Coffee Can Investor's wish list to the new Labour Government
Let the right change begin
Dear The Right Honourable Kier Starmer1 and The Right Honourable Rachel Reeves,
Congratulations to the Labour Party for the most one-sided victory in politics in a long time. Well done. Let the change begin. With every new government, there is a lot of hope and aspiration from the incoming government and time to set new expectations upon the incoming leaders of the country. Here I go, providing you with my version of what I consider a reasonable investor’s wish list.
I am not going to ask you for anything that’s manifestly against your manifesto2. I will keep it simple and reasonable, very much like your own style of functioning from what I read.
Background
I am a relatively new migrant to the UK - less than 6 years in this country. I came to the country on a Skilled Workers Visa3, then switched to a Global Talent Visa, then an ILR and now I am a happy citizen British Citizen. I earn a good wage, pay all my taxes, even on my global income on a remittance basis, and have never consumed a penny of benefits. I also have relatively good roots in the community - I own a home, my daughter has always gone to local state schools (and will continue to do for her secondary years), I participate in the school’s PSA, have friendly relations with my neighbours and contribute to local charities. Without appearing too self-promoting, I am close to what one can consider an acceptable migrant.
I am also well travelled and well lived, having visited 28 countries (25 of them with my ruggedly old, now-surrendered Indian passport), and having lived in India and Singapore before UK. Unlike the migrants who come here purely as economic migrants or as refugees, for whom UK might appear as a significant step up from their previous abodes, I have seen more, experienced more and hence I have mixed feelings about the country.
On one hand I love the quality of life, the nature, the inclusive people, the general politeness and demeanour of the public, the school system, the teachers and so. On the other hand, I think the infrastructure in this country is creaking, urban planning in London absurd, general economic prospects poor, the government and economic policy clueless and vast majority of political debate unwilling to accept the real challenges that face our society. There you have - both sides of the story!
Let’s get on with the wish list, shall we?
1. Stop Meddling in the Property Market
You will agree with me, Starmerji and Reevesji, that we are all tired of the various shenanigans of the previous Government in the property market. Can we just stop meddling in the market please? The Help-to-Buy, the Government guarantee schemes, the Lifetime ISAs etc, don’t actually help the problem. The core issue is that we have too little housing, constructed with very poor urban planning for too many people.
It doesn’t bode well for net-zero targets, but pragmatic reality will demand that we will both need to build a lot of housing as well as repurpose vast majority of the housing stock in this country - sometimes rebuilt for better energy efficiency, and other times of space efficiency.
Meddling in the property market won’t solve this problem. Building more homes will. Having come from Singapore, I can tell you that good quality private apartments are hardly to be seen in this country - most “flats” and “apartments” are just meh. Good quality shared housing, built of spacious grounds, with a good community feeling, with lots of modern energy efficiency will go a long way in producing liveable residences. Done well, it complements a public transportation system that can cater to more houses per stop/station.
I know your team is already thinking of getting the nation to build 1.5M homes - that’s a good start - lets just make sure they are of high quality with good urban planning.
2. Stamp Duty is a mess!!
We need a complete overhaul of stamp duty. Stamp duties on share transactions are an unnecessary burden on investors. Just do away with it. It doesn’t bring in enough revenue anyway4. It will help kick in some energy into what has become a moribund stock market.
Stamp Duty on housing should be restricted only to foreign buyers - and you can even increase it - all the way up to 15-20%. For local residents, cut it down to a flat 1% or so. It should deter gambling and unnecessary flipping, but it should not be so burdensome as to prevent genuine transactions.
And when you make policy changes on Stamp Duty, stick to it. Make it predictable. Stability can be very exciting!
3. Simplify the Tax Code
I know Starmerji and Reevesji that you have been voted in on a manifesto that says you won’t raise taxes. You know what, break that promise and raise it! Raise it just enough to cover for the following tax reforms I am suggesting:
Remove all tapers in the tax code. I mean all of them - the one on personal allowance, the one on pensions, and the one on childcare benefits5. These don’t do any good any real good apart from being punitive to those caught in it. It raises very little incremental revenue and causes a lot of unfairness. Just do away with it. Altogether. Everywhere.
Abolish National Insurance for employees. NI is nothing more than a tier-2 tax, paid by some and not paid by others and causes taxpayers to be divided. It also causes complications for global tax payers as NI is not considered tax in other jurisdictions, but in essence it is. Instead, just tag NI on as income tax. Keep the employer NI the same - the time to fiddle with it might come in the future but not now.
Bring some rigidity to the tax rules - don’t allow HMRC to enforce on the basis of the “spirit of the law”. This fosters too much fear, both among individuals and among businesses. It is a unnecessary cognitive load on the country that can be deployed elsewhere to better effect. Instead focus on a clearer set of rules. Is it possible that the unscrupulous may skirt around the written word of tax code? They were, they are, and they always be. However a simpler set of rules reduces vast amount of uncertainty and allows people to focus on producing, selling and circulating goods and services rather than constantly worry about the tax impacts.
Given NI is being tagged on to income tax, the net effect on the exchequer will be minuscule and if needed, make the 45% tax bracket go to 46%-48% and be done with it. Those paying that level of tax will be happy at the simplification of the tax code and country will be better off with this.
4. Use subsidies for growth
You know what is the one of the biggest friction points in the UK economy relative to everywhere else I have lived? That moving from one place to another is exceptionally costly. Buses and Trains are ridiculously expensive, compared to even our European neighbours, and the quality of service at those prices abysmal. This in turn makes people not want to travel as much as they would otherwise, constraining otherwise healthy economic activity.
Why not use government subsidies to make public transport cheap for everyone? Introduce affordable monthly passes for residents. Encourage more movement. Propel the economy in ways you can’t imagine. Such a subsidy wouldn’t be too costly6. In fact, it will be worth many times the small cost.
5. Stabilise Pensions System
UK has a very robust system of private pensions. Auto Enrolment for most employees is at 8% and I have argued before that that’s enough to build significant retirement capacity. Why then do we need to grow a state pension systems that’s so costly to the tax payers (about 14% of tax revenues per year and growing)?
Prick the triple lock bubble - it is a dangerous expectation for pension to rise by the maximum of those three metrics. It is even more dangerous to continue with this philosophy after we have already experienced how costly it has been in the past few years. Instead, abolish the triple lock and promise to raise it by 1.5% - 2% flat for the next few years - perhaps a decade.
Instead, let the pensions systems in this country remain as it is, don’t even change the pensions age. I know your party leans towards somehow meddling with it, but we have solid evidence that all of those ideas are rubbish, creating bigger headaches downstream than worth it.
I understand that your constituents think that the pensions systems helps the high earners avoid taxes - in reality it merely helps to defer taxes, not avoid them. Beyond that, the two things you can do to prevent the high earners from abusing it is to retain the annual limit (the current £60K seems fine) and introduce a new lifetime limit on contributions (not the corpus, which is a dangerous idea) of £1.5M or so. To get to £1.5M in contributions at the max contribution of £60K per year, an employee must have worked 25 years and have to forego a full £60K each year to get there. There is enough taxes to have raised from someone at that level of income in ny case. In exchange, the country gets £1.5M of long term capital ready to deploy.
In fact, the best thing you can do with the private pensions system is to encourage it to be directed into local economy. Not mandate, but encourage.
Greedy Wish: Reduce the overall tax burden
I know it is the Tories who stand for lower taxes, but they did a shit job of it and proved so incompetent, that you could waltz through your best ever election results in many a decade. I also know that at an ideological level you don’t stand for lower taxes, but the country is hurting from its highest ever tax burden on citizens in modern history - some 35% now.
I think it would be a good idea for it to be far lower - somewhere around 25%. Is it possible without giving up on social benefits? If you can bring about efficiency in social benefits, throttle State Pensions growth, cut down on any benefits abuse, and ensure growth that you are already promising, it is surely possible to do so. The best administrations are known for achieving these kinds of results and your legacy, if you pull it off, will be legendary. In political terms, it will be the single largest mechanism for holding on to power over the long term. Are you up for it?
Summary
I would once again like to congratulate you for a successful campaign. There is so much to do, so I will let you get on with it. All the best!
(ps: No disrespect to your other colleagues, but most of what I write about relates to the two of you, so I will address it to the two of you.)
In my Indian style I shall be now addressing you as Starmerji and Reevesji, saving me some typing. The UK honourifics are long!
Kind of sort of. Somethings might need you to slightly break up your promises. Let’s be naughty a bit, shall we?
Then called Tier 2 Visa
Stamp Duty is just classified under “Capital Taxes”, that includes stamp duties, capital gains tax and inheritance tax, altogether producing only about 3.75% of tax revenues.
I have a feeling there are a few more tapers lying around. I strongly believe all of them should go.
TFL revenues were a mere £2.2Bn a year. London is roughly 1/4th of the nation’s GDP. Let’s say travel costs in the country were to be £30Bn and the subsidy costs half of it, we are talking £15Bn, or 1.5% of tax receipts.