Earlier this month I wrote about how boomers represent the ultimate failure of Margaret Thatcher: “The very group of people she enriched, by giving them property, increasing the value of it, helping them become shareholders, allowing them to keep more of their income, have not become vigorously self-reliant, leading to a resurgence in entrepreneurial spirit, dynamism, and charity. They have become spectacularly entitled. (I shall pause briefly here to note I am talking about averages here and there are no doubt many lovely and self-aware boomers reading this, not least my business partner/father).”
‘...this has few buyers in the country at large because most voters understand that they benefit from the wealth and inheritance of their older relatives.’
Of course, the young wouldn’t need to benefit from all these wealth transfers if housing policy hadn’t been ruined by their parents’ generation... Something they didn’t have to deal with when they were buying their first properties on much smaller deposits and earnings ratios. And we then wouldn’t need to answer the wealth taxation question.
FWIW I did a large piece of analysis on how a Land Value Tax would work while I was a data scientist at DWP back in 2016-17. It was very obviously a massive win for at least 70-80%+ of households assuming we raised £200-300bn from LVT and cut the same from PIT and NI. I assumed we would abolish NI and the higher and additional income tax rates and raise the nil rate band to about £16k. All of the objections to LVT (such as excess admin) are just completely idiotic, especially once you look at the data. And it has a huge number of positive spillover effects such as encouraging more bank lending to business by supressing land speculation. I shopped it around the dept and got told it was a good, interesting piece of analysis but it was very obvious it would never go anywhere while the Tories are there
Fantastic article as usual. How would you suggest approaching the issue of people with high property wealth but low income (to pay an annual land value tax)? It’s seemed to me that inheritance tax was always more workable than LVT for this reason. Could it work to give people the option to either pay LVT annually or defer until they die and the property is sold?
As we exempt first time buyers from its effects to a reasonably significant degree, it's not unreasonable to argue that STP duty functions as a form of capital gains tax on a main dwelling. It's not perfect but everyone buying a family home in London is handing over north of 30k which is a non trivial tax on wealth. If you said to them that actually, we are going to reduce the up front cost but instead you will pay an additional council tax precept of 0.25% of your estimated property value each year , I suspect they would take you up on that.
In his book, Capital in the twenty-first century, Thomas Picketty shows (if further proof was need) how on a national and global scale Wealth earns more money than Labour. The argument for a Wealth Tax is overwhelming. The challenge of how to do it. A couple may live in a house valued at over £1 million, but I would argue they are not the problem. Nevertheless, shifting the tax burden so they pay property tax instead of income tax might be acceptable if people believe it's just a shift rather than an increase. The problem is that most wealth is hidden or put in places where it remains untaxed. This is what we need to tax.
Great article as always. I’m not sure though that the generation angle is politically the best one, as this really is about real estate inheritance, isn’t it? (Well, and the legal boxes you out them in…)
Being a millennial myself, renting, as I live abroad, it’s crushing to see prices skyrocketing for years, now mortgage prices rising as well, and the market just freezing as people try to hold to obviously-too-high-evaluations given CB rates. Taxes would be a nice way to more the sell-side…
I’m also confused by the widespread images of “pensioners being forced out of their homes” - I mean, we are talking about inheritance, so they are literally dead, no? What’s so bad about taking a mortgage if you get a house for free? We’ve build this fascinating financial system all those years and now that there are a real problems we suddenly cannot use it?
Overall, the whole debate is so obviously bad-intentioned. The emotional appeal and lack of economic data in most parts of it (and the trigger-escapes to issues of generational stereotypes and migration, of course) should tell us everything.
(Things are much worse here in Germany, where even more people are renting and ownership is even more concentrated. Klein & Pettis cite a ridiculous number that while you still pay 14% if you inherit your parents’ home, the effective inheritance tax is under 1% for inheritance crossing a million-or-something-threshold. Guess you move it into a GmbH and then it’s a “Mittelständischer Familienbetrieb”…)
One reason why the percentage of pensioners owning their homes outright is up from 1993 is that in the 30 years since 1993 many older pensioners who did not own their homes will have died. I recall the Ryedale byelection in 1986 where pensioners deserted the Conservatives in droves complaining about how youngsters were being helped to buy their own homes while their rents were going up (they were cross about a very small pension increase as well). All of these pensioners would have been born before 1926. One advantage of pensioners owning their own homes as their properties is that they are generally well maintained. The problem is that far too few of the under 50s and under 40s and between 15 and 30 are owning their homes.
On the level of unemployment expected in 1978, I worked for the British Chambers of Commerce at the time, and I recall that while a 3 million figure was not mentioned, a 2 or 2.5 million figure was discussed in the Department of Employment owing to demographic factors. The 17 year duration of a Conservative government was not anticipated, but nobody could have anticipated the Labour split, the Foot leadership, Galtieri giving Margaret Thatcher a huge boost in credibility as a leader or the Labour 1983 manifesto ("The longest suicide note in history")
There’s an argument about trust here. Do we trust the government to use our taxes equitably? I’d suggest we can’t - the current administration is corrupt. At the moment I’m working FT at 70 yrs old mainly to support 4 adult children being fleeced by rents, and to pay for medical stuff the NHS has given up on. My property is a modest flat but Band D because Surrey. I can’t downsize and in my case the most likely outcome of greater taxation would be that I can’t afford to subsidise my kids. I’d probably retire, move out of London, pass on any equity, and the economy would lose a 40% taxpayer.
"And increasing house supply will only have a marginal impact on prices."
Fantastic article as usual but I disagree with this quote, and I'd argue this is the only valid argument Chris Giles makes. Given the extremely high cost of housing to buy and as a percentage of household income (either mortgage or rent) a genuine long term fix to housing supply would make a huge difference to wealth inequality.
Fantastic piece as always, and I like how you take the responses and criticism and address them. Another good reason keep subscribing as its fascinating to see the debate evolve.
I read both the articles you address and, whole I agree with some points, I don't think anything invalidates your basic argument: the beneficiaries of Thatcherism have unwittingly led to an anti-Thatcherite electorate. While there are points of detail in every area, that can be argued over indefinitely, it's impossible to dispute the fact that inequality has both widened and deepened. In a way, we're seeing something similar to the US theory that their "middle class" no longer really exists, due to inequality and the monetisation of practically everything. The key question is whether a 2-term Labour government (if it happened) could or would address some of the fundamental factors via significant policy changes, or whether they will tinker at the edges for fear of electoral and media unpopularity.
Do you think a significant Labour majority (again, if it happens), and the possibility of a second term would make them bolder on policy solutions?
Perhaps before we jump to the ever more tax (as long as it’s not me) approach to transfer wealth through the generations consideration should be given to explaining the rise of personal indebtedness at a time of super abundance and cheap (historically speaking) goods and services. Then again Where would property prices be now if there were fewer single adult households and mortgages rates had stayed nearer to the 10% plus levels of the seventies and eighties? Maybe someone could explain too why the claims made at every general election to pay for increased services through efficiency savings never materialise. The problem of the widening in income disparity is much more complex than simply the boomers having all the wealth (which I’m not sure they do). Let’s look at really eliminating tax breaks and harmonising the essential ones across all incomes. Standardising Pension payments relief is one to start with. Scrapping the NI ceiling is another. And a much more banded income tax system a third. Sadly the solution is much wider than simply taxing the boomers indeed I suspect, on past evidence, to do so would not materially improve the lot of the just about managing.
‘...this has few buyers in the country at large because most voters understand that they benefit from the wealth and inheritance of their older relatives.’
Of course, the young wouldn’t need to benefit from all these wealth transfers if housing policy hadn’t been ruined by their parents’ generation... Something they didn’t have to deal with when they were buying their first properties on much smaller deposits and earnings ratios. And we then wouldn’t need to answer the wealth taxation question.
FWIW I did a large piece of analysis on how a Land Value Tax would work while I was a data scientist at DWP back in 2016-17. It was very obviously a massive win for at least 70-80%+ of households assuming we raised £200-300bn from LVT and cut the same from PIT and NI. I assumed we would abolish NI and the higher and additional income tax rates and raise the nil rate band to about £16k. All of the objections to LVT (such as excess admin) are just completely idiotic, especially once you look at the data. And it has a huge number of positive spillover effects such as encouraging more bank lending to business by supressing land speculation. I shopped it around the dept and got told it was a good, interesting piece of analysis but it was very obvious it would never go anywhere while the Tories are there
Fantastic article as usual. How would you suggest approaching the issue of people with high property wealth but low income (to pay an annual land value tax)? It’s seemed to me that inheritance tax was always more workable than LVT for this reason. Could it work to give people the option to either pay LVT annually or defer until they die and the property is sold?
As we exempt first time buyers from its effects to a reasonably significant degree, it's not unreasonable to argue that STP duty functions as a form of capital gains tax on a main dwelling. It's not perfect but everyone buying a family home in London is handing over north of 30k which is a non trivial tax on wealth. If you said to them that actually, we are going to reduce the up front cost but instead you will pay an additional council tax precept of 0.25% of your estimated property value each year , I suspect they would take you up on that.
In his book, Capital in the twenty-first century, Thomas Picketty shows (if further proof was need) how on a national and global scale Wealth earns more money than Labour. The argument for a Wealth Tax is overwhelming. The challenge of how to do it. A couple may live in a house valued at over £1 million, but I would argue they are not the problem. Nevertheless, shifting the tax burden so they pay property tax instead of income tax might be acceptable if people believe it's just a shift rather than an increase. The problem is that most wealth is hidden or put in places where it remains untaxed. This is what we need to tax.
Great article as always. I’m not sure though that the generation angle is politically the best one, as this really is about real estate inheritance, isn’t it? (Well, and the legal boxes you out them in…)
Being a millennial myself, renting, as I live abroad, it’s crushing to see prices skyrocketing for years, now mortgage prices rising as well, and the market just freezing as people try to hold to obviously-too-high-evaluations given CB rates. Taxes would be a nice way to more the sell-side…
I’m also confused by the widespread images of “pensioners being forced out of their homes” - I mean, we are talking about inheritance, so they are literally dead, no? What’s so bad about taking a mortgage if you get a house for free? We’ve build this fascinating financial system all those years and now that there are a real problems we suddenly cannot use it?
Overall, the whole debate is so obviously bad-intentioned. The emotional appeal and lack of economic data in most parts of it (and the trigger-escapes to issues of generational stereotypes and migration, of course) should tell us everything.
(Things are much worse here in Germany, where even more people are renting and ownership is even more concentrated. Klein & Pettis cite a ridiculous number that while you still pay 14% if you inherit your parents’ home, the effective inheritance tax is under 1% for inheritance crossing a million-or-something-threshold. Guess you move it into a GmbH and then it’s a “Mittelständischer Familienbetrieb”…)
One reason why the percentage of pensioners owning their homes outright is up from 1993 is that in the 30 years since 1993 many older pensioners who did not own their homes will have died. I recall the Ryedale byelection in 1986 where pensioners deserted the Conservatives in droves complaining about how youngsters were being helped to buy their own homes while their rents were going up (they were cross about a very small pension increase as well). All of these pensioners would have been born before 1926. One advantage of pensioners owning their own homes as their properties is that they are generally well maintained. The problem is that far too few of the under 50s and under 40s and between 15 and 30 are owning their homes.
On the level of unemployment expected in 1978, I worked for the British Chambers of Commerce at the time, and I recall that while a 3 million figure was not mentioned, a 2 or 2.5 million figure was discussed in the Department of Employment owing to demographic factors. The 17 year duration of a Conservative government was not anticipated, but nobody could have anticipated the Labour split, the Foot leadership, Galtieri giving Margaret Thatcher a huge boost in credibility as a leader or the Labour 1983 manifesto ("The longest suicide note in history")
There’s an argument about trust here. Do we trust the government to use our taxes equitably? I’d suggest we can’t - the current administration is corrupt. At the moment I’m working FT at 70 yrs old mainly to support 4 adult children being fleeced by rents, and to pay for medical stuff the NHS has given up on. My property is a modest flat but Band D because Surrey. I can’t downsize and in my case the most likely outcome of greater taxation would be that I can’t afford to subsidise my kids. I’d probably retire, move out of London, pass on any equity, and the economy would lose a 40% taxpayer.
"And increasing house supply will only have a marginal impact on prices."
Fantastic article as usual but I disagree with this quote, and I'd argue this is the only valid argument Chris Giles makes. Given the extremely high cost of housing to buy and as a percentage of household income (either mortgage or rent) a genuine long term fix to housing supply would make a huge difference to wealth inequality.
Fantastic piece as always, and I like how you take the responses and criticism and address them. Another good reason keep subscribing as its fascinating to see the debate evolve.
I read both the articles you address and, whole I agree with some points, I don't think anything invalidates your basic argument: the beneficiaries of Thatcherism have unwittingly led to an anti-Thatcherite electorate. While there are points of detail in every area, that can be argued over indefinitely, it's impossible to dispute the fact that inequality has both widened and deepened. In a way, we're seeing something similar to the US theory that their "middle class" no longer really exists, due to inequality and the monetisation of practically everything. The key question is whether a 2-term Labour government (if it happened) could or would address some of the fundamental factors via significant policy changes, or whether they will tinker at the edges for fear of electoral and media unpopularity.
Do you think a significant Labour majority (again, if it happens), and the possibility of a second term would make them bolder on policy solutions?
Perhaps before we jump to the ever more tax (as long as it’s not me) approach to transfer wealth through the generations consideration should be given to explaining the rise of personal indebtedness at a time of super abundance and cheap (historically speaking) goods and services. Then again Where would property prices be now if there were fewer single adult households and mortgages rates had stayed nearer to the 10% plus levels of the seventies and eighties? Maybe someone could explain too why the claims made at every general election to pay for increased services through efficiency savings never materialise. The problem of the widening in income disparity is much more complex than simply the boomers having all the wealth (which I’m not sure they do). Let’s look at really eliminating tax breaks and harmonising the essential ones across all incomes. Standardising Pension payments relief is one to start with. Scrapping the NI ceiling is another. And a much more banded income tax system a third. Sadly the solution is much wider than simply taxing the boomers indeed I suspect, on past evidence, to do so would not materially improve the lot of the just about managing.