Lorna Bourke, Consumer’s View
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Stamp duty raises around 4bn a year – depending on share prices and how active investors are in the market. There is a case for abolishing stamp duty but it is a minor problem compared with the vast numbers of individuals who genuinely cannot afford to pay income tax because their earnings are at or below the official poverty level. Both Osborne and Cameron have remained more or less silent on tax cuts for fear of upsetting the floating voters and giving the opposition the opportunity to accuse the Conservatives of paying for tax reductions with cuts in public services – not to mention the danger of Gordon Brown picking up some handy hints on cheap but popular vote-catching tinkering. The abolition of stamp duty on share purchases would be a popular move and would probably pay for itself. Osborne has linked the abolition of stamp duty to a desire to improve people’s pension savings. This has been welcomed by the savings industry. The IMA was quick to point out that “stamp duty is a tax on savers and particularly affects small investors. Over time, it reduces the value of pensions, Isas and other forms of saving.” The IMA says: “Over a 20-year period, a typical 50,000 pension pot would attract stamp duty costs of around 7,000. Its abolition would remove a serious impediment to long-term saving. It is, therefore, most welcome that George Osborne has indicated a readiness to abolish it.” Stamp duty is imposed at 0.5 per cent on all transactions in UK incorporated company shares by all individuals, whether they are resident or non-resident in the UK. The real benefit would be in preventing the migration of business abroad to other financial centres which do not impose stamp duty. It is also debatable whether any UK government will be able to maintain stamp duty as a tax on dealing in UK incorporated companies once it becomes possible to incorporate a company as an EU company rather than linking the company to any specific EU state. But all this is irrelevant in the context of the Conservatives’ lack of coherent thinking about taxation policy. The recent suggestion by right wing Tory think-tank The Bow Group illustrates just how far wide of the mark some Tory thinking is. It came up with the idea of replacing council tax, inheritance tax, stamp duty and capital gains tax as well as the BBC’s licence fee, with a property tax of 1 per cent a year based on the value of homes. The inequity of this is obvious. Ownership of properties worth 750,000 to 1m is commonplace in many areas of London and the South-east and bears no relationship to the owners’ ability to pay. The same house in Hull could be worth as little as 250,000. David Cameron and George Osborne must get their house in order and sort out some sensible tax policies if they want to win the next election. The biggest single inequity in the tax system is the fact that tax is paid by poor people. The lower-income 50 per cent of the population – largely pensioners, part-time work-ers, school leavers and those on the minimum wage – contribute only 12 per cent of income tax. Half the entire population could be released from taxation altogether at a cost of around 18bn a year. Brown deals with it through the horrifically complicated and fraud-prone tax credit system. This in turn distorts the labour market and subsidises employers who are able to pay the minimum wage, secure in the knowledge that employees will be eligible to claim tax credits. The second-biggest inequity is that individuals who have saved all their life and paid income tax are obliged to pay income tax on the return on these investments. It would be a simple matter to make, say, the first 5,000 a year of investment income tax-free in the hands of those whose total income is, say, 25,000 a year or less. The rich would still be caught. Until the Government – whether it is another Labour government or a Conservative one – addresses these gross anomalies, the poor will continue to suffer. Money Marketing50 Poland Street, London W1F 7AX Standard Life believes that half the people earning under 25,000 involved in the proposed National Pension Savings Scheme would be worse off because of the scheme. Their savings will be means- tested, so saving will have been pointless in the first place, it says. We can get into all sorts of arguments about the construction of the scheme and sometimes naive arguments from the consumer lobby and consumer journalists about who should run it and what it should cost. Most of these opinions neglect the need for advice while many expect a privately run and administered scheme, at least partly funded by shareholder capital, to be run for next to nothing. Such people will be the first to criticise the scheme when it flops or fails to deliver anything but a cut-price service. But most of this comes to naught when one considers a more fundamental mistake. As the research shows, the biggest issue in pension reform for a vast swathe of the population without adequate pension cover is that the tax and benefit system does not reward saving. It is much more difficult problem to solve than creating a structure like the NPSS. But it should have been solved first. The NPSS is at risk of harming existing savings in company pensions and now it is at risk of leaving many of the less well-off even worse off. Perhaps it would have been better if it had never been thought of in the first place. It is time for a proper debate about how the Financial Ombudsman Service functions. One IFA has managed to overturn an ombudsman’s decision in the High Court. The ruling sees a judge questioning the way the ombudsman determines who is and who is not an experienced investor and how compensation is calculated. Can we suggest that, instead of more advisers taking to the courts, the FOS considers how it operates in certain circumstances. It needs to dispel the suspicion that the benefit of the doubt is always given to the consumer, particularly when assessing just who is an experienced investor and who is not.