Posts Tagged ‘income tax’

Revealed: George Osborne’s secret £6.5bn tax raid on pensioners

20/03/2015, 11:17:26 AM

by Samuel Dale

Buried deep in this year’s dull Budget was a secret £6.5bn tax raid on pensioners and savers under the guise of radical reforms.

George Osborne’s most significant policy announcement was the proposal to allow pensioners already drawing an annuity to sell their policy in exchange for a lump sum.

It is the second stage in major pensions reform announced in last year’s Budget to allow all over-55s to access their pension pots.

The first stage of pension freedoms is relatively simple. The pension system saw savers build up a retirement pot of cash with generous tax relief on contributions. In exchange they had to buy a secure income or annuity (or face a punitive 55% tax if they withdrew their cash from the pension wrapper).

Annuities work as a reverse insurance product so you pay over a big chuck of cash to the insurer and in return they pay you money every month until you die. Insurers pool the risk so those who die earlier fund the payments for those who live longer than expected lives.

As people live longer insurers are paying a lower amount each month over a longer period, making pensioners buying them poorer. Successive Governments have taken steps to ease the requirement to buy an annuity by allowing wealthier investors to drawdown their own money.

But Osborne’s announcement last year, coming into force on 6 April, is the big bang. It means anyone can withdraw their pension pot at marginal income tax rates (although everyone receives an initial tax-free lump sum of 25%).

The Treasury estimates the behavioural changes will see individuals wanting the money today despite the tax penalties. It will lead to many savers paying income tax on withdrawals they have never paid before.

So how much does it cost?

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Want a fairer tax system? Merge national insurance with income tax

09/01/2014, 08:30:44 AM

by Callum Anderson

One of Ed Miliband’s biggest successes of 2013 was shifting the political argument towards the cost of living crisis. Whilst this will not be sufficient to win the economic debate against the coalition government, it is still likely to be a significant battleground in the run-up to the next general election, as wages continue to stagnate and the cost of living rises, despite signs that unemployment is falling and that economic growth is (finally) beginning to be restored.

Indeed, by May 2015, Ed Miliband could be well set to ask the voters: “Are you better off than you were five years ago?”

Naturally, an aim of a government (and certainly that of a Labour government) should be to increase the money that low and middle income earners have in their pockets. They are more likely to spend more, which will subsequently lead to positive benefits for the economy. Much progress has already been made in increasing wages through the minimum wage (although, of course, a living wage must soon be implemented), as well as increasing the tax-free personal allowances (for which credit deserves to go to the coalition government). One way of improving the living standards of low and middle income households is through the tax system. Tax cuts aimed at the poor are good because they encourage work, reduce the welfare bill, and helps poorer people to be better off.

And the clearest (not to mention the simplest) way of achieving this? Merging National Insurance contributions (NICs) with income tax. I believe that not only would we be able to help millions of the country’s lowest earners, we would also be able to create a fairer tax system that ensured that everyone pays their fair share, as well as making tax avoidance more difficult.

Currently, employees pay income tax on earnings over £9,440 per annum (increasing to £10,000 in April), yet begin to pay NICs when they earn more just £7,748 per annum. Clearly, this is significantly lower than the personal allowance for income tax, despite both being deducted from the same pay packet: NICs are essentially income tax 2.0.

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When it comes to tax, it’s the politics, stupid.

01/03/2011, 12:00:46 PM

by Rob Marchant

Not content with the questionable strategy – not to mention gift to David Cameron – of our insisting on the extension of 50% tax band indefinitely, Ed Balls has now indicated in a Progress interview that he is also thinking about lowering the threshold of the band. It was one of his leadership campaign pledges.

Doubtless, we could usefully use the money to invest in public services. But before we get into the classic Labour argument of how much money you can make, or not make, by taxing the rich, let us pause for thought and consider the following argument.

It. Doesn’t. Matter.

The question now is political, not economic. It is about perceived competence. About being in opposition, not government, and its impact on the way we do things and, most importantly, about our electoral future. These are things that both Blair and Brown keenly understood, and that is why they were successful. (more…)

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Nick Palmer says the sacred cow of income tax may be unwell

15/06/2010, 02:33:56 PM

One of the curious features of being a Labour MP in the last three elections was that we would often wake up and find out from the newspapers that we were irrevocably committed to something that we had not discussed, but which Tony or Gordon had decided was vital to our chances.

A hardy perennial was the recurrent commitment not to increase the standard rate of income tax. This was part of the New Labour deal: we were not unilateralists; we weren’t going to nationalise the commanding heights; and we wouldn’t put up your income tax.

This probably did help initially in refurbishing our image, but it has become a sacred cow. In these troubled times, we should re-examine the cow to find out how it’s getting on and if, in electoral terms, it is actually still alive. (more…)

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