Have iem ready. Okay, here we go. Welcome to Marin Talks Money for podcast in which people who know the markets explain the markets. I'm there in Sunset Web and with us today we have a special guest, Paul Johnson, who is director of the Institute's Physical Studies and has been since twenty eleven. And I will say, for a people who aren't here, which will be most people, we are recording this in front of an audience today, which
is very exciting. It's the first for us. Also with me today, of course, is John Stephick, who's going today with us for the entire conversation today asps just being shoved on at the beginning and the end like he easily is. So, John, try and provide value.
Okay, do my best to our best.
Now, Paul, one of the reasons we've got here on today is that you have written this fantastic book. It's called Follow the Money. How much does Britain cost? And the answer I suspect that everyone here would give if they were allowed to put their hands up and give an answer now, is kind of too much? Right, kind of too much? The tax burden is at all an all time high. Right, We're paying more is a percentage of GDP and will be over the next few years.
And we've ever paid before, and we're not entirely sure that we're getting value. Is this absolutely necessary?
Well, absolutely right. We're spending more than ever, we are taxing more than ever. And actually this Parliament has seen the biggest increase in tax of any parliament ever outside of Wars anyway, which is a pretty extraordinary statement. The tax burden actually is a fraction of national income, pretty stable, about thirty three to thirty four percent of national income for decades, and it's suddenly bashed up to about thirty
seven percent. That's about one hundred billion pounds tax rise. Now, lots of reasons for that. I mean, we kept taxes down by essentially abolishing the defense budget over a decade decades, we've had a decade of austerity in public services, and all of that's stopped. There's no more defense to go.
In fact, defense spending is going up. Austerity has almost certainly run its course, and indeed over this parliament spending has risen quite significantly, very big spending on debt interest at the moment, and of course serious demographic change, lots more spending on health, and over the next few years we have lots more spending on pensions, social care and
so on. So my guess is that whilst this is the first time in my life that we've had taxes anywhere near this high, I don't think we're ever going to get down, certainly the rest of my life the taxes where they have been for the last seventy years.
Yeah, but there's not always a government choice, is it. I mean, we've seen in the past, we've seen taxes as percented GDP. The burden has a percented GDP creep up over thirty five percent, but it always comes down again pretty quickly. There seems to be a level at which the Brits won't pay anymore. And if you look at the rates that other countries pay, you can see that in some Scandinavian countries it tends to be higher and it can stay higher, and perhaps in the US
it's lower and it can stay lower. But each country seems to have an amount that they're prepared to pay beyond which they will not go and for us it looks like it's about thirty five percent.
Well that was certainly. I used to work in the treasury and that was absolutely the kind of counts of you in the treasury, certainly at the sort of most senior levels, that there was a limit to what was feasible. Now we're testing that limit, and at the moment we're going through if you count it as a single tax riseer the single biggest tax risee ever, which is the holding of the income tax, personal allowance and thresholds at the same level in cash terms for six years, that's
the policy. That is a fifty billion pound tax rising one go much of the biggest tax rise in history, if you count that as a single one and I think that will be the test. Is that something which drags hugely more people into higher rate tax. I think something like one in six adults will be paying higher rate tax by the end of that period compared with something like one in twenty not very long ago. So that's a huge change, and I think that is where
we'll test your proposition that actually this isn't sustainable. But my guess is that one way or another we will keep at this kind of level of taxation because it's so hard to see what is the government going to slash, Is it going to cut health spending, pension spending, welfare spending, education spending. We've done so much to get defense spending. Now we've had a decade of austerial we've got this
demographic change. I think we might not like it, but I rather feel we're going to have a lump it in terms of the tax spurn.
Yeah, let's just stick with this fiscal drag for a moment. I mean, in fact, it's an even bigger tax right rise than the government might have thought initially, because inflation is so much much than they expected initially. So that means that even more people are going to be pulled into these higher rates than the government might have expected
when they first introduced this policy. Right. And one of the things that John and I talk about a lot is the extent to which the forty percent tax rate affects so many more people than anyone really thinks about. So when when the Treasury look at and they go it's one in four, it's one five, it's one and six, But in fact, over a lifetime, over a career, of course,
it's a much larger percentage of the population. And then if you take into account the partners with people who pay forty percent, the children of people who pay forty percent, et cetera. That higher rate affects a really large part of the tax paying population.
It really does mean you're right over a lifetime. I people's salaries, incomes tend to peek in their forties, say so, lots of people in their twenties at the moment not paying higher rate who will do. Lots of people in their sixties who aren't who have done so. As a fraction of the population, it does get quite big. And
we're not just looking at the forty percent rate. Of course, So there's there's the sixty percent rate for people earning between one hundred, one hundred and twenty five thousand.
Then they playing that quickly. Not everyone understand how you get sixty percent.
There is a sixty percent rate of income tax on incomes between one hundred, one hundred and twenty five thousand pounds. Now that is described as with drawing the personal ounce. It is actually just a sixty percent marginal rate. And then of course there's a forty five percent marginal rate on incomes above that. We're now in a world actually where there are as many people paying sixty or forty five percent as thirty years ago there were people paying
forty percent. So the new higher rate actually is that sort of sixty and forty five level, and the forty is becoming close to a second basic rate.
And in fact, of course, for a lot of people, that's way higher because once you've added on lestal insurance and you've added on student debt, which we think of as attacks. I know other people don't, but we think of it as attacks. Once you've added that on, some of the marginal rates of attacks, people are paying it insane.
Well, you've got not only that, but you've got even more insane things. So if you're married and you tip over to the forty percent rate, you lose your married couples allowed. So you've got a tax rate of hundreds of percent. And if you're actually, if you've got kids, and you move over that hundred thousand point, you lose all your childcare support to Actually, you can be earning ninety nine thousand and you need a thirty five thousand
pounds increase in your pay to make it worthwhile. Anything less than that and you're worse off than you were on ninety nine thousand. Now, you know that's a small fractional population, but that is an absurd situation.
I mean, you're obvious creating you por on that as why it this not defects it because it's clearly mad. It's I mean, I realize that when you start feeling these threads, other things start to unravel. But is there not a better system that we could I mean, the system did.
Not used to be this complicated that there's so much you could do to make the system better. I mean, I think in terms of what we're talking about, I think the reason it's not change is because governments frankly get away with it. I mean, it is quite a big revenue raiser, having a forty p rate at fifty Very few people I think understand this point at one
hundred thousand pounds change. And even if they did, I think electorally, we saw we saw how incredibly unpopular the proposition a year ago was to get rid of the forty five p rate. Now, in terms of that mini budget that was by far the smallest of the tax cards, would have cost very little compared with everything else within
the Conservative Party, it appeared to be incredibly unpopular. So I think actually kind of getting marginal rates down for higher earners doesn't appear to as far as one can tell, have a great deal of popular demand behind it, I suppose.
And then the other thing that comes from you know which tomb overall is that, Okay, so lea'ssume we're going to need higher taxes for a long period of time. What's the politics of that, because one of the big problems is that I think, and I don't know if this is a fair representation of the audience or not, but I would say that people probably feel as if they are getting charged a lot of tax, but at
the same time, the public services aren't getting better. A lot of them are getting worse, and there's no prospect of them getting better because all of the money is either going towards people getting old or towards it's just it's kind of paying for more of the same, and amazingly.
It's going towards paying higher interest rates on government the government debt.
So I guess the picture of painting is you're going to be paying more and you're not going to be getting better public services.
You make it worst. One is a horrible I mean, it really is horrible. I mean we are in this position where if you look at the last budget red book, you've got tax at a record level. As we've discussed, you've got debt at a very high level, over ninety percent of national income and stout stuck there, not going down. And yet the budget read book has penciled in what are effectively be cut in public service spending through for many public services through the next parloment.
Is extraordinary the function of a raging It's a.
Function of very high spending on debt, interest, poor growth, and lots of spending on things like health particularly and pensions. So people aren't going to get pretty fed up, I think, and see tax rec taxes at record levels and this very very tight spending situation.
Let's talk about is there a way to make the tax system more efficient? Among things that journalists do, and I'm guilty of this, constantly talk about how the UK tax code is now as long as the complete works of Shakespeare or the longest novel ever written, or whatever it is. We can always come up with these comparisons, and it gets longer and longer and longer and more and more complicated. Is there a way to simplify it,
make it fairer? Are there any taxes that you think should go or any new taxes that should come in.
I mean, I mean so many ways that you could make it better than it is. I mean, we have this absurd situation where we've got National insurance contributions which are just a tax there's no relation to anything that people are entitled to, which you pay on earned income. So if you're a wage slave like me, you pay lots of that. If you're a partner at a professional services company, you don't. If you're self employed, you pay
a lot less. And if your income is coming from rents on a property happened to earn or shares what you don't pay anything. You don't pay any national insurance on pension payment in payment, actually don't pay on pension contributions either. So number one, just admit that this is just a tax on income and you get rid of a lot of the complexity.
Repension are in the land absolutely furious because they will say I paid my own I already but let.
Which probably they haven't. But let's haven't. But let's look at this difference between you know, if I get my income as a self employed person, I pay a lot less nationally insurance if I do it as an employee, and if I incorporate I pay less. Still, so that creates an enormous amount of complexity because you treat almost identical things completely differently. And that's true throughout the tax system. That's also true in terms of how we treat you know, vat.
I mean in the book, there's lots of laughs in the book actually there, you know, we we have we have this situation where you you have to define exactly how much chocolate gingerbread man has on it to determine whether it's got v AT on it or not. If you want a pet to get a rabbit, there's no va on rabbits because they're edible.
Don't tell your children.
So these are the sorts of absurdity. So a lot of these things happen when you treat similar things differently, and when you treat similar things differently, you have to have a wall of legislation to kind of tell you exactly where that boundary comes. Just one last thing on making the tax system better might absolute number one priorty be getting rid of stamp duty. It's just and I'm particularly talking about on housing here, it's just so damaging.
It massively reduces the amount of times people move. It's unfair, it's inefficient, it's inequitable. It stuffs up the labor market, it stuffs up the housing market. But what a chancellor's done. You're up to your increase it. And that really is if you can think of one. If I had to choose number one tax which is super damaging, that'll be it.
But what's mad about damn duty in particular and on shares as well, is that they keep putting it up on houses, et cetera. But also talking about introducing a wealth tax, which makes you want to tear your hair up because we have so many wealth taxes in the UK. There's stamp duty, there's I h T, there's non index capital gains. These are all wealth tax The.
Point the point about wealth taxes. I mean people talk about introducing wealth taxes as you say, We've got inheritance tax, council tax, stamp duty, capital gains tax and so on. The problem is they're all rubbish. I mean, they all you know, we we we need to get them right. Then maybe we can think about we get the ones we got vaguely right, rather than disaster as of them, we.
Could get rid of all of them and introduce a much simpler wealth tax. I mean I don't prove wealth taxes at all.
Possibly we we we we need a we need a capital gains tax. But I mean not at least because if you don't have one.
Tax, if it's if it's tax on inflation.
In well indeed, then it should be it should be on only real gas and possibly even only some fraction of real gains.
Yeah, But I mean the problem then is I mean all of this obviously somebody would prefer lower taxes in a smaller state overall. But but if your point is that we need to raise this thirty seven percent GDP, then if you assume that that is the case, then it's kind of got to come from somewhere. So the wretch, John the rich if well, yeah, i'd always it's always
going to come from the wretch. But if we've got this kind of system whereby we're going to have to be paying for you know, the NHS, we have to be paying for people getting older all the time, then anytime we talk a getting rid of the taxes, we have to talk about, well, what are you going to replace that with? At least certainly that's where you know the politicians message is, so you know, what what do
you do? If you decide that we shouldn't index link capital, that we should index link capital gains for example, and where does the extra money.
Call I mean for example, there you could match the capital gains right to the income tact. Right now, I think there's a strong kind and index. You've got that indexation in there. You know that that you forgive forgive its apple and gains at death is outrageous actually and incredibly edgy damaging to the economy because people hold on
to things beyond what they beyond where they should. But if you look, you know Marin said earlier, there are other countries much higher rates levels of tax than we have. If you look at them, they don't get more from the rich. We get more than most from the rich. Partly we've got some pretty rich people, but thirty percent of all income tax comes from one the top one
percent of earners. They don't get it from corporates. We've got almost the biggest corporation tax system in the world now in terms of the fraction of national income that it brings in. At least that's the projection given the new rate, they get it from people. I'm sad to say on average and above average earnings and incomes. Now that's where the money comes from in other countries, and
I think that's what I think. This is where the political debate is so dishonest, which is that you know, those who say they want more tax, Oh, let's tax the rich, let's tax companies. If you want to make a big difference, it's from ordinary people it comes from. And that's exactly what's happening now about fifty billion pound tax rise I mentioned earlier in terms of the non indexation of allowances and thresholds, that's largely coming from people
on average and maybe twice average earnings. It's not largely coming from the rich and from companies.
So it's making our system less progressive.
It's broadly speaking, if you hold certainly, if you hold the personal allowance down, that is an unprogressive way of raising taxes.
So always, if you have to broaden the tax space, then doing it placed the health there's one to it.
It's a lot easier than announcing big increases in the race, isn't it.
Yeah, inflation, isn't it wonderful?
It's certainly helping the government.
Okay, I'll tell you what. Let's take a different approach to this. Instead of talking about how much more tax we can get out of people, let's talk about how we can encourage growth in the UK economy. And so much talk about this at the moment. Growth growth, growth. Everyone's into growth. We all love growth, and earth do we get growth in the UK?
What's easy? I mean we know how to do it. I mean we really, really, really really do know how to do it, but we decide not to. I mean it's you know, so sorting out the planning system, sorting
out the tax system. If we've just described would be good for growth, we know that investment in sensible investment in infrastructure is clearly important, and not cutting spending on further education and vocational education as has happened over the last fifteen years or so, building the roads and airports
and so on. That we need, having a consistent strategy towards competition and R and D and all those sorts of things, and free at trade with the European Union, I mean, all of those things we know would be good for growth, and yet in each case we have essentially prioritized other things. We prioritize. We don't build houses because we prioritize people already have houses, and that means that people can't access the high paying jobs in London
and the Southeast. We don't build the infrastructure which would link the Manchester and Sheffield and so on to surrounding areas so that people there can get into where the jobs are. We have cut spending on education, and particularly cut spending on education post post sixteen. We cut through the twenty tens. It's not quite so much now spending on infrastructure. Generally, as I say, we know what to do and we don't do it, largely for political reasons, so we don't.
Want it enough, We don't really want to grow, or we have a huge part of the population that is happy, settled with what they have and don't want anything to change, and they're the ones who.
Vote short the short term cost and disruption against long term Quite hard to grasp positive stuff through growth, so you know, it's always easier to say, well, know, triple lot the pension, or increase spending on wages, or or do more on health or something, all of which are good things, but you know, but also popular, whereas driving a road through someone's back garden or building building houses in the field across across the way, or or or
or or increasing taxes to increase spending on education or whatever. Those those are unpopular. So it's the politicians are feeble, but actually the electorates pretty feeble as well. On something.
You have to have a massive change the planning system anyway, aren't we If we're going to get anywhere near zero, for example, and we have to completely redo our national grid, we're going to have to have a pylon and pretty much every back garden and that's going to involve a massive change to planning.
Well, we're going to have to. I mean, it's it's more expensive to build stuff in Britain than pretty much anywhere else in terms of building roads, in terms of building energy infrastructure, in terms of building but that's okay.
Can we just cancel them?
Right? That's why one of the reasons, one of the reasons the complete lack of government consistency on policy is also incredibly expensive.
We've seen that on on on HS two. Now. I mean personally, I used to work in the Treasury when we did big studies of this stuff. Clearly there was never a strong case for HS two. Clearly actually having a whole series of better links across the North and better roads and so on as set out that is the Treasury view. And you know, you take the man out of the treasure. You can't take the treasury that you.
Say there was never a case for never a good case for HS two, and the treasure in knew that. Then explain to those of us who don't understand these things, how on earth it ever got through? Polical we get here?
It's a political decision. I mean, I think there's I think it's a really interesting study of how these big infrastructure projects actually do get you do get through. There's obviously there, there's there's there's a two of lobbying. There's a degree of politicians wanting to be associated with big projects. And you know, it's not a stupid bet. It is
a bet. I mean, building HSD with a huge bet that actually that would be enough to really make a difference to growth to Manchester and surrounding areas turned out to be a much more expensive bet than was suggested initially. I mean, I mean three times the price I think than was suggested. But I think the pervasive failure here, I mean, first of all, it's for all the issues associated with lots of planning and building lots of things
it's turned out very expensive. But our complete lack of consistency. I mean again we've seen this in education policy again. The Prime Minister said he wants to change the way we provide a levels to give a broader curriculum. I think it's pretty sensible actually, but no consistency. If you look over the things that happened over the last twenty thirty years, particularly in post sixteen education, particularly vocation changed
virtually every year, and you know you can't. You can't run a country like that and expect it to grow.
But do other countries, other countries run like that? I mean, is this sort of we're inconsistency a UK thanually. It's a global thing. No governments are consistent.
I think ours are less con I mean, particularly given we supposedly have the same party in power thirteen years. I think ours are less consistent than most.
Yeah, I think that's straight to it really in terms of what's happened in the last thirteen years. But I mean from that point of view, do you see because obvious there's a lot of frustration. I don't think that it's just you know, I was thinking about these these things. I mean, there's there's clearly a lot of irritation with a parent and ability to get anything done in the UK.
Is it end in the political sphere? That kind of gives you I don't know, I glimmer it or hope that we might see it as sort of culture change, or that we might see some political backbone developing or some sensibleness at some point for those of you are really done, we see something to you had thought, but I'm watued.
It's often try that, but with limited success. I think we've done it in the past. I mean, you know, whatever you think of the eighties and Thatcher and so on, there were big, you know, structural changes that were driven through in a reasonably consistent way. Whatever you think of the Blair years, there was a big sort of change to the way in which we funded start not enough reform arguably, so we have had long periods of reasonably
consistent government in the past. I to some extent, I hope what we've seen over the last seven eight years has been something of an aberration. And again, whatever you think of Brexit, it's clearly the case that politics just got broken essentially between twenty sixteen and twenty twenty one, let's take that or actually, no, let's say twenty twenty two.
Given that we had the forty nine day Prime minister in twenty twenty two, politics was very broken over that period on both sides, and I do see you know, actually a move away from that.
I'm very we have to go and enter it there. Paul, Thank you so much for joining us today.
Thank you, Paul.
Thanks for listening to this week's Meren Talks Money. We'll be back next week. Catch our debrief on this week's conversation on the Merin Talks Money after show under the Apple subscription feed in the meantime, If you like our show, rate review, and subscribe wherever you listen to podcasts. This episode was hosted by me Meren Sumset Web that was produced by some Sidi. Additional editing by Blake Maple's. Special thanks of course to Paul Johnson and to John Steppek.
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