Irregular Roundup, 27th August 2024

We begin today’s Irregular Roundup with benefit cuts and tax rises.

Labour watch

It didn’t take Rachel Reeves very long to cost me money.

Amongst the cancelled road and rail projects – and confirmation of VAT on public school fees – in her “fiscal hole” speech,  she included a couple of benefit cuts for the non-destitute:

1. The winter fuel allowance is now means-tested (something that Labour ruled out whilst in opposition).
   • I’m not quite of state pension age, so this isn’t a cut to my income from next year, but I was expecting to receive it for close to twenty years, so between me and my partner, that’s about a £10K hit.
   • More worryingly, it confirms the Labour focus on the benefits-receiving class which up to now was largely restricted to those of working age.
   • If one pension benefit can be means-tested, then maybe others will be too.
   • The new means test kicks in at around £15K pa of income between a couple, but you will also be excluded if you have any assets (savings).
2. Plans for a cap on care costs have been scrapped (something that was ruled out during the election campaign by the new Health Secretary).
   • The Tories had talked about an £85K cap per person, so I expect that on paper this will cost us around £400K+ in extra fees.
   • But in practice, the proposed cap excluded “hotelling” fees, which in the southeast make up the majority of care costs.
   • And there were some suggestions that anyone with £100K of assets would be excluded from council support in any case (the current cut-off is £23K).
   • So maybe we’ll only spend £50K more than we would under the cap – or even just the same amount.
   • And if the rumours about draconian changes to IHT prove reliable, this may not matter at all.

The abolition of non-dom status was also confirmed, and the public offer for NatWest shares was scrapped (the government will just sell them in the market).

Former Conservative pensions minister Baroness Ros Altmann said about the means-testing:

I am shocked that the chancellor has chosen to take money away from some of the poorest people in this country.

Age UK director Caroline Abrahams said:

As many as two million pensioners who badly need the money to stay warm this winter will not receive it and will be in trouble as a result. At the other end of the spectrum well-off older people will scarcely notice the difference.

I’m not quite sure how rich you need to be to not notice £600 pa, but it’s a lot richer than me.

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Sir Andrew Dilnot, who authored the original report recommending a care cap (way back in 2011) said the decision to scrap it was a tragedy:

We’ve failed another generation of families. It’s another example of social care being given too little attention, being ignored, being tossed aside. Dropping the cap is unbelievably disappointingfor hundreds of thousands of families who need care, for the people who areproviding it, for those who are trying to make decisions about it.

Caroline Abrahams said:

The care system has gone from merely creaking to a state of near collapse in some places. The scrapping of the cap is really bad news for all those older people who were hoping against hope for some relief from their sky high care bills, leaving them on their own.

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Reeves’ speech was designed to blame the Tories for a shortage of money and to soften us up for tax rises in the October budget.

• The claimed overspend is £22 bn (less than 2% of government spending).

But most observers would see the massively above-inflation public sector pay rises as part of the hole (£10 bn, or more than 40%).

• Another £6 bn is for asylum and illegal immigration, in part because Labour has cancelled the Rwanda plan and written off its sunk costs (whereas the cost implications of sending the message that the UK is soft on migrants will remain uncalculated).

The rest is more green stuff from Ed Milliband and cancelled welfare reforms and public sector productivity changes.

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After the announced cuts, we still have £16 bn to find from tax rises in the Bidget.

• Reeves admitted as much on a podcast the next day, though she refused to say which taxes would be increased.

I think we will have to increase taxes in the Budget. I’m not going to  start to write a Budget on this podcast.

She repeated the manifesto commitment of no VAT, NI or income tax increases, but refused to rule out inheritance tax, capital gains tax, and pension reform.

Introducing those rises without impacting Labour’s claimed growth agenda will be quite the trick.

• The quickly-set precedent of breaking promises made before Labour was in government should help a little.

CGT, IHT and pension tax relief look like the main targets.

• CGT equalisation requires indexation, and flat pension relief would hit public sector workers with DB pensions – nothing in life is simple.

So the IHT exemptions for SIPPs and BPR (including AIM stocks) look in great danger.

• And the pension tax-free lump sum and £60k annual contribution allowance could be cut.

We might even see the “no capital gains on death” rule scrapped.

• Class war has been declared.

Monzo pension

Challenger bank Monzo has introduced a pension.

• I’m not a customer (I use Starling instead) so I hadn’t noticed – hat-tip to Monevator for alerting me.

It’s not much of a thing.

• It’s “just” a pension consolidation service, like PensionBee.

Pension consolidation is not a bad idea (depending on how bad and/or expensive your historic pensions are) but like most things, you can do it yourself for less money.

Monzo has outsourced the pension tracing to Raindrop and the investment side of things to BlackRock.

There’s no choice of funds, either – you have to use a BlackRock target date fund (you can choose which year you have in mind as your target for retirement).

• Target funds are dumb – most people don’t have a large enough allocation to stocks, so the automatic glide path towards bonds makes no sense in an age when people no longer buy an annuity when they hit age 55.

Nor is it cheap – Monzo takes 0.45% (p.35% if you are already a premium – ie. paying – Monzo customer) and BlackRock takes 0.18%.

• 0.63% is way too much these days – you can halve that with your own DIY SIPP.

So it’s dumb, expensive and won’t accept ongoing monthly contributions.

• Nor will it let you move into drawdown at age 55.

Unless you are a Monzo fanboy, ignore this pension.

• And if you are a Monzo fanboy (or girl), please still ignore it.

Housing

Angela Rayner has tweaked the housing target rules so that more homes need to be built in Tory suburbs, and fewer in London.

• All councils will need to include government housing targets (1.5M new housing starts by 2029 – 370K per year, up from 300K, which was never met) in their plans for land usage.

The old formula used population growth forecasts, and since high property prices keep out incomers, more houses would be needed in poorer areas.

• The new formula uses average prices compared to local incomes, which means that expensive areas will get more houses.

It’s levelling down – more class war – and won’t focus new homes where they are needed.

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“Low-grade” green belt land will be reclassified as “grey belt”, which will be easier to build on.

• Grey belt land will be that which was previously developed or makes only a “limited contribution” towards green belt goals (protecting the countryside and the special character of historic towns).

Developments will require affordable housing targets to be met, but the Tory requirement for new homes to be “beautiful” has been scrapped.

• So I think we can picture the monstrosities ahead.

Holiday lets

The new government has also confirmed the end of the favourable holiday lets tax regime (announced by the Tories but not implemented before the election).

• This is potentially a minor inconvenience to me since I am likely moving to the seaside in the next few years.

Yields on holiday lets are higher than other properties (particularly in the south-east) but now they will need to be wrapped in a limited company to make sense from a tax perspective.

• I’m not sure what the point of the abolition is – holiday lets tend to be small and overpriced (because of their location) and won’t make great family homes for those born in beautiful locations.

Plus fewer rentals mean fewer tourist pounds into the local economy, and most of the locations with lots of lets have little to fall back on.

• It’s another policy that runs counter to the alleged “growth agenda”.

HMRC’s policy paper says:

The end of the FHL regime promotes fairness and aligns the taxrules for furnished holiday lettings with those for other property businesses.

I suspect we’ll hear a lot about fairness over the next five years.

• It’s one of those words that means something different to everyone who uses it.

Quick Links

I have just one for you this week:

1. Discipline Funds’ Three Things, which is mostly about investment myths.

Until next time.