Demographic Time Bomb ?

One of the really significant narratives in this country concerns the implications of an ageing population. The fact that people are living longer has been noted: and it has been accepted that this is an enormous problem for our society. Indeed, it has been strongly suggested that this is the reason we can no longer afford to to maintain a "welfare state", much less extend its reach. As is often the case this has been presented as fact without much in the way of analysis: and having been so presented it has been used to justify a number of policy initiatives which are recognised to be nasty but are said to be essential, else the sky will fall.

So I would like to find out more about this. I have read around the subject for some time, in an unsystematic way. Getting the facts is hard: interpreting them is even harder.

The first thing I noticed when I looked into this is that the media talk about the aged population in isolation. It is reported that the numbers of older people are increasing, and the length of time they (we) live after retirement age is also increasing. They then go on to say that this will place an increasing burden on medical and social services, and they talk in terms of "bankrupting" the society and other very alarming outcomes. This has become the "fact" and a great many social policy changes have been predicated on this wisdom: not least the raising of the retirement age.

The raising of the retirement age as a response to this demographic time bomb was the second thing I noticed as odd about this story. It seemed to me that if the population was ageing, and that necessarily entailed greater costs, it did so on the assumption that these older people would be using the services. Therefore it followed that they were ill or infirm or otherwise in need of care and support. So how can we make them (us) work? They (we) are not fit to work, obviously.

Of course that problem is answered by the anxiety about the cost of pensions. They (we) are not really going to bankrupt us through illness and dependency, in the physical sense: they (we) are going to bankrupt us because they will require an income which they (we) are not generating. So we have to make them (us) work longer. It is deeply unfortunate, but we just cannot afford to have a lot of people who consume without producing.

So far so good. But then I thought about the unemployed. Up until about 1979 the idea of having a million people "out of work and claimng benefits" was completely unacceptable in this society. One of the very successful political slogans of the late 1970's was "Labour isn't working" and it was said to be one of the major reasons for the defeat of the labour government in 1979. People were not prepared to tolerate that level of unemployment, and they punished the government which presided over that rise. So it is curious to note that by 1986 the figure had risen to 3.1 million: and apparently there was no alternative to this. It was necessary to make a stronger economy "in the long run". Astonishingly the people accepted this: but there you go.

www.parliament.uk/documents/commons...99/rp99-111.pdf

The figures are hopeless because the definition of "unemployment" keeps changing: it is not an accident of terminology that the BBC now cite the figures as "out of work and claiming benefits", because that reflects a very major alteration to how the count is kept. It is very hard to compare the position between years, for that reason. As an example: the right to non-means tested benefits for the unemployed used to extend to one year: that was cut in half some time after 1979. So the figures for unemployment before and after that change cannot be compared. Anyone who has a partner in even a moderately paid job is no longer counted when the benefit runs out: and the count is affected by the cut to the time the benefit is paid. I am unable to discover how many people this applies to: and it is only one of many changes made.

In 2011 the percentage of the population aged 65 and over in the uk was 16.5%. That is not the highest in the world nor anything like it: Germany, Italy, Switzerland, Denmark and about 15 other countries all had higher rates in that year. I do not know if they are panicking about this: probably, since the concerns do seem to map across europe in quite surprising ways (and the policy responses are also often similar). But I do not know. No matter.

www.nationmaster.com/graph/peo_age_...e-65-years-over

What is evident is that these are percentages: and that means that the birth rate affects them. It happens that fertility in the uk was unusually low in the 1970's and that it has been increasing since 2002. That is a trend which is replicated in many european countries. But the headlines here do not seem to include those figures when scaremongering about the demographic time bomb. That is curious, because the importance of the numbers of older people rests on the "dependency ratio": and so the total number which matters includes children, and the unemployed, and the chronically sick, and other groups who, for one reason or another, are not in paid employement. And that is why the figures for the unemployed are mentioned above. You cannot leave them out of this discussion: but we do.

A low birth rate in the 1970's means fewer people now aged between about 30 and 40. They are rather a large part of the work force who support all of these dependent groups. Oddly, that deficit has not meant that we have full employment. Far from it. Unemployment has never fallen below a million since 1979, no matter how it is counted. I may be simple minded but it seems to me that this is peculiar. Since 1984 (just about the time those born in 1970 would be getting near entering the work force) the number of people aged over 65 has increased by 1.7 million. If supporting all those extra people were such a problem one might have thought that it would be a good idea to get those folk into work. But apparently not: apparently it is a better (nay an essential) idea to raise the retirement age. Go figure.

www.statistics.gov.uk/cci/nugget.asp?ID=949

Which brings me back to pensions. We can't afford them. The pension funds are in deficit and final salary schemes are being abolished right and left, as we speak. What is not reported is the little remembered fact that many of those schemes were in surplus during the last couple of decades of the last century and many businesses took "contribution holidays" in that period. To the tune of 17.9 billion pounds between 1987 and 2001, for example. We don't hear a lot about that now.

www.ipe.com/news/uk-pension-schemes...lidays_6717.php

You will notice that these were holidays for the employers: very few of the workers were included in these "holidays". Far be it from me to suggest that the employers just got used to not contributing and they came to like it: that cannot be the reason we can't afford pensions now, I am sure .

But.....http://news.bbc.co.uk/1/hi/business/1259316.stm

And....http://www.taxresearch.org.uk/Blog/2011/03/10/its-not-public-sector-pensions-that-are-the-problem-the-problem-is-that-the-state-is-paying-every-penny-of-private-pensions/

I have no idea how respectable that last link is, btw: but I can't see any flaw in the reasoning myself ( it is well known I can't count though )

Not only are final salary schemes being abolished because they are too dear (even though they don't cost businesses anything, if the last link is correct): but those decisions are fuelling a furious attack on public sector pensions. And this is divide and rule. Workers in the private sector get a poor and worsening deal on pensions. They look at public sector workers who get a better provision and, amazingly, they do not say " I want some of that": instead they say "That is better than what I get: it isn't fair: take it off them". Or at least that is what we are told they say. I do not know because my sources of information are those same media who have told me about this demographic problem in the first place. As you see, I am not entirely persuaded they are correct about that

There is another aspect too. If the argument is that the problem is not pensions but rather the social and medical costs which an ageing population generate we have to show that those exist. That piqued my curiousity as well. I couldn't find figures for the uk on this. But american figures are readily accessible and they show that a very large part of medical expenditure is spent in the last year of life. One of the arguments I have read is that better technolgy means that we are prolonging life at great cost: that does not seem to be true, at least in the US (and one might expect it to be more true there than elsewhere given their committment to technological solutions - or is that a stereotype? probably is). And it is also true that every one of us will have a last year of life: the cost of care in that year does not necessarily rise just because someone is 83 and not, say, 23 at that point: at least I see no reason why it should. So that argument is not convincing to me.

www.thirteen.org/bid/sb-howmuch.html

But even if it is true that older people cost more at the end of life we already know that we are not necessarily spending the money wisely or well. The government is notoriously apt to cut costs by providing "services in the community", and people are rightly suspicious of that because it is often a cover for merely saving money, rather than an honest change in service delivery for better outcomes. But that suspicion does not mean there is no case for a different way of doing things that night well be cheaper. So I contend that we can meet at least some of these problems of increased cost by investing in those options

www.kingsfund.org.uk/topics/endoflife_care/

In another part of the forest there are costs to this policy response which do not seem to be discussed either. One example is the hidden work that older people do. It is significant. In this country child care is very, very expensive. A great many people who are currently in the work force are only there because child care is provided by their children's grandparents. If that were not available they could not afford to work. So if we insist that people work longer we will have more younger people who are are unemployed. They wont show up in the unemployment figures, for reasons outlined above: but they will feature in the dependency ratio. It is possibly a "two for one " deal: two grandparents still working for one parent unable to do that. But that tracks through to child poverty and it also has costs.

Likewise, given a situation where there is not full employment, every older person in work means a younger person who is not. That is an exaggeration, but in a situation of competition for jobs it is at least partly true. I fail to see how that improves the dependency ratio: but I quite see how it saves money. Unemployment benefits, even when they are due, are significantly lower than the state pension. So if an older person works an extra 5 years then they have an income and pay tax: and some younger person gets the dole (or a very low paid job and tax credits - also lower than the state pension usually) for that same 5 years. Or the young person gets the job and the older person gets broo money instead of a (higher) pension.

In short I do not know what the dependency ratio is going to be in the future: and neither do those who are pushing this panic. I do not see many facts which support the idea that this time bomb is a problem; or what size of a problem; or whether there are other ways to deal with it if it is a problem. But the outcomes I see are quite clear: business does not need to pay pensions so that folk can live with dignity and enjoy leisure for a reasonable period instead of dropping dead shortly after they retire: Profit! There will be competition between generations for scarce jobs - we already see this being fostered in the press: the "baby boomers" are a selfish lot who have made sure they are all right jack forever: and are now foisting their folly onto the young to sort out ( tell that to "baby boomers" who happened to be miners or ship yard workers and who have never found work since those things were closed) - and that will nicely deflect them from any focus on the real source of their woes: Profit! A deterioration in the quality of public services like health and social care can be explained away as inevitable in face of the demographic problem and no-one will look too closely at other reasons which might be more relevant: Less Tax! etc

[sings]when the poor hunt the poor over mountain and moor/ the rich man can keep him in chains [/sings]

I suspect that is what this is really all about. But then I would, wouldn't I

Edited by FionaK - 20/9/2013, 23:55

The retirement age will rise, of course, as medical and technological advances provide health benefits beyond the norm of 65 years. Anti-smoking legislation itself has saved or extended countless lives.

The question I have for those who think that old people aren't affordable (or productive) is whether young people are any more affordable or productive. This works for practically any segment of society.

The sky-is-falling doomsayers have nothing empirical to back up their claims.

Why will the retirement age rise "of course"?

It's because people are more productive now at a later age than they used to be.

Something I am not certain is addressed in all your links is the simple fact that pension deductions are yet another payroll tax on the poor and this ought to concern anyone of a presumed socialistic bent. Poor people in industrialised nations don't live as long as wealthy people and wealthy people have a better opportunity for concealing wealth as invested capital or in their scions' names without worry of being "outed".

If you wanted pension reform then the best alternative is a VAT surcharge with all the monies kept in current accounts instead of vaguely defined and potentially irresponsibly run "pension funds". There really is no such thing as a pension fund. It's merely an insurance scheme without sufficient oversight.

Right now, pension funds are seeking to securitise their obligations because customers are living "too long". There have been several recent stories about this trend at BusinessWeek and Bloomberg.

All of this was really understood when the first schemes to insure old age came into being in the last century. Roosevelt is quoted in several books as arguing with his detractors (including his own Treasury Secretary, IIRC) that people would never live sufficiently long to collect any of it.

Are you a proponent of payroll taxes (really head taxes or poll taxes) over VATs? I'm not. I think VATs are generally fairer as the wealthy consume an awful lot more than the poor do. Many wealthy individuals don't even pay payroll taxes because they earn their income through other means.

VATs also have the advantage of diminishing the urge to choke trade through import/export taxes and otherwise strangle the basics of a healthy economy.

Yes they are: but it does not follow that they have to work for longer. We could decide that they should have a far longer time to enjoy retirement, if we so wish. That rests on a great many things, but if we take the political decision that this is what we would like to see then we can probably do it. There is nothing intrinsiclly desireable about work: that is why we get paid for it I see no "of course" about it


It is certainly true that poor people do not live as long as wealthy people. The figures are actually shocking

http://news.bbc.co.uk/1/hi/health/4494051.stm

and they give the lie to the claim that income inequality is not a "zero sum game": if you believe that the correlation between increased inequality in income and increased inequality in health is causal (as I do) then it is a zero sum game in the starkest possible way.

Payroll tax is not a term which we use here, but I presume that you mean anything whch is deducted from wages at source? If that is what you do mean then you are correct that pension contributions from the employee are a "payroll tax": but it is equally possible to characterise them as "deferred wages" or as "insurance". Once gain the language you choose to adopt affects the perception of what you describe. "Payrolll tax" is a "boo" phrase in the current climate: "Insurance" is more of a "hurrah" word. So how we choose to call this is already making a political statement



Well, as you will appreciate, I do not favour VAT solutions. You are correct in saying that pension funds are like insurance schemes, and I think this supports my point above. However you are not correct in saying that there is no such thing as a pension fund, I don't think. Can you say more about what you see as the defining feature of a pension fund, as contrastd with an insurance scheme? The difference I see is this: an insurance scheme need not hold assets sufficient to meet claims from everyone in it: that is the essence of the inurance enterprise: risk is spread, and actuaries spend a great deal of time and effort in calculating that risk. It depends on the idea that most of the people who pay in will never experience the misfortune they are insuring against: it is a risk, not a certainty. That is not the case with a pension scheme. While not everyone who pays in will live long enough to draw the benefit they have helped pay for, that assumption cannot be built in to the way the scheme is constituted. Not ethically, anyway.

Pension schemes are not all the same. State pensions in this country are not funded at all: they are "pay as you go". That was an intense debate when the provision was first instituted and that was the decision taken: one can disagree with it for good reason: but there it is. To the extent that is true it is reasonable to call the contributions made a "tax": and I presume that is the justification for adopting that term. In this country there are two separate deductions from pay: national insurance and pension contribution. National insurance is so called because the idea is that this is what pays for current pensions and the employee will benefit in his turn. It does not cover all of the social insurance payments, nor anything like it: they are funded from general taxation (or perhaps one could say "topped up" from it). The misnaming of the contribution is unfortunate, but understandable given th difficulty of instituting a comprehensive welfare state at the outset. But to me it is now time to have a grown up debate about what we wish to see and to do that we have to start being clearer about what actually happens. For example, the characterisation of those national insurance contributions as insurance means that there is a ceiling on them: that would not be true if we recognised them as a tax. So in reality it is misleading to call it a "payroll tax": it isn't.


You are also correct in saying that other kinds of pension scheme are not sufficiently overseen: but that is a consequence of the political outlook which characterises "regulation " as a bad thing, and seeks to reduce or abolish it in every sphere which relates to business and finance. Since I think that the history of civilisation is the history of regulation the solutions I see are very different from your own, I suspect. Suffice to say that they were better overseen in the past: the legal provisions relating to the rules for pension schemes were altered post 1980: and the result is inadequate control. This matters because most such schemes are run by employers. The pension fund managers are supposed to be independent but they are not: not completely and not always. This article is sympathetic to the idea that regulation has increased; and following the Maxwell scandal that is true in one sense: but the failure to properly regulate solvency is the part of the failure which is genuinely significant, together with the rules about contribution holidays: because if the conditions for those "holidays" are met the contributions are not made: but there is no provision I am aware of to replace the lost assets if the projections turn out to be wrong. As the article notes there has been a move from internal control of pension management and that might well be seen to be a good thing: but it also means that trades unions are less well represented if we compare the best schemes before and after the shift: and it also means that more of the assets go to pay the fees of the independent fund management companies. I question whether that is a good thing. As noted in the article a lot of the independent advice came from investment bankers: and we all know how great is their "expertise" and professionalism.

The ceiling on pension fund surpluses was instituted for what must have seemed good reasons at the time:the aim was to prevent retention of the assets at the cost of lower pensions for the beneficiaries. In practice it led to the "contribution holidays" for employers already discussed. A ceiling on surplus was not, by itself, enough to achieve the desired outcome. I think it is misconceived in any case; but if it is worth doing it needed to be accompanied by rules which ensured that the surplus was reduced by means if increased benefits to pensioners: not to shareholders in the companies who enjoyed the increased below the line profit which arose from the "holiday". Or the "holiday" could have been restricted to employees: though there are questions of fairness in that as well since the beneficiaries would not be the existing pensioners who depend on the payments.

www.apinfo.co.uk/pfa/articles/Retrospective.htm


I am not sure what you mean here: I am taking it that you refer to the return to fixed equity investment strategies. I can only see that as a good thing. The move towards riskier investment strategies arose from the problem of inflation, allegedly: but that has not been a problem for a very long time and so it cannot be used as a justification for any such decision. Inflation comes and goes: returns rise and fall. But for most ordinary people what they want from a pension is security in old age: and their weighing of the balance between maximising income v certainty of income is unlikely to accord perfectly with that of pensions advisers caught up in a business climate which seeks to maximise profit.



I am not sure what you are arguing here: but if you are saying that the problems and benefits of running pensions schemes were known when the idea was first adopted then you are correct.


Once again your language is loaded, though you may not realise that: and the loading may not exist in your culture in the same way as it does in mine. "Poll tax" is a "boo" word in spades in this country because of the infamous "community charge" levied under the Thatcher government and unversally called the "poll tax".

But even if the term does not carry the same baggage in your country it is misleading, at best, to call pension contributions by that name, for the simple reason that not everyone is in work: and those who are not don't pay them and don't get the benefits: and also because some of those in work do not have occupational pensions schemes and do not earn enough to pay NI. It is nothing at all like a poll tax, actually.


As you rightly surmise I am wholly opposed to VAT: I am in favour of EU membership, but the insistence on this form of taxation is one of the areas where I regret the consequences of membership. Without meaning any disrespect, the idea that VAT is fairer is arrant nonsense, in my opinion. But that does depend on what you think taxation is for, and what you believe "fair" means.

I see no reason in principle why the poor should pay tax on all of their income while the rich do not. But the fact is that the poor spend all their money and the rich do not. The part of income which is not spent is not taxed on a VAT system. It is true that the rich consume more, and to that extent their income is taxed and they pay more money out in tax than the poor do: but they pay that tax at the same rate and as a proportion of income that is far far less. Obviously one can mitigate those inequities in a VAT scheme: and we do. VAT is not levied on food or on children's clothes, for example. That means that a greater proportion of the income of the poor is not taxed, as compared with the income of the rich, it is argued. But the rich get exactly the same tax "concession" as the poor, on those items. It happens that they also get tax "concessions" on private pension contributions and school fees and other items which are not subject to VAT either. Amazingly the poor do not take up those concessions, however. One can also choose to levy a "luxury" tax and this was done in this country before the introdcution of VAT under what I think was called "purchase tax" at the time. I do not think it is done now, and I cannot think that is an accident . the exemptions mentioned above, and seldom included in the argument you are making, confirms me in this view.

VAT is a viciously regressive tax. It impacts on the poor far more than it does on the rich and that truth is actually confirmed by the exemptions conceded on essential items. It suits those who wish to argue in favour of regressive taxation to direct attention to the pragmatic outcomes claimed (rich folk pay more) and away from the underlying morality. You have not done that: you have included the conception of "fairness" in what, to me, is a rather "looking glass" description which can only be sustained if you ignore a large part of reality. this was also the case with the IFS analysis which made much the same argument: but even if one accepts all the rest of their position one cannot blink the fact that the VAT burderns the poorest more than everyone else: as they agreed.

http://www.taxresearch.org.uk/Blog/2011/01...-is-regressive/




There are too many unexamined assumptions in that statement for me to even begin to unpick it. Perhaps that is for another thread.

It sounds like we're mainly in agreement that pensions are essentially a wealth transfer tax from the poor to the rich. Do I have that about right? The poor die young and don't collect.

I proposed a VAT surcharge and current account expenditure. What was your alternate proposal?

VAT is a different subject but I think you'd be well to observe that the Conservative government in Canada (led by an economist who for many years helped guide the fiscally conservative Fraser Institute think tank) has consistently lowered the rate while their Liberal and NDP (socialist) opponents have always established that it could be raised. VAT are not regressive unless they are applied unequally.

Payroll taxes are and always have been more unequal against the poor. As incomes rise, a larger portion of household revenues are earned from non-payroll sources. Moreover, each succeedingly wealthier quintile is able to take further advantage of tax deferrals offered as incentives to invest for retirement. None of this would be happening (or need to happen) with a secure VAT and plenty of oversight.

Another option, is to train the poor to not die so young and to make them more productive members of society.But that is for another thread, too


Edited by FionaK - 18/5/2011, 22:26

Er....no. The poor certainly do die younger but that is nothing whatsoever to do with pensions per se.


I like pensions



And the opposite is true in this country. What is your point? Things do not happen in a vacuum, and the decisions of political parties are informed by many things.

VAT is intrinsically regressive.


As I have said: payroll tax is not what we are talking about.

You are correct that as income rises a larger proportion comes from sources other than paid employment. But it is not a significant proportion until you get quite high up the income scale. And some of those other sources are also subject to tax. You may recall that one of the justifications for lowering the level of income tax was that high rates led to "tax exiles". The argument is that if you levy high rates of income tax people will choose to move abroad to avoid it. Or in other words they will refuse to accept the rules which benefit the wider society when those rules don't suit them. On that premise it is further argued that tax revenue will actually be higher if you have lower rates. As Ms Hellman allegedly said in a different context: tax is for little people.

It follows that the point you are making is not important: although it has some element of truth. Because either that analysis is true, in which case the proportion of rich people's revenue which does not come from paid employment is not that high: or it is false, in which case the myth serves some other purpose. That leaves out other taxes of course: they are also in play in this discussion

The taxation of other types of income is perfectly possible, too. Obviously there is a kind of "arms war" whereby tax rules are laid, and then the rich and their servants find ways to minimise their liabiities. The poor do that too, but are not very successful precisely because their income is taxed at source through PAYE, in this country. But that is not so true elsewhere, perhaps. I hear americans talking about filling up tax returns at the end of the financial year, and sometimes getting refunds. I do not know how their system works but I infer that they make some payments through the year, presumably through deductions at source calculated on some estimate of income: and then square up at the end of the tax year. I do not know if those estimated payments are mandatory, however. It does not matter much for the purposes of this discussion

You are also skipping over the fact that there is nothing either necessary or desireable in offering tax concessions such as you describe. That is no more an act of god than anything else we are discussing. It is a tax break the poor don't share, as I pointed out in my last post. But once again your account is smuggling in the idea that there is no alternative. Or so it seems to me. That is a story we have been told for 30 years: it was a lie then and it is a lie now. It doesn't get truthier with repetition.

The fact that people do not wish to pay tax is taken as read: that is not true as an inescapable fact of human nature either, though the right would like us to believe that. It is more true now than it used to be: but that is also an effect of the drip feed of propaganda over many years. Once again I draw on the "truths" I learned from my family and culture: one of our family sayings was " I love paying tax: the more the better. They cannot take it off you if you don't have it". I am sure you can see the point

That said, let me accept the premise for the purpose of this argument. What follows? According to you the rich will hide their wealth in order not to pay tax on it: and the answer is VAT. No, it isn't. If it is true, the rich will still avoid paying tax: they will spend their money abroad just because they can. We actually know this is true: there are booze cruises to France so that people can purchase their wine there: there are duty free shops in airports that poor people cannot access. Tax avoidance is always going to be a problem no matter how tax is levied. So your case that it is harder to avoid VAT is not proven.

In short it is ridiculous to base a tax regime on the interests and circumstances of the very wealthy as if they were just like us: they are not. They have more money; and that makes a qualitative difference in this context, as elsewhere.

Tax avoidance is enormous: that I will concede. But it is not necessary that it should remain at its current absurd level. That is also a political decision. For example, any regulatory regime, no matter how well designed, can do nothing without adequately resourcing enforcement. But enforcement of taxation is not well resourced. An average tax inspector brings in many many times the cost of employing them. In a sensible world, (or even one where the otherwise much vaunted business models were applied to this aspect, as they are to others) we would keep on employing more tax inspectors until we broke somewhere near even. But we don't. In fact the numbers of tax inspectors is being reduced from an already wholly inadequate level.

<snip>

I think this whole discussion is an interesting exercise in exploring those assumptions which are not stated, but which serve to underpin the argument presented. I am aware that you are a professional in this field and probably have a great deal more knowledge than I have: but the fact remains that to date you have made assertions without doing much to support them. I am wondering why that is, since your sources have to be better than mine, I think. What I suspect is that you are swimming in water where a great deal is taken for granted: and so am I, but what I take for granted is very different. What would help, I think, would be for you to try to lay out those assumptions plainly: that is what I am trying to do, too.

Let me try to get to your essay in a while.

I like pensions too and I agree with you that the poor die younger.

However, and this is a big however, why is it that the poor, the weak, and the stupid, have been heavily taxed through payroll penalties to support the flush lifestyles of the wealthy, the healthy, and the wise?

If you're anything like me, you probably are above the lowest quintile and you have sumptuous reserves of capital, unspoken income supplements, and a bevy of deferrals or exemptions. The lowest quintile doesn't have these things. They're paying for rich retired people as we speak. They're indulging in heavily taxed pasttimes such as lotteries, gambling, alcohol, and cigarettes.

Should we perhaps collect them together in a camp of some sort to stop them from dying young, paying too much in taxes, and subsidising my retirement and yours? Or, my alternative, is stop these unfair taxes against that lowest quintile and allow the retirees to indulge pleasurably in their land, meadows, investments, and savings without requiring the working stupid to subsidise them?

As I have said more than once, I do not recognise or accept that the poor have been "heavily taxed through payroll penalties" and I do not see that you have supported this assertion. The low paid do pay NI contributions on more of their earnings than the high paid: because there is a ceiling on that, as I said. But the very poorest do not pay that: they receive benefits and their NI contributions are credited to them when they do. I am opposed to that ceiling, obviously.

But on the wider point it s because that is what we, as a society, have chosen to do. It is intrinsic to the ideology which currently holds sway. In that ideology (or economic and social theory, if you prefer), increasing inequality is not a bad thing. The story goes that it is beneficial to society as a whole to allow the rich to do what they like, free of interference and regulation etc. So we have moved away from "the post war consensus" which was reducing inequality over time. There have been various justifications for this: the one which was promulgated for a long time "trickle down". It doesn't work so we don't hear about it so much any more. But it did its job

What we are asked to believe is that the increased wealth of the very rich was generated from their enterprise, and smarts, and hard work and all those other good things which they have and the poor don't. But the truth is that most of it came directly out of the pockets of the poor. That is a consequence of plutocracy: and that is the essence of laissez faire capitalism.

There has been an increase in personal wealth following this change, certainly. In 1999 the total value of personal wealth in the uk was £2752 billion
That compares with £500 billion in 1979. One might conclude that this vindicates the theory in terms of the outcome: and it is possible to argue that it is the justification for the actions we have taken: the stance being that increased wealth is more important than how it is distributed. So long as "the country" is richer it does not matter how the individuals who live there are doing. That is a position which I reject. To me there is a "looking glass" flavour to all such thinking: I am bemused when I hear such phrases as "jobless recovery" for example: if the economy is thriving and the people are not I find it hard to get excited. "In the long run we are all dead", indeed. I would go further. I think the idea is incoherent gibberish.

What we see is that personal wealth has increased by about 4.5 times in that period. But some of this is illusory because it reflects the value of assets. For most people their biggest asset is their house. The nationwide survey shows that house prices have increased by about 9% a year since 1973, while general inflation has run at about 7%. In money terms the average price of a house was £19829 in 1979. It was £71122 in 1999 (using those years to stay in line with the figures given for personal wealth). So all other things being equal a large part of the increase in personal wealth is accounted for by increased house price (2.5 times in the same period, roughly). That increase does nothing at all in terms of economic activity: it is not an outcome of industry or wealth generation or anything useful at all. It does not make the person who has become richer by that amount any richer in the real world. It is a cushion in one way: if times get hard one can always sell the asset. But even that is not entirely true, because you have to live somewhere, and so unless you move to a cheaper area or to a smaller house you have not actually gained. Most people don't want to do that. Indeed given the concentration of work in certain areas most people cannot do that. And of course by now "hard times" means "falling house prices" to a large extent. Thus we hear hurrah words when trends in house prices are reported: the housing market is described as "strong" or "weak", for example. (strong = good, btw: thought I would mention that because it is not at all obvious unless you don't think about it ). Houses have been changed from "somewhere to live" to "investment", effectively.

Some of the rest of the increase in wealth is similar: the value of stocks and shares has shown a similar trend. I think, though I have not bothered to research the figures and might be wrong about that. My impression is that increased prices for those items is also part of the increase in wealth and with many of the same caveats (though one can argue that such assets to contribute something to the real world economy, as house price inflation does not.)

In 1985 49% of total personal wealth was held by the richest 10% of the people. In 1999 that figure had risen to 54%. Financial wealth showed a similar trend. The wealth redistribution did not adversely affect the middle classes, so that the wealth held by the top 50% ran at about 94% throughout the period 1980 to 1999. Just under 8 million people were living in poverty in 1979 according to the household expenditure survey: By 1999 that figure had risen to just under 14 million. Of course the measure of poverty is related to median income so a rise in income might be expected to result in increased poverty: but only if the poor do not enjoy the benefits afforded the rest of us. In fact the position is worse than that. Changes in the benefits rules meant that for at least some of the period the income of the poor fell. As an example, benefits rates used to be tied to the increase in wages or prices, whichever was the higher. That link was severed during this period with the result that it is estimated that retirement pensions are £30 per week lower than they otherwise would have been. There are many such examples. So where did that money go? It went to fund tax reductions for the rich. And that is why I say that the increase in the wealth of the rich came directly from the pockets of the poor, at least in part. It is not a measure of their superiority unless you believe that abuse of power in your own interest is in some sense "superior". I don't.



Yes, I am


No, I dont


Nope. Dont even know what that means


Don't know what that means: if it referring to tax exemtions then yes: I do not pay tax on interest from my small savings because they are in an ISA. But since there is less than 1% interest in payment that is not what I would call a "bevy" of exemptions. Interest rates on savings have to remain low, of course: because otherwise the housing market would be affected, and we can't have that.


It may surprise you to learn that hardly anyone has those things.

You are starting to sound like a commie, Stilicho: I could not do better with "bash the rich rhetoric" myself. But none of this is any more than wind unless you put some figures on it. I see what you did there, though, because every dog in the neighbourhood started barking I ignored it the first time and snipped it from what I replied to: but I see it was not an accident as I first thought



The are paying for the rich, I agree. But you will notice that this is not through their pension contibutions, which, as I said above, are nothing to do with this. All of the instances you cite are VAT rated. So how is your vaunted VAT solution going to help with any of this?


You cannot be serious, and this is mere propaganda. So far as I can see you are not even trying to address the problems in the real world and this is unworthy of you. I note the conflation of "the poor" with "the weak and the stupid" and I find it contemptible. I note the implication that the poor die young because they are not sensible in their choices: and the implication that they need to be saved from themselves. They don't. They need to be saved from you, and your free market ideology and propaganda; which has worsened their position while blaming them for that outcome. I also note the implication that my different analysis will lead to the gulag: because that is the note of your dog whistle. I expect better from you, Stilicho. But it should not surprise me. By now the version of economics you are pushing has become unused to challenge to its slogans and their truth. Perhaps you just cannot engage with what is actually being said: more likely you know you are avoiding it, though: for you are not stupid even though you appear to be rich

Edited by FionaK - 19/5/2011, 10:49

On the questions of income source; tax; and distribution of wealth this article is interesting

www.ifs.org.uk/bns/bn76.pdf

In particular it records that the average share of income which derives from employment is 69% for all tax payers: the top 1-9% get 76% from this source : and the top 0.1% only 58%. It is true that this is based on tax returns, and so excludes income from sources not subject to UK tax ( and anything fiddled): but even given that, the idea that much of the income of the very wealthy is from other sources, as compared with income for all tax payers, is not demonstrated. The higher proportion of income from employment in the top 1-9% disappears when pensioners are excluded, however: because there are far fewer pensioners in that group than in the group of all adult taxpayers

The exemptions Stilicho mentioned are also discussed. They represent an average of 2.3% of before-tax income for all taxpayers: and 4% for the top 1-9%: this rises to 5.2% and 6.3% for the very richest. That is not an insignificant benefit given that the top 10% received 40% of all personal income in the period discussed. They are somewhat offset by the (not very) progressive tax regime which results in the average tax rate for all adults lying at 17.8%: that for the top 1-9% being 21.1%: and for the other two groups 31.8% and 35.2% respectively. It is a problem: but as with income from other sources it is not the problem Stilicho implies.

www.bbc.co.uk/news/uk-politics-13800573

There are to be negotiations about the future of public sector pensions in this country. "Negotiations" and "consultation" are also "big words" because they have changed their meaning: they now mean " we are going t tell you what we are going to do but we have to meet statutory obligations to consult/negotiate so we will reluctantly waste a bit of time going through the motions: and then we will do what we like"

There are a number of very curious statments in this article: the one I like best is:


So here is a challenge for you: How many things are wrong with that sentence?

It was actually meant as a challenge, and I am glad you rose to it. I think that I would add in one which is implicit in your 3. the fact that it pretends that "the taxpayer" is someone different from the "public sector worker" instead of the same person with a different hat on

I make that a round 10 smuggled in assumptions in a 25 word sentence. A record???