Chancellor Kwasi Kwarteng’s ‘tax event’ got off to a good start with the scrapping of the Health and Social Care Tax, which is a disguised surcharge on national insurance contributions.
It was an ill-conceived tax, issued outside the budget cycle and seized by the Treasury as a chance to restore the tax base after the pandemic.
Initially, Rishi Sunak was going to levy it only on employees.
Tax cut: Chancellor Kwasi Kwarteng has scrapped the controversial health and social care tax introduced by his predecessor Rishi Sunak
But when it was realized how much could be raised, he also planted it on employers, raising some £13billion a year in total.
The levy has been marketed as an opportunity to solve Britain’s confusing welfare system. For the first two years, it was planned to solve NHS bottlenecks after Covid, and social care would come next.
One of the biggest causes of overcrowded hospitals is bed blockages by the elderly and infirm (through no fault of their own) across the NHS.
These are patients, fit to leave, who should have been transferred from hospitals to retirement homes or home care.
The tax money would have been better directed towards the social aspect of the problem.
But the reality is that the nation has lost more than a decade, since the publication of the Dilnot report in 2011, which began to reshape social protection.
A more robust approach would have been a social market solution similar to that put in place by the Blair government for occupational pensions.
If such a plan had been in place and was working, there would already be an endowment fund easing the path to social care.
As in the case of occupational pensions, a small part of the salary, benefiting from tax relief, would be deducted at source and paid into a fund managed in the private sector.
There would be the possibility of opting out. As the pension tax shows, very few people would.
Abolition is a tax cut for 28 million people and is worth £330 a year. There are bound to be protests that this helps the rich more than the less well-off.
The reality is that it gives everyone more control over their finances and frees up money for spending and growing.
Moreover, by easing the burden on employers, it makes hiring staff cheaper and acts as a barrier against inflation.
How will all of this be paid for? The Treasury says improvements to the NHS and social care will come from general taxation.
What is often forgotten is that the most heinous recent tax increase was Sunak’s benefit freeze at a time of high inflation. This will bring in around £40bn in additional, and growing, revenue for the Treasury.
Flooded with retail deposits piled up during the pandemic, banks have been painfully slow to reward savers as the Bank of England raised interest rates from 0.1% last year to 2.25% now.
However, the end of emergency rates and the start of the Bank’s £80bn cut in quantitative easing held on gilts are significantly improving options for pensioners.
Hargreaves Lansdown brokers calculate that annuity rates have jumped 35% in the past year, reaching the best level in a decade.
Annuities, which guarantee retirees a certain income, fell out of favor after the financial crisis.
Former Chancellor George Osborne decided the fairest thing was to sweep away the rule that pension lump sums had to be used to buy an annuity.
Do-it-yourself investing became all the rage and it was feared that a whole new generation of silver-haired Ferrari drivers would go for the excitement.
Uncertainty in stock markets, uncapped bills for quick car repairs and rising borrowing costs are once again presenting an opportunity for retirees looking for a safer choice.
When ownership of Neil Woodford’s Patient Capital Trust was transferred and renamed Schroder UK Public Private, the worst seemed to be over for investors.
Shares of the listed trust have now hit a new low after it was revealed that the valuation of one of its biggest holdings, Amsterdam-listed Benevolent AI, had been wrong for more than five months.
The embarrassing mistake was made before Link Fund Solutions was removed as an alternative fund manager by Schroder.
Another issue for the Financial Conduct Authority as it zeroes in on Link’s role in the Woodford scandals.
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