OpinionOct 3 2014

I don’t want your tax break, George

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This week we have been mostly talking about tax.

I mean that in the most literal sense as well as figuratively: in addition to the swaths of articles we’ve published on the abolition of the pensions ‘death charge’ and coverage of wider Tory taxation plans, I also had the pleasure of hosting a fascinating conference on tax on Thursday (2 October).

A packed room heard from no less than nine speakers: the usual mixture of invited keynotes and sponsor presentations, covering everything from inheritance tax mitigation via business property relief, to tax-efficient investments such as venture capital trusts and enterprise investment schemes.

Unusually, the session that most arrested attention was one from a paying presenter, Dr Paul Jourdan, chief executive of Scottish small-cap manager Amati Global Investors, who devoted more than half of his allotted 20 minutes to a polemic on the ethics of ducking tax.

To summarise: with the aid of some startling numbers - did you know, for example, that even conservative estimates suggest up to $32,000bn is held in offshore tax havens on behalf of the already super rich - he argued that given the abominable state of the public finances, not just here but around the developed world, people had a duty to pay their way.

Of course Dr Jourdan didn’t suggest tax incentivised schemes such as EIS were wrong, but he did speak with conviction about the need for such schemes to genuinely honour the spirit of the rules and back entrepreneurs and businesses which will one day contribute to employment and the economy.

We’ve all seen the alternatives, such as VCTs which use the full breadth of the rules to back exclusively buyouts of mature businesses, and they stink.

In essence, he drew a line between supporting schemes which represent an ‘investment’ by the government and more craven efforts to reduce a tax bill. He implored the audience to ask before investing what the taxpayer would get as a return.

I would benefit (modestly) from this cut, but I just don’t need it

It was brave stuff; I was enraptured and inspired.

Earlier this week I offered some early thoughts on the Conservative’s financial model in the wake of the surprise move to repeal the 55 per cent tax charge on pensions on death and the associated measures to curb the deficit.

On the death charge cut, I will say again that I broadly support the move. Tax ‘relief’ on pensions is simply a deferred charge, so I don’t see why the government should take a huge cut of an accumulated pot just because someone has died before they could spend it.

Yes, the individual would also have benefitted from employer contributions and tax-free growth, but this is the incentive to save. Using Dr Jourdan’s language, this is an ‘investment’ from the government and others in ensuring we end pension penury and have a more sustainable future.

But I cannot agree that it was necessary to cut all taxes for the beneficiaries of those who die under the age of 75. Even if, as some suggest, this will only ultimately benefit a few; it is a few that most likely do not need the help.

Turning to the wider array of tax cut pledges announced by David Cameron on Wednesday - £7bn of them no less - I found myself again aghast that we are prioritising a tax cut for those on the higher rate tax band, while squeezing income for those on benefits and tax credits.

I’ll be straight with you: I would benefit (modestly) from this cut, but I just don’t need it. We have a deficit of £99bn and total debts of £1,400bn; the country is all but broke and if there is any spare money going around, it doesn’t need to go in my pocket.

I don’t like my real income falling each year, but if we are truly all ‘in this together’ I can afford to take my share of pain.

And to return to my refrain from earlier this week, so can our current crop of pensioners who, according to the Office for National Statistics, will be the richest generation we’ll ever have at retirement.

We’ll all know examples of the odd impoverished pensioner, but they are the exception, not the norm. As a generation they control a quarter of all property wealth in the UK and are sitting on close to £1,000bn.

Politicians of all persuasions are trying to buy as much of the grey vote, the most volumous of all electoral demographics, as they can by still promising above inflation rises in pension income through the ‘triple lock’.

Pensions already make up more than two-thirds of benefits paid out each year; £114bn this year and rising rapidly. But the government is concentrating cuts on other welfare claimants taking a combined £52bn.

Some will put forth the specious argument that pensioners have ‘paid their stamps’. We all pay national insurance and we all know in reality it isn’t being kept for us in a dusty box in Whitehall.

It goes out the door as soon as it comes in. In fact it needs to be topped up with borrowing because it doesn’t cover a bill which, due to longevity, has ballooned in a way previous paliamentarians did not predict.

So please, George, keep my tax cut. While you’re at it, keep the one you gave those who now stand to inherit sizable sums tax-free and stop accelerating the incomes of pensioners at the expense of the rest of us.