23 Feb 2016, 8:42pm
personal finance:
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  • wither pension tax relief and lump sum again?

    The flowers are coming out, there is the sound of the robin and the dunnock singing, Spring is in the air, and along with the snowdrops and early daffodils there are some stories in the press that come round every March/April time. Oyez oyez, it’s the last chance for you lucky higher rate taxpayers to get pensions tax relief. And as for you lot expecting to pay off your BTL mortgages with the pension commencement lump sums, well, better do it now while you can 1. ‘Twas ever thus

    1602_DSCN2798

    Going, going, gone…It’s the oldest trick in the book

    Sale – Must end Now – punters are suckers for a bit of FOMO, and pension providers always like to hit us with a quick giddy-up at this time of year. It’s always the same old story, sometimes it’s the PCLS that’s due for the chop, sometimes the tax relief. That’s not to say that adverse changes don’t happen with pensions, but they tend to come from left field – the reductions in the annual allowance ,and the introduction of the Lifetime Allowance are two, although these only hit the well-heeled. Presumably these well heeled got to be well-heeled because they had the odd brain cell to rub together; if they can’t be bothered to work it out for themselves Merryn Somerset-Webb of the FT is there to sock it to you straight between the eyes.

    The result is still up for grabs but one thing at least is clear: the game is up for higher earners. Whatever the new system is, it will further cut the reliefs given to them.

    Well, yeah, but it’s going to be more of a whimper than a bang, at a guess – they will be sliced and diced.

    The PCLS was introduced in 1988 I think, when the concept of a personal pension came into being, and every year since then the same stores have been trotted out by the pensions industry trying to stampede the rich into getting their money into a pension, like NOW. The poor, of course, well, they don’t save for retirement anyway.

    Despite having told HL for the last three years that I am an Ermine of very modest means, less than £3600 p.a. indeed, which is all I can save for a pension, they clearly think I am still one of the movers and shakers with a six-figure salary. As such I got my very own copy of this missive. No wonder HL is so damned dear for holding investments, as opposed to cash, if they have to mail so much cruft out to us all. I have nothing against them, well, apart from them demanding I pay £500 to be advised that transferring my AVC funds was a good idea, something I had worked out quite nicely for myself thanks. I observe they have got themselves into this advice game themselves, nowadays, clearly jobs for the boys is a revenue stream too good to miss.

    I am just a poor boy 2 though my story’s seldom told

    There’s a corollary here, which in fairness HL did list in a throwaway paragraph

    1602_DSCN2799

    Quite. Your impecunious scrivener, having failed to avoid earning about £5k can put this into his SIPP for the initial outlay of £4000. I’ve never really understood the status of the remaining £1k, obviously if I had been earning £20k then it would have disappeared into the taxman’s maw, but instead remains to be spent on beer and fast cars, or beaten down stocks. Anyway, the taxman adds the £1k back into the SIPP despite not taking it off me. The speculation on changes seems to vary between divvying up the HRT break into nothing extra for anyone, 25% tax relief for all, 33% tax relief for all, and zero tax-relief for all but the chance to have any gains tax-free in an ISA-like savings vehicle, but presumably one you can’t access before you are grizzled of years. I struggle to see the attraction here. Most people don’t save £15k a year into their pensions, so they may as well fill their ISAs first. The average DC pension capital on retirement is about £100k , elementary arithmetic indicates this is not saving £15k p.a. for 30 years. You read about all the options here. I am not sure that the savers of Britain are ready for a second major overhaul in the retirement savings structure and ethos in as many years without becoming suspicious refuseniks, but there we go.

    Should this go the 25% relief I guess I can hope for £1250, so there’s a potential £250 in it for sitting on my backside for a few weeks. Because I am entirely a cash saver in a SIPP, I always leave it to the last minute to contribute, because there’s no point in locking money away before I need to (to get the win of the tax break). Obviously the big money for HL is with the well heeled, but there are crumbs in it for the little sparrows in doing exactly the opposite of what is advocated in that HL exhortation. Indeed, for someone who is post 54 and intending to retire next year, the difference is respectable if they are earning, say £32,000 and toss the lot in. They could get £6400 at the moment going up to £8000 if the 25% tax relief happened. Of course it may not, or it may be deferred, but a potential £1600 would be worth waiting three weeks for. Obviously if you are one of the six-figure vHRT fellows then throw caution to the wind as HL advocate!

    Lifetime Allowance, Marginal Tax Relief, Annual allowance – one, not three

    I benefited well from higher rate tax relief, but even then my higher rate tax paying years were perhaps a third of my working life. Careers tend to be more contrasty now, they peak earlier, but people also burn out earlier. I’ve already put my colours on the mast for the lifetime allowance, which most accurately defines the ambition of tax-privileged pension savings to my eyes. All this fiddling with marginal tax relief and annual allowances sucks IMO – you should be able to get to the LTA in a couple of furious years in finance or 30 years of steady Eddie saving. It’s about the destination, not the journey.

    All the annual and lifetime restrictions combine to make tax-privileged pension saving more suited to your grandfather’s career arc than today’s sort where even the better off are likely to experience feast and famine, or burn out prematurely. Even I would have rubbed up against the annual allowance at the end of my career, and I got nowhere near the LTA.

    Erstwhile pensions minister Steve Webb scares the horses on the PCLS

    Meanwhile, Steve Webb says the pension commencement lump sum is due for the chop. Well, sort of – if the principle of tax-free pension saving on accumulation is iced, then yes. But those of you sitting on a potential PCLS, including me, this doesn’t mean you have to hook it out by the 16th March. Adverse pension changes are usually trailed at least a year ahead – such as the reduction in the LTA which was announced last year. Positive pension changes sometimes have immediate effect – the announcement of the pension freedoms was announced in March, giving me just enough time to open a SIPP in the old tax year.

    Pensions are still giving me a hard time to qualify the opportunities

    Say I take my PCLS this April, and start to run out the pension below the personal allowance. Let’s ignore that fact I am earning chickenfeed at the moment, say that is £0. I am still allowed to save £2880 a year and the tax man stumps up another £720. By rights 25% of that should be available as a PCLS – after all, say I opened another HL SIPP which had just that £3600 in it, there would be no quibble. I don’t know if HL are smart enough to be able to track that sort of thing.It isn’t as good as the deal used to be for me, because 3/4 of the tax credited is taken back again, so the gain is reduced from £720 to £180, but it’s still free money

    In theory, therefore, even I earned £10k all of which would be taxable at 20% because I am drawing pension income up to the personal allowance there would be a win to pass this through the SIPP. Because of the PCLS I could reduce my basic rate tax liability by a quarter. Paying tax at 20% × 0.75=15% seems like a step in the right direction, saving me £500 in that case. Of course changing to a post-tax savings regime would rain on my parade. Pretty much everything about pensions is hard, counterintuitive and full of wrinkles, that’s the nature of the beast.

    Notes:

    1. what with some of the changes to BTL tax relief on leverage there is more sense to that, but for different reasons
    2. Irony,dear reader, irony… ‘ere I take heat for being a PT b’stard.

    tax doesn’t have to be taxing as no-one ever rightly said..

    25 Feb 2016, 11:22am
    by tonyedgecombe

    reply

    “Pretty much everything about pensions is hard, counter-intuitive and full of wrinkles, that’s the nature of the beast.”

    You would think it’s been made that way to help the financial services industry get rich off the average person, that can’t be right though can it?

    @Tony I’m sure the FC industry does it’s part, but a big part fo the problem is humans live quite a long time, so there are lots of governments to fiddle wit the rules, and also the values i nthe workplace change. When I staretd at The Firm pensions were a way to retain staff who had long careers acquiring deep domain knowledge on a specialist field, because the field was relatively stable but had complex tradeoffs. After only two decades towards the end they were weakening the value of the pension to get the hell out of the commitment ASAP.

    Then DC pensions involve taking decisions about big amounts of money that take many years to accumulate, in the face of serious uncertainty in returns, other calls on the money, job security. And there’s always the tough call about how long one expects to live for. That’s particularly tough, since a lot of human activity takes place to ignore or avoid the inevitability of death. That’s not so bad for an actuary for an insurance comapny thinking about death in an impersonal aggregated way, but it comes really up close and personal in working out how to run down one’s DC pension in the face of one’s own specific death…

    Agreed that pensions are an issue that should be given careful thought due to their importance & that it’s crazy that for various reasons they’re relatively neglected as an aspect of ordinary people’s lives, despite being the salvation for the last fifth to quarter of people’s existence these days.

    I think that due to different agendas as well as unhelpful human psychology, [cognitive biases & the like] they are still far more complex than is strictly necessary.

    The subject really should feature heavily starting in school curricula, as something crucial for our lives vs some of the arcane or irrelevant topics still studied. Considering that pensions can be the sole safety net for people when at their most helpless in life, it’s crazy that in current times, for the most part people’s savings are bet on a casino they have no understanding of. Ideally the state would look after its citizens by educating them properly, safeguarding the system against charlatans/fraud & ensuring diversity of investments as well as guaranteeing quality through effective regulation.

    25 Feb 2016, 3:23pm
    by The Rhino

    reply

    If the flat rate relief comes in then that makes salary sacrifice into a pension more complicated. Maybe so complicated that it gets scrapped. So maybe thats an end to getting your employer NICs as a perk? Also an end to being able to grind down your employee NICs to a low level?

    @the Rhino, you lucky devil getting the employer NICs as well! Mind you, for yer BRT folk, a flat higher rate plus saving on employee NICs is going to be a serious win!

    @Survivor in fairness to the State, it does try with pensionswise and indeed the State Pension. Trouble is investing is a pig of a thing to get one’s head round, the cycles are long, and the low likelihood/high impact stuff comes only a couple of times in an investing lifetime. I took sucker punches (housing, dotcom bust) at times when I still had enough working life ahead of me to recover. There but for the grace of God etc… Some of these things you can’t learn from books to other people, you have to learn from experience.

    And the old adage of it it looks too good to be true is something we all have to learn the hard way. preferably on something that matters, but not too much.

    25 Feb 2016, 4:21pm
    by The Rhino

    reply

    @ermine – could you explain how the BRT folk are going to save on employee NICs? I understand how the flat rate (if higher than BRT) is beneficial, but I don’t follow on the employee NICs savings bit..

    @Rhino when I was doing this game ‘twixt 2009 and 2012 there was of course the HRT bit over 40k ISTR, and marginal NICS were 1%, so for every £100 saved I lost £59 of income. Spin that round and I was getting a ROI of 41/59 (divided by an average of five years to getting to 55). There’s not many places you get 13% p.a. on cash.

    However, I pushed my salary down to a limit that HR and/or the taxman set at whatever the miniumum wage was for a 40 hr week (it was about £6.20 p/hr so that’s about £12k ISTR,which was above the BRT tax threshold at the time)

    Sal Sac means I don’t get to earn anything above £~12k, but on the upside about £30k between £12k and the HRT threshold goes into my AVCs. Whereas otherwise I would have paid 20% BRT tax and 12% NI on that lot, so the win was 10k that year. I got to see diddly squat of The firm’s employer NICs, but the savings on that made The Firm keen enough to administer all the hoo-hah to make that possible. Some companies are good enough to share some of the employer NI so you get even more, but some of that 30k saved (plus the HRT lump over than) will pay me for the next five years so I’m not going to carp on that… ROI is 32/68 /5years, still 9% p.a.. You can’t bitch about that either – P2P – pah!

    Sal sac is awesome if early retirement is more attractive to you than spending shitloads of money in your late forties/fifties. It was needlessly tough for me because I have paid down my mortgage before this time, that was a tactical error which would have made foregoing the income easier. Oh well. Without sal sac doing that into a SIPP I’d have been 10k p.a. poorer, over three years that would have been 30k less in my AVCs which is now in my SIPP.

    25 Feb 2016, 5:16pm
    by The Rhino

    reply

    Ah – but a flat rate prob means scrapping sal sac – so you won’t be able to make those savings on employee NICs anymore

    and yes – I am fortunate to get 100% of sal sac employer NICs passed on to me currently, but we are a company of two so certain flexibilities are possible

    I am also down on min wage – its working alright!

    That flat rate needs to come up a long way then – BRT payers were already getting an effective 32% even without being jammy sods and getting the employer bit.

    Now of course as an impoverished not-even-basic rate taxpayer I’m all for 33% flat rate if it’s coming – but it seems tough to take sal sac away from the strivers, after all some will get some of the employer part too!

    25 Feb 2016, 6:13pm
    by ex-pat scot

    reply

    In all of this, the biggest risk to the whole “providing for yourself in your dotage” is now political risk.
    Simply: there’s so much noise around “consultations” in the last decade, that there is now considerable uncertainty on whether your current plans will turn out in any reflection at all.

    I am a fairly strong advocate of input tax relief, as I believe that one should be able to smooth the crystallisation of income across one’s adult life. That includes an element of deferral, and later drawdown, which the current approach supports.

    There are certain points at which the current approach is a no-brainer: chiefly these are
    1. the reduction in universal credit, where the marginal rates are (apparently) 70%
    2. the withdrawal of child benefit, where the marginal rate can be punishing (depending on the number of children you have)
    3. the £100,000 to £121,000 band where marginal rates are 62%

    This article is not about the rights and wrongs of tax relief per se, but rather an echo on the fundamental uncertainty in locking your savings up for a very long time; and in doing so being subject to political gesture and whim.

    I see the following as possible targets of a future budget:

    1. the move to a flat rate scheme. For all but those on BR without sal sacrifice, this will actually be an effective hike (unless the flat rate is set at >=32%).
    2. restriction on the tax free cash. Whatever the 4 letter acronym that now represents it.
    3. further bashing of the “rich” (basically translated to “anyone earning >10% more than I do”) – perhaps through tapered annual allowances.
    4. reduction in annual allowance towards £10,000 PA.
    5. further reduction in LTA below £1m.
    6. hiking the earliest age at which you can access your retirement funds
    7. removal of salary sacrifice
    8. reducing “pensions recycling”, from which Ermine does currently benefit.

    Most of these would require significant process and IT implementation from the pensions and payroll providers; I find it difficult to believe that any such restrictive announcement would be immediately effective.
    This is why I’m not too concerned in rushing to pile my extra wodge into my fund, before 16 Mar. I guess FOMO is just not powerful enough, when set against my pragmatic assessment of how difficult the key possible changes would be to implement quickly.

    I still will be surprised, I am sure, in the number of unintended consequences of whatever is announced – whether new cliff edge marginal rates are introduced, or groups excluded, or whatever.

    As you conclude: “Pretty much everything about pensions is hard, counterintuitive and full of wrinkles, that’s the nature of the beast”.

    When I started work with my 20 person company 3 years ago their basic wasn’t much, but I negotiated a minimum wage + huge sal sac pension contribution where the total cost to them was the same as a conventional wage+pension contribution. I got all the employer and employee NI savings, and it made a HUGE difference to my finances. I really can’t see sal sac surviving this budget, as it was just too generous, and very hard to work in a flat rate top-up scheme, indeed it was red flagged in the last budget as being of grave concern. They just rolled out sal sacrifice across the rest of company last autumn, too late.

    I presume I will have to renegotiate my contract if it goes, but I do wonder how quickly the chancellor can bring in the change.

    @John B – my situation/thoughts pretty much exactly. Lets hope that by some stroke of good fortune sal sac makes it through unscathed!

    I’d be glad to see salary sacrifice go. How many people actually have it as an option? My OH has certainly never been offered it in his many and varied private sector employments. I’d wager the vast majority of employees only have basic tax relief available to them. It’s time more ordinary workers (BR taxpayers) got a bigger share of any pension saving incentives.

    26 Feb 2016, 2:54pm
    by The Rhino

    reply

    of course sal sac is currently available to and a significant benefit for BRTs as far as HMRC is concerned. If the employer won’t do the admin then thats a different issue really.

    What I meant is, many employees don’t have employers who will do salary sacrifice…it’s a huge perk, if you are in the know and have a willing employer, but it is by no means available universally.

    26 Feb 2016, 1:20pm
    by The Rhino

    reply

    sal sac does seem like an *extremely* tax efficient route to bolstering the pension pot. If your overheads are low then you can pay almost no IT and rather than pay employes NICs, you can pretty much scrap that and have employee NICs paid to you. As they say, if its too good to be true then don’t bank on it lasting..

    27 Feb 2016, 10:11am
    by London Rob

    reply

    I have to say I am biased, but I think they seriously need to look at this – I will never agree with you Ermine on some of the points, but either a maximum lifetime contribution (so your fund can grow as large as you want, if you are lucky!), or maybe the limit each year on how much you put in but no LTA. I dont mind them scrapping the tax free cash up front, as this really is a huge benefit, but I reviewed my strategy and I have actually reduced my contributions to my pension, and can see me further reducing in the future. Yes some of this money is going into other retirement savings, and at a far more preferential way than with a flat rate would.
    I like the idea of just keep it simple, invest tax free but limit how much you can put in over the lifetime of contributing.

    Oh and stop pushing the date I can access it back 😉

    Here is my policy.
    (i) Leave the TFLS alone: it’s one of the few pension incentives that’s widely understood and liked by the man on the Clapham omnibus.
    (ii) If we must have a standard rate of tax relief let it be 33%. Scrap Sal Sac at the same time. Then it’s “three for the price of two” which would be easily understood by TMOTCO.
    (iii) If (ii) looks too pricey, reduce the Annual Allowance to compensate. While on that topic, give very high earners the same annual allowance as everyone else. Their current £10k allowance seems to be petty vindictiveness.
    (iv) Also on the topic of high earners, scrap the withdrawal of personal allowance that happens at £100k income. Partially compensate by starting 45% income tax at £100k.
    (v) Do not reduce the LTA. it buggers up pension planning absurdly for high earners, and unpredictably too – how the devil are they expected to know how much their investments will grow? In fact, in the name of simplicity, scrap the ruddy thing. (But Mr Osborne won’t, will he?)
    (vi) If LTA is not abolished, reform DB pensions so that they lose their privileged position vis-a-vis DC pensions. For example, use a larger, more rational, multiplier when calculating the equivalent capital value of the annual pension. On what exactly to do about DB tax relief I’d consult Harry Potter: this one may be too tricky for muggles.

    So high earners will be worse off, but will be offered a couple of compensations, if only to say “we’re not doing this because we hate you but just because we need the money”.

    I suspect the only way to carry off a sweeping reform is to abolish further contributions to existing pensions and introduce an entirely new style of pension for the future: say, the LITA (Long-term Investing with Tax Advantages).

    I’d go along with pretty much all of that. I never understood the piddling about the personal allowance for higher earners, it’s going to be worth, what, 45%*11k = 5k tops. which isn’t worth all that complexity and nastiness. It just seems petty for the sake of it

    The problem with the DB multiplier is that it depends on annuity rates, which are hard to predict. Its only too small now as annuity rates are low, who knows the number 30 years off. Any kind of limit on DB is hard to do as the money is only allocated at payout.

    Rather than have lifetime annual allowance, couldn’t you just cap the annual topup. Then everyone (who chooses to save) gets the same, but how much they put in is up to them. And rather than have a TFLS, just say all the government fraction is tax free at the end.

    So I contribute 7500 for 10 years, the government adds 2500 a year, it grows to 200000, and I get 50000 tax free, as that’s the government’s fraction. If I choose to go past the government cap, then the TFLS %age is smaller.

    Allow me to rephrase “Its only too small now as annuity rates are low” to ‘it’s only too small now because civil servants and politicians receive DB pensions’.

    Which rather suggests a solution: stop giving them DB pensions. Then all the DB vs DC problems will dwindle away fairly swiftly. It might mean paying some of them a bit more, to attract and retain staff, but so be it.

    As a 10 year civil servant some time back, I do dislike the barrage of criticism (by others, not you) of their pensions. It was part of their package, and together with the quieter life, did attract people who would accept a lower raw salary than the private sector. The problem is the government reneged on the deal, the quiet life went away, and they started changing the pension terms 15 years ago. Strangely no existing employee who had the choice switched to the new deal, and no pay adjustments occurred (but we did get bonuses!)

    People liked the certainty of the DB, and governments (and big companies) thought they had the predictability to deliver it. I can see why companies want to move that risk off their balance sheets, but if governments, already committed to state pensions, feel the same, it seems a shame. The suspicion of course is that both change the pension terms, but don’t boost the basic pay. I watched my IBM colleagues seethe about being shafted in their pensions 5 years ago, while as a contractor I just squirreled my money away.

    And with pensions, nothing is swift, those DB schemes will be paying out for 70 years.

    27 Feb 2016, 10:53pm
    by C Washburn

    reply

    Is the pension withering on the vine or are you wondering whither it went?

    @John B Seems big firms generally found degrading pensions a great way to reduce pay without people noticing that much. I was lucky in being old enough when they diddled with the pension in reducing accrual and extending the term in 2009. I was two thirds through the nominal 30 years length of service the pension was deigned for. The degradation was so bad that had I worked like a dog for 15 years rather than 10 I would still never have made up the difference I’d have earned in the original 10 year term.

    And funnily enough bonuses got bigger and payrises got smaller too…

    Bonuses are used because they don’t ratchet basic pay. Many organisations are stuck with long term staff at the top of their pay grades who perform well, but not better than the recently promoted ones at the bottom of the scale.. Of course these lifers are the most reluctant to brush off their CVs, and will put up with crap.

    I think people notice their pensions being shafted, but can’t see a way to protest. I seem that new NHS staff are being bribed to out of their pension scheme because of NI changes. I suspect the bribes aren’t big enough, but might tempt those paying off medical training costs, to their long term detriment.

    If you can be bold, and have the skills opt out of permanent employment to be a contractor, more cash, more control, no politics.

    “If you can be bold, and have the skills opt out of permanent employment to be a contractor, more cash, more control, no politics.” A tempting target for a Chancellor, then.

    1 Mar 2016, 8:31pm
    by Neverland

    reply

    You all seem to be ignoring there is a big gaping whole in the plan to balance government spending with tax receipts by 2019-20; the status quo or something costing similar is not an available option

    Which new tax would you like instead?

    @Neverland – aw c’mon, they’re going to want to get re-elected around then. I should imagine the plan will go, or at least metamorphose into something different.

    I’m struggling to detect when in the past this has been balanced for any length of time. I am not clever enough to know why people think that governments shouldn’t behave like Angela Merkel’s Hausfrau although the argument they shouldn’t do that at the same time as everybody else is saving is fair enough. The trouble seems to be they don’t roll back enough in the good times because we all want lots of lovely stuff.

    I’m not saying shit won’t go down, after all Mervyn King seems to say money itself is borked because it fails to take into account many of the changes of the last 50 years. Maybe it will all turn into tears of falling rain. As he said, there’s ‘a struggle between political will and economic arithmetic’.

    @ermine, I agree with you on this one, the ultimate aim of politicians is to hang onto power until they’re forced out, those who do best at it will be the most flexible, [a la Darwin] as such, their claimed aims will move around 🙂 accordingly, like clouds in the sky shape-shifting with the winds up there.

    But the overall trend is becoming clearer now though even to those who don’t want to see it – Europe, Japan & even the US are all stagnating for various & different reasons, so the average person on the street is going to have to learn how to be poorer, generation by generation. Since this is going to be as popular as downing quinine, there will be maximum resistance from the majority who still have the expectations of the L’oreal adverts. [You’re always worth it …..despite any supporting evidence]

    Significant change is already happening though, whatever the people’s subconscious wants – to give one example this can be seen in the plummeting birthrates among the native-born in a lot of these countries. A lot of that is frustrated life achievements/milestones giving insecurity – so people then logically not wanting to take big risks – such as having kids you worry you may not afford all the way through the time they need support.

    2 Mar 2016, 4:13pm
    by Neverland

    reply

    @ermine

    Britain largely ran balanced budgets for about 45 years after the second world war initially to pay off debt

    http://www.independent.co.uk/news/uk/politics/how-unusual-is-it-for-the-british-government-to-run-a-budget-surplus-10309178.html

    In the last twenty five years governments went a bit crazy

    In the 19th century budgets were in surplus year after year to pay off the debts from the Napoleonic wars.

    @Neverland, although that looks like an undamped oscillation taking off, should we not be deflating the amount with time over that timescale? Only in that way can I square that with the stuff on economicshelp, which is couched in terms of GDP which presumably increases with inflation, so inflation is tracked out of the numerator and denominator. If you look at prices from 1960 they look out of this world.

    I’m not saying it isn’t bad, but I don’t think it is as bad as that chart shows 😉 I’m also iffy on the concept of an integration time of a year. I should imagine a Brexit could challenge that ambition.

    @Survivor there’s still a long way to go before people actually get poorer generation on generation. I grew up in a London of coal fires, draughty houses, no central heating or running water and very few telephones. Diseases like polio still ran rife and TB still existed in the slums. I don’t expect to see that level of widespread material deprivation before I cash in my chips. Okay, that’s perhaps two generations ago, and I quite agree that perhaps those who were born in the late 60s early 1970’s children who are coming of age now will probably see a downshift. I would be surprised if we went back to the 1960s materially, though.

    We are accumulating capital in terms of technical and medical understanding. People always focus on the bling of materialism, the iPads and the short-haul stag parties but being warm enough and people not having to heat water on the stove for hot water is a seriously big improvement in lifestyle, as well as not having to be afraid of your kids going near open water.

    I think the drop in birthrate is a rational response to the priorities we have collectively made. Raising children right appears to need work and giving up some material benefits with the opportunity costs. Once we decided every adult needed to work to get the things we consider necessary, then the die is pretty much cast. At least we have a lot more Stuff and services. It manifests in other areas – we can’t be bothered to DIY anything, and in general self-reliance seems to be going down the toilet as we outsource more and more so we can work more hours or more ratty jobs to pay for our insouciant ignorance.

    If your prognosis comes to pass, that loss of self-reliance and basic understanding of how everyday items work will be bitterly regretted.

    @dearieme Looks like a hard rain’s gonna fall then – after all, in the 19th century Britain was the workshop of the world and accreting capital from the dominions, which probably was a subsidy that made running a surplus easier. Perhaps Piketty was more right than he thought if we are going back to that sort of future!

    There’s no sign that Britain did make money from the Dominions. People have had a go at investigating it, but come up with precious little. After all, the American Revolution occurred because the Americans were determined to avoid paying taxes to support their own defence. As colonies they were the most lightly taxed civilisation in history, paying about one twentieth of what Britain paid per head (figure from memory). Consequently HMG was very leery of taxing the other colonies, and was forever agonising about the cost of them.

    I presume it wasn’t all done for the pomp and circumstance. Revenue doesn’t only have to come in the form of taxation, and the favouring of dominions exporting raw materials for value-add in Britain is a different form of economic subsidy? Leastways that was what I was taught at school about the cotton trade, and thinking doesn’t seems to have changed in the intervening 40 years

    I’m not making some grandstanding point as it’s all ancient history IMO, but pretty much all empires seem to have the centre gain something from all the aggro of keeping control of the periphery until the denouement. Else why the heck would they bother, particularly in the case of a long-running empire. All of which could improve the balance of payments, though not directly in taxation, but by supporting industry and value-add.

    There’s no need for the centre to gain; all that’s required is for some people to gain, and for those people to be able to influence decisions. Others, with less influence, may lose. There’s no logical need for net gain at all. Maybe the most famous historical case was Caesar’s conquest of Gaul. Advantage to Rome, approx nil, or even negative. Advantage to Caesar, in his eyes, vast.

    I can remember a friend, an economic historian, telling me decades ago that no trace could be found of Whitehall trying to produce rational estimates of the economic advantages of colonies – everything seems always to have been improvised at the time. Foreign and Colonial Office minutes were dominated by the desire to reduce the subsidies paid to colonies.

    A possible counterexample would be the East India Company – but that didn’t set up government colonies, it started off as what its name suggests, a trading company. Naturally, Lancashire cotton producers would try to influence governments to interfere to bias competition to their advantage, but that just takes us back to my initial point: “all that’s required is for some people to gain, and for those people to be able to influence decisions.”

    Even then, it’s hard to disentangle the effects of government interference in the cotton trade with the huge advantage the Lancashire men had in water-powered, and then steam-powered, mills incorporating so many technical advances. Even when people built cotton mills in India they proved very inefficient compared to the Lancs mills.

    hehe – I’m going to run up the white flag here, since this is not my area of expertise. Game set and match surrendered 🙂

     

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