcomes.

Partial reforms involve important trade-offs. Problems caused by flaws in the tax base would grow quickly if tax rates on income from business increased in isolation. There is a range of ways in which individual policy reforms could be packaged together to manage trade-offs.

[ShandyDrinker]

And replaced with what? Which contractor-friendly gov't-in-waiting is planning to implement all of their contractor-friendly policies as a matter of urgency? If you think the Tories are bad, wait for the alternative...

Sadly you're right. Sadly the Tories too have become (or in reality reverted to) being the party of the wealthy and big business only. The squeezed middle has never been more of a thing and whether Conservative or Labour (in our effectively 2 party system), the approach always seems to be to rob from the middle classes to pay the poor while leaving the truly wealthy (I'm talking the kind of people that can easily up and move jurisdiction should they so desire) unscathed.

[Lance]

If you slow down and think about it holistically, it will make sense.

In Point 4 I said:
4. Runaway inflation will wipe out UK savers.
A deflationary spiral will increase your savings - not wipe them out.
It will also make your mortgage totally unaffordable.

What wipes out savings & reduces debt burden?
Inflation

To avoid a deflationary spiral, you inflate like crazy. Inflate your debt away. (this is the governments current strategy)

Once you have runaway inflation (as a consequence of QE - which the BoE are currently pursuing) you must use interest rates increases to prevent hyperinflation.

Yes inflation will reduce the value in savings.
Deflation will be prevented at all costs but not by creating runaway inflation. That would be dumb.
Current government strategy is to maintain inflation at 2% and it’s not working. The MPC keep writing letters to say so.
QE is reducing the value in savings but not by inflation. It is a different effect due to buying back debt really cheap and that impacts the lending market meaning that savers can’t get a good return. Why would a bank pay to borrow from a saver when the government is handing out cash?

Interest rates are one tool. QE is another. They don’t have the same effect, but pressure the markets in a similar fashion. Which makes your argument over simplistic to the point of being wrong.

[jamesbrown]

the Conservatives really do need to be got out of power at the next opportunity

And replaced with what? Which contractor-friendly gov't-in-waiting is planning to implement all of their contractor-friendly policies as a matter of urgency? If you think the Tories are bad, wait for the alternative...