personal investment blog



20 Jun 2017

Nearly every commentator admits that he or she was wrong about the recent election, in particular their belief that no one with a modicum of responsible judgement would vote for Jeremy Corbyn. I also was wrong when I wrote this:

Just as the Labour party cannot afford to be a blunt advocate of public spending because it knows that government debt is critically high, the Conservatives are no longer perpetually calling for lower taxes because they know that services to which we all think we are entitled are going to become yet more expensive.

So the result is that the debate at this election has become a little more subtle than usual.

As it happened, Labour produced a costed manifesto in which 80% of the extra revenue was to come from corporations or rich people, those joint gold medallists in legal tax avoidance. This was anything but subtle (“people in suits can pay”) and was effectively trashed by the party itself when, in response to complaints from students who have already incurred high debts that their successors would benefit from Labour’s plan to abolish fees in future, Jeremy Corbyn promised to “deal with it”. Dealing with it sounds expensive and was not covered by the manifesto.

By contrast, the Conservatives decided that it was a good time to have a grown-up conversation about relieving young people from the burden of paying for the care of the elderly by tapping the assets of the elderly themselves. It turns out that the country is not ready for this discussion which is a great shame. Time is running out. Between now and 2030, for every net person joining the major income tax paying years of 30-59, there will be nine (net) joining the over 75s.

The Conservative MEP Daniel Hannan has this plausible explanation for the surprising performance of a Labour movement led by its left wing.

No, I’m afraid we’re down to the simplest and most depressing explanation. Quite a few voters will support any party that seems to be offering them free stuff.

Labour’s manifesto was a ridiculous list of public handouts. More money was promised for healthcare, schools, the police, public sector pay rises, pensions and free university tuition. All the extra cash was vaguely supposed to come from “big business” and “the rich.” In the event, an awful lot of people liked the sound of goodies that someone else would pay for.

There writes a very disappointed and baffled man but he may have learnt something about the contemporary divorce of rights and responsibility that has been growing for some time. The social contract is cracking.


It might seem bizarre to blame this on QE but hey, why not? As Sherlock Holmes used to say, once you have eliminated all the most likely explanations whatever remains, however improbable, must be the truth. QE was supposed to support the price of the safest assets (government bonds) in order to make less safe assets more attractive to investors. This was in order to save the banks which were rather long of less safe assets (their balance sheets were stuffed with toxic junk).

The prices of all other investable assets were duly pushed up thereby delivering unexpected wealth to people with portfolios of securities or even fine wine and art but above all to property owners. And with a large and influential part of the population liking this very much, QE has been endlessly extended accompanied by the thin spin that it promotes economic growth. This has resulted in what looks like a society divided between older asset- rich house owners and younger asset-light renters.

You might say that it is entirely understandable that the latter group votes for free stuff. The years may have made me wiser and grumpier but I can still sympathise. But there is a major practical problem here. In the UK we raise taxes (to pay for stuff) primarily from people’s earnings (income tax and national insurance) and from their spending (VAT and stamp duty).


In 2016/17 82% of the nation’s tax receipts came from these sources. And the earners and spenders are mostly younger people. Oldies living in houses worth windfall prices earn less, spend less and generally pay less tax. So here is a paradox. If you are young, voting for goodies that someone else will pay for is not really an option. It might seem righteous and even fun to move your voting intentions sharply left, but there is no such thing as a free lurch.

The Conservative manifesto proposal about getting old people to pay for their own care may have seemed mysterious, confused, scary and ill-timed but young people should enthusiastically welcome the debate. It amounts to introducing a tax on wealth to take some of the pressure off taxes on earning and spending.

As I have observed before, wealth taxes are often iniquitous because they cause great financial distress to people who are asset rich and income poor. For this reason, no one must be made to sell their house while they or their spouse still need it. But as I have also previously written, we must get over our squeamishness about so-called “death taxes”. Dying stupendously rich is a grotesque misuse of resources. The “right” to bequeath huge financial advantage to your children is morally tawdry and in all probability unwise (they’ll turn into vacuous socialites or Zac Goldsmith).

If you are nearing the end of life and you feel like giving money away to a charity, a gold digger or a bookmaker that is entirely up to you. At least in various ways you will be contributing to the economy – that’s the economy populated by living people – really, it’s the only one we have.

Inheritance tax contributes 0.9% of the nation’s total tax revenue compared to, for instance, tobacco duty with 1.6%. I’m guessing that most tobacco duty is paid by relatively poor people. Inheritance tax comes from the estates of rich people. We must get over the ridiculous notion that taxing the estates of the deceased is somehow intrusive and “not fair”. Raising taxes on younger working people to subsidise the children of rich old people is beyond unfair.

Wealth tax. From dead people. To pay for the needs of living people. Can we please all grow up and get this debate started? 

Leave a Reply