Did you hear the door slam behind you? Have you tried checking whether it’s locked? Oh… well it looks like we’re stuck inside Rishi Sunak’s haunted house of tax horrors, then…
I’ve warned investors for many years about believing politicians’ promises. They always agree with me… and then act otherwise.
They plough money into their pensions in the hope of tax advantages, they buy diesel cars because of emissions incentives, they make property investments for the tax incentives, they twist their life in knots over whether something can be written off against their taxes or not, they buy solar panels based on subsidies, they install smart meters and are then surprised at the consequences of relying on political promises.
Well, I’m not surprised. Not one little bit.
Where to start?
My own favourite is this one from the Telegraph, because it’s such a classic example.
‘Council tax on my buy-to-let has quadrupled to £7,000’
Hundreds of thousands of landlords could see their council tax bills quadruple in a stealth tax raid which has seen rental properties reclassified to generate more tax.
The shift is to classify those landlords who rent properties by room as owning “houses in multiple occupation”, rather than one home with several tenants. In a five-bedroom property, this means five sets of council tax will be due. And the owners tend to pay the council tax in such arrangements.
Of course, the change affects few enough of us that nobody takes a stand against the unfair shift.
But, drop by drop, the Treasury is bleeding us all dry. You just need to wait your turn.
Let’s focus on something a little more financial for our next example.
The Express warns: “Millions to pay Sunak’s 55% ‘horror’ pension tax and inheritance tax – are YOU at risk?”
And here’s the interesting bit about the changes: “Two taxes that were originally targeted at the super wealthy are now catching out more and more ordinary taxpayers as Chancellor Rishi Sunak scrambles for funds. You might also face this hidden tax threat.”
Hidden threat? Anyone who believed inheritance tax was something for the rich to worry about is getting what they deserve, while the rest of us are only moderately surprised by the changes.
Well, now they’re coming for more and more of us.
We’ll get to pensions in a second. For now, consider the news that Sunak has frozen the inheritance tax threshold again, for another five years. As inflation rages, more and more people will be forced into the IHT bands.
Don’t worry, though, the properly wealthy will get their tax planners on to the problem.
What about pensions?
Like lambs to the slaughter, savers have been piling money into pensions to get at the tax savings. The problem is, those tax savings are by the Chancellor’s leave, as millions are now finding out the hard way. The Express has the details again:
Now tax-mad Sunak ‘fines’ Brits for saving in pension – millions face 55% horror charge.
Chancellor Rishi Sunak’s tax attack will intensify from April, when even more savers will get hit by his punitive 55 percent tax charge on their pension.
That is the most brutal tax rate in Britain, but it isn’t a punishment for people who have broken the rules. Savers are being penalised for doing exactly what the government has been urging them to do, and set aside money for the future.
It’s all got to do with the “lifetime allowance” on pensions – the maximum you can earn “before HM Revenue & Customs (HMRC) swoops.” The Express points out that “people who generate a decent return on their savings are being punished for their investment success.”
Very Tory, this lot, aren’t they? Punishing success that materialised on their own incentive schemes…
I suspect that, if a pension company tried this with its fees, it’d be breaking some sort of “bait and switch” law. But when you’re in charge of the haunted house of taxation horrors, you can do what you like.
The good news is that Rishi Sunak’s wife isn’t domiciled in the UK, according to the tax office. So, at least one of us escaped Sunak’s tax changes.
Consider yourself lucky, nonetheless. Over in the penal colony, thanks to a ruling by the High Court of Australia, the Australian newspaper reports that “Australians can now be taxed on income they did not receive (and bankrupted as a result).”
The best bit? “The High Court actually admitted what the ATO demanded would cause ‘unfairness’.”
Back to the UK…
Peter Glancy, head of policy at Scottish Widows, highlighted one of the more ironic angles for Sunak’s taxation system: “You could simply be fined if your assets keep pace with inflation. This clearly doesn’t make sense.” He was speaking about pensions, but the same goes for the inheritance tax story.
Inflation is pushing up the nominal pound value of everything. So, when governments freeze thresholds, more and more of us are caught inside the haunted house of taxation horrors with the door slammed shut and locked behind us.
“For many it will come as a complete shock,” claims the Express.
Not for me…
But whose responsibility was it to control inflation in the first place?
That’s another scam. They promise to target 2% inflation. Heck, Federal Reserve chair Ben Bernanke told the TV show 60 Minutes in December 2010: “We will not allow inflation to rise above 2% or less… we could raise interest rates in 15 minutes if we had to.”
Now, with inflation likely running at five times their targets, central bankers are so far behind the curve on tightening monetary policy that inflation might already be completely out of control.
Don’t forget, high inflation and low interest rates are financial repression. They transfer purchasing power from the government bonds in your pension fund to the government’s balance sheet. Inflation is a tax, and when central banks keep interest rates below inflation, it’s a tax twice over.
But don’t worry, the government is also busily solving our financial problems. For example, their energy price cap will ensure your energy bills don’t go up.
It’s like those people over in the US who believed that calling Obamacare “the Affordable Care Act” would make health insurance costs more affordable.
Well, they more than doubled between 2013 and 2019, didn’t they?
Or the people who bought diesel cars because of government incentives. This one was so bad that a government actually admitted it was a disaster. The Guardian:
UK government wrong to subsidise diesel, says former minister.
Lord Drayson says diesel cars, which received subsidies from Labour in 2001, are ‘literally killing people’.
Oops. Although I suppose killing people meets the goal of reducing emissions, too.
Another extraordinary story comes from Spain, where the government promised all sorts of incentives to solar power installers. These days, those who believed the socialist government’s promises are going bankrupt by the tens of thousands.
Of course, the UK has its own solar power subsidy shemozzles. The Guardian: “Conservative government cuts financial aid by 65% despite its own review showing the move puts 18,700 jobs at risk.”
But it was our smart-meter and heat-pump debacles that were more memorable. These headlines still make me laugh:
Smart meter overhaul to open gates for ‘surge pricing’
Smart meter tariffs now ‘massively overpriced’ as prices triple
Specialist deals no longer vary prices throughout the day
Millions of rural homes forced into expensive eco upgrades
Homes risk energy rating downgrade if they install a heat pump
As Reagan said it, “The top 9 most terrifying words in the English Language are: I’m from the government, and I’m here to help.” And as the economist Milton Friedman put it, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
But let’s move on to a rather unique combination of government debacles.
The war in Ukraine has accelerated the speed at which many government schemes cause chaos, especially for those who buy into them.
First, the world’s climate change enthusiasts triggered a green energy boom with vast subsidies. Then they realised the consequences of intermittent energy and turned to gas to save them.
But, having vilified fracking, they drove gas production overseas.
Having made the economy reliant on Russian gas in the name of stopping climate change, and having shut down the UK’s key gas storage site, the politicians then decided to poke the bear by considering Ukraine for NATO, and now they’re vilifying Russian gas.
Having caused chaos in the gas market, governments turned to oil too.
Having vilified oil and fracking in the name of the climate change movement, politicians are now criticising oil producers and frackers for not producing enough of it!
They blame oil companies for the high prices which they tried to engineer in the first place to encourage people to go green.
Having vilified the pipeline which would transport oil from Canada to the US, US President Joe Biden is demanding Canada sends more oil…
Having vilified nuclear power beyond all reason, despite it providing the obvious zero-emissions solution, politicians ended up having to turn back to uranium over the Ukraine war…
Having vilified coal most of all, the politicians were then forced to turn to coal to keep the lights on. And then they decided to sanction Russian coal!
Some people never learn…
They remain as enthusiastic as ever to participate in the government’s latest incentives and schemes. They vote for energy transitions and support politicians who make promises.
The rest of us end up paying the bill.
But not everyone is left out in the cold. Some investors have found a way to profit from all the government chaos.
Editor, Fortune & Freedom