Julian Knight: Beware US pensions and madcap mansion tax
Sunday 27 September 2009
The Government's personal accounts plan is in big – possibly terminal – trouble. Pensions minister Angela Eagle announced on Thursday that it won't now be fully in place until 2016 due to employer concerns over cost.
That's a four-year delay on the original plan and a staggering 12 years after it was first proposed by Lord Turner. But with the Government's life ebbing away, the scheme will either be ditched or radically overhauled by an incoming Tory government.
The Conservatives are looking at aspects of the 401(k) employee pension system from the US. In particular, they are intrigued that it's easier to withdraw cash from a 401(k) than from a UK pension scheme. Greater flexibility will help answer the old gripe against pension saving that you pay the money in but don't see anything for it until retirement.
Let's hope the Tory flirtation with 401(k) ends there, though. The US scheme doesn't compel employers to contribute. Porting this idea across the Atlantic may please business leaders but it would prove a disaster.
Our demographics are far worse than those in the US. Theirs is a relatively young population while ours is ageing. Hence we need to be saving more, and this can't be done without an employer contribution. If anything, contribution levels from both employers and employees have to be higher than the 8 per cent of salary proposed under personal accounts. The National Association of Pension Funds reckons an equivalent to 10 per cent of salary will do, but again this will only give a meagre pension pot.
So who is Mr Bean now, Vince?
Lauded by many as Britain's very own credit crunch soothsayer and teller of the famous joke about Gordon Brown morphing from Stalin into Mr Bean, Lib Dems Treasury spokesman Vince Cable hit the buffers spectacularly last week with his "mansions" tax proposal. Like Rowan Atkinson's Mr Bean character, Cable's wheeze is out of place, an anachronism reminding me of the Seventies and the days of "super taxes". He should know better. I can think of half a dozen ways such a property tax could be legitimately avoided.
And that's the key to something else – totally ignored by Labour when it imposed a new higher rate of income tax in the last Budget. The taxation system works best through consent: above a certain level, systemic avoidance takes place. In the 1980s, the Tory chancellor, Nigel Lawson, knew this when he cut the top rate of income tax from 60p to 40p. It actually brought in more money because avoidance fell and those near the threshold suddenly saw it was worth taking on that extra project or overtime.
We already have plenty of property taxes: stamp duty, capital gains (on a second home), inheritance tax and council tax. Remember, too, that the state, in effect, takes your home if you need long-term local authority care.
It is deceitful of politicians to pretend that the massive structural public deficit can be reduced without you and me paying higher taxes. And, yes, a dose of Nick Clegg's "savage cuts". Only after a decade, or maybe two, of this misery will taxes come down a little and public spending incrementally increase.
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