50p tax rate - perception or impact

[KidKruger]

I don't think regulation is taking responsibility from the banks, conversely it's laying responsibility on the banks, but it has to be appropriate and it has to be governed, which is where currently the FSA are seen as being weak.

[Senor Chevalier]

Fine, but the regulation should set a minimum threshold which may not necessarily be sufficient to convince me as a borrower to lodge my hard earned with a particular bank, especially if there is no safety net for the banks.

[DJKillaQueen]

I think there's a lot of sense being voiced there guys and it's interesting to note that a few banks were sheilded from the recent crisis because they did operate in a more prudent and risk adverse way. So it can be done, and done so in a way that still allows growth but doesn't send us all down the road to crisis after crisis.

If banks have to compete for deposits and are allowed to fail if they get it wrong, then operating a prudent business model becomes a necessity rather than a constraint to be structured around by financial innovators who will always find a way to arbitrage regulatory models.

This I wholeheartedly agree with. Banks need to in effect lead by example, which in turns means keeping their own houses in order.

[Senor Chevalier]

You're right. Some banks sailed through the crisis and had their models vindicated. Those that worked in them may have been upset to miss out on a number of opportunities in the good times that others were availing themselves of and received a more pedestrian income as a consequence, but the cautious approach has been vindicated now. Shame they are lumped in with other bankers, generally vilified, subjected to bank payroll taxes etc along with other banks. Less fun in the good times and punished all the same in the bad times... Oh well.

Anyway, I wouldn't hold your breath waiting for their leadership on this DJ... But if there is a genuine "stick" of loss of business or ultimately failure without bail out then this behaviour would become the key to success / profitability...

[Undisputedtruth]

Lloyds TSB was such a prudent bank. Unfortunately, the Chairman made a political decision to buy HBOS and Lloyds TSB was saddled with debts and bailouts.

[DJKillaQueen]

Interesting.....

Government plans for the reform of banks in the UK

[Loz]

Long overdue and is taking too long to implement in my opinion. Protecting the High St operation from the investment arms means that the high risk stuff doesn't threaten the low risk stuff. And therefore less bail outs.

[DJKillaQueen]

It might make banks more prudent with their risks too (although part of the problem with the last crash is that banks thought they'd eliminated risk from well, risk). I agree that the timeframe for implementation is too long and suspect this is to appease those in the banking institutions who are reluctant to see any change.

[Undisputedtruth]

I agree with DJKQ, the timeframe for ring fencing implementation is far too long. Also a full separation from the banks' investments from the retail aspects would be far better to avoid internal fraud by the banks themselves.

It's not clear whether the 10 percent assets will be enough to cover leveraged financial products.

[DJKillaQueen]

Well the rule has always been 10% of lending (remember the discussion about the federal Reserve and fractional monetary system) so that's nothing new at all......and if any bank had not been operating with the 10% rule they would have been breaking the banking rules. I suspect the journalist writing the piece isn't as informed about the history of monetary systems and banking as he/she should be ;)

[KidKruger]

2019 seems overly generous as a timeline for this.

Separating the two areas and embedding the risk assessment capability and reporting structures should be possible within 2-3 years. I wonder if there is a dependency on something else completing (ie. Legislation being passed) which explains the timeline being so long.

I'd hoped the banks would be keen to demonstrate their keeness to change.

Change within the banks of the above nature must also be reflected by changes within the regulatory body, where somebody (many people) is going to have to assess the output from banks and sign-off their submissions.

This is no small change either, and may explain part of reason for generous timeline.

[Senor Chevalier]

Whilst the time period to full implementation appears long, once a new set of rules is announced, banks often do start to align themselves with the new rules early. For example on the Basel capital adequacy rules, the new rules become the yard stick by which rating agencies, commentators and investors begin to measure banks. Being one of the few banks that does not comply, means that there is a cost / shock coming which does not play well with the stock market. Once the stock market is marking down the share price, then there is probably more to be gained by getting on with it than to delay and go down to the wire.

Clearly not a perfect mechanism and may or may not apply to this particular set of changes, but there is some reason to expect that any new rules will be largely implemented ahead of any official timetable.

[KidKruger]

It's a nice thought.

I doubt anything will happen earlier than timetabled.

Significant (as in large, organisation-wide) Mandatory and Regulatory changes rarely complete early and the completion date is unlikely to have been set without consultation with banks.

If the banks were so keen to manage the reputational risk you allude to, they would not have collectively agreed on a date 7 (!) years hence, leaving us to speculate on local forums that in reality the banks will deliver much earlier.

[Marmora Man]

Just some further thoughts on this following discussions elsewhere.

Current Tax rules mean that:

Person A earning half the average UK salary (2010) of ?13,000pa pays a total of ?835 in tax & NI. Effective rate 8.4%

Person B earning the average UK salary of ?26,000pa pays ?5,957 in tax & NI. Effective rate 22.9%. The absolute sum paid is 7 times as much as Person A.

Person C earning 20 times as much - ie ?200,000pa pays ?85,381 in tax & NI. Effective rate 42.9%. The absolute sum paid is 102 times as much as Person A and 14 times as much as Person B.

Had the 50p tax rate and adjustments to tax threshholds not been made then Person C would have been paying 92 times as much as Person A and 13 times as much as Person B.

This indicates, to me, that the wealthy were already "shouldering" a fair share of the burden as Lib Dems and Labour desire and that the increase to 50p and tax threshold adjustments were excessive and should be reversed at an early opportunity.

[StraferJack]

So person A is taking home 120k and person B is taking home 20k?

Which of those two individuals is better placed to contribute more to the tax take?

Or, if the tax take is to be frozen and private enterprise is to step in, which of the individuals will suffer more from the cutbacks?

[Huguenot]

Well I can't reslly agree with you there MM, progressive taxation is a reasonable and just social system. I don't even think the 50p rate should be reversed.

I just don't think you should abuse people who contribute such vast sums to the exchequer by calling them greedy thieving bastards just because they question whether centralised welfare payments or private jobs creation are the best way to recover our economy.

[Timster]

Interesting - and glad to see we're back on topic - but wholly irrelevant.

The very sensible reason for taxing high earners more than those on low incomes is that they can afford it. Person C's lifestyle is unlikely to be impacted very much by a marginal 50p tax rate. At the other end of the scale, Person A may not be able to afford to buy his children the new school uniform they desperately need if he has to shoulder just a little bit more of the tax burden.

Leaving aside ideological questions as to whether this is 'fair', it has implications for the economy. If you cut taxes for the poor, they won't save that money or let it sit in the bank, they will spend it - the tax cut goes straight back into the economy. The local independent clothes retailer sells a new school uniform which makes a difference to his busienss staying afloat that month. If you cut taxes for the rich, it will make little or no difference to how much they spend, and so there is negligible benefit to the economy. This was the lesson the US learned from Bush's tax cuts for the rich.

And it is worth remembering that someone who earns ?200k has far more than 20 times the disposable income of someone earning ?20k. The household earning ?20k may have little or no disposable income after rent, bills, food etc - for the person earning ?200k, well it's mostly gravy.

Oh, and can someone please explain why someone earning ?150k is deemed a 'wealth creator'?! Someone else has created that wealth for them (us, the taxpayer, if they are a middle manager at RBS). Entrepreneurs and small businessmen are wealth creators and most of them earn a lot less than ?150k.

[Timster]

Oops - crossed with SJ who makes my point in just a few words.

[Loz]

StraferJack Wrote:

-------------------------------------------------------

> So person A is taking home 120k and person B is

> taking home 20k?

>

> Which of those two individuals is better placed to

> contribute more to the tax take?

>

> Or, if the tax take is to be frozen and private

> enterprise is to step in, which of the individuals

> will suffer more from the cutbacks?

But if you take that to it's logical conclusion, SJ, we should take tax from the highest earner until he/she takes home the same as the second highest earner. Then, take from them until they take home the same as the third highest. Continue until either the exchequer has enough money, or everyone takes home the same.

I am all in favour of jacking up the personal allowance to 12K or 15K as I have never understood the logic of governments taking away people's tax, just to give it all back to them in the form of benefits. That limit should be set at what would be considered what used to be called the breadline.

But above that, *everybody* should contribute in what should be seen as a fair way. And frankly, when you get to the point where more of your next payrise goes to the government than to you, what is the point? If I ever get to that point (not going to happen, but still), I'd be cutting back on my hours rather than slogging it out for no real gain. Unless it was because my fantasy business had come off, in which case I'd be getting the accountants and tax advisers in.

[Timster]

So you'd turn down a pay rise that took you into the 50p tax bracket? Really??

[StraferJack]

I hear you Loz - but I would disagree that's the logical conclusion.

I'm not saying we should continually lower the top earners so they earn the same as lower earners. But in extreme circumstances (and I would argue that is where we are at) I don't think it's on to say the wealthier are suffering as badly (or even more) than the poorly off. I'm not saying that's your point btw - but it seems to be the subtext of some posts

[Loz]

Timster Wrote:

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> So you'd turn down a pay rise that took you into the 50p tax bracket? Really??

Not turn it down and continue working as usual, but start scaling down hours to keep my total income out of it.

Actually, I'd probably chuck more into my pension for the short term, but longer term I'd drop to a four day week.

[StraferJack]

If you have an employer willing to let you work 4 days a week, good luck to you

But if you are self employed and you scale back your hours then I'm sure someone else will do a similar job in your absence - work creation!

[Loz]

StraferJack Wrote:

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> If you have an employer willing to let you work 4 days a week, good luck to you

I do have an employer that would let me work a four day week. Unfortunately, I don't have an employer that pays me ?150K+ a year.

[Timster]

Seriously Loz, it is a complete myth that anyone has ever worked less hours or tried to avoid a promotion just to avoid paying a marginally higher rate of tax. The world just doesn't work like that.