I’ve been bearish on the stock market and bullish on gold for a long time now. That hasn’t been a bad thing. Gold is at new highs; last week saw yet another nasty fall in the FTSE 100; and the banking stocks I have long reserved a special loathing for (see endless past articles) had a particularly horrible day on Thursday (down 10% plus).
If I didn’t know how unpleasant the effect of all this was on the nation’s pensions and savings, I’d consider the recent moves in asset prices to be a relatively satisfactory result.
That said, it isn’t yet quite good enough. Stocks might be beginning to look cheap, but that is just as it should be: listed companies are operating in an awful macroeconomic environment and all markets are even more hostage than usual to the whims and panics of politicians. Price in the risks, and it is hard to claim that it is time to buy – although the day is getting closer.
And gold? It hit a parade of new highs recently. But I don’t really think of gold in terms of making money (nice as it is). I think of it as insurance – a hedge against all the nasty things that could happen from here, be they a deflationary recession or a bout of double-digit inflation). And these aren’t the kind of times to cut back on insurance. No change there.
Back to the whims of politicians. While I’ve been away, the mansion tax has reared its ugly head again. I had thought that we had seen the last of it when no one except Vince Cable seemed to like his idea of an annual wealth tax on the owners of houses valued at over £2m. But it is now back in the form of a suggested capital gains tax (CGT) on the sale of primary homes worth over £1m.
Is this any better? Sort of. In my ideal world (or a version of it at least), we dump stamp duty (a huge barrier to mobility in the best of times and an insurmountable one in times when house prices are falling or even static). Then we replace it with CGT on all primary homes. That way, you only pay tax if you make a profit.
But the idea that instead of dumping stamp duty we should add in CGT and pay both really isn’t a good one. It keeps all the problems of the former and adds in a whole new world of potential complications with the latter. Would it be backdated? How would improvements be accounted for? Would it be indexed to inflation? Would it be possible to defer it so you could still afford to move in times of rising property prices?
It also opens the door to yet another tax on the masses. Let’s not forget that almost every tax you care to think of – from income tax to inheritance tax to stamp duty on houses – was initially supposed to be a tax only on the very rich. So much for that. Introduce CGT on £1m primary homes and I’d give it a decade before everyone’s paying it.
There is a view that this kind of tax – or some other kind of tax on wealth – should be introduced regardless of its obvious drawbacks simply because the wealthy don’t pay enough tax and a way must be found of making them do so. Warren Buffett wrote an article in the New York Times to this effect last week.
But while it may be the case that Mr Buffett should give more to the state (and I daresay no one will complain if he just goes ahead and does so off his own bat), in the UK we already tax wealth at an unusually high rate via inheritance tax. And, just as you can’t have two taxes on a primary home, it doesn’t appear to be quite right to have two taxes on wealth.
There was much talk, while I was away and London was rioting, about how policing is consensual. You can only police people that agree to be policed. But we mustn’t forget that the same goes for tax. Charge people too much, and you run the risk that they won’t pay. I don’t exactly move in super-rich circles but even I know people who have left the UK as tax exiles.
With this in mind, this week I finally got around to looking properly at the new student loan rules. I’m quite shocked.
Graduates will pay 9% of their income until they have either paid back their borrowings (plus real interest) or until 30 years have passed. The net effect will be that a graduate earning £22,000 will suffer a marginal tax rate of 41% (20% income tax, 12% national insurance and 9% ‘repayments’). One earning £150,000 will be paying 61%.
Let’s all hope Cable never gets his way on wealth taxes. I can’t imagine these graduates would be too pleased when they find – should they ever manage to buy and sell a house and should property prices ever rise again – that they have to stump up for CGT too.
• This article was first published in the Financial Times