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Chapter 1: What is the main topic discussed in this episode?
We don't just invest in cutting edge companies. We look at companies with a history of steady growth. And companies whose growth cycle has come round again. Because in the real world, you have to look at growth in three dimensions. Monk's Investment Trust.
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Welcome to Merrin Talks Your Money, the personal finance edition of Merrin Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm Merrin Somerset-Webb, editor-at-large for Bloomberg UK Wealth. Now, this week kicked off with some drama in British politics. No particular surprise there.
Following Andy Burnham's victory in the Mayfield by-election and growing pressure from Labour MPs, Keir Starmer announced his resignation as Labour leader and prime minister. Burnham quickly confirmed what we all already knew, which is that he would be seeking the leadership. And that is widely expected to happen in the next few weeks without much of a contest.
So we imagine that Andy Burnham will be the next prime minister. And the question then is, what will Britain look like under Andy Burnham? And more importantly, what will it mean for your money? Spoiler alert, probably nothing good. With me to help explore that question is Philip Aldrich, senior reporter covering the UK economy for Bloomberg News. Phil, welcome. Thank you for joining us today.
Good to be here.
Right. The first thing to say, I guess, is that assuming that Andy Burnham is going to stick to the fiscal rules, which he has said he is going to do, that leaves him with very little immediate wiggle room, right?
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Chapter 2: What are the implications of Andy Burnham's expected leadership for Britain?
So, you know, 50 p.m., we'd all be going the other way.
Yeah, exactly. It's a gift for Scotland. It would be a symbolic gesture rather than an attempt to reduce the constraints that he has, his fiscal constraints that he has. I think he's also talked about sort of doing the council tax revaluation.
That again would be a shift in the balance of taxes because people in poorer regions would pay less and people in London and the wealthier regions would end up paying more because their houses were valued more. So that would be a redistributive operation. But you can also attach to that some form of net tax increase as well. So I could imagine him doing something like that.
And he's also talked about, I mean, in the past, he talked about 10% inheritance tax on, I think, on all inheritance. So we've obviously got up to a million pound before you end up getting IHT being incurred with inheritance tax. So... And he talked about that in relation to social care in the past. So, again, that could raise substantial sums of money.
And as you said, it's effectively a tax on inherited wealth.
And that would be interesting because one of the things that people worry about all the time, absolutely nonstop, is inheritance tax. Even people whose estates will never fall into the inheritance tax regime worry about it all the time. And suddenly you'd give them good reason to worry about it.
Yeah, and the last time they worried about it was with Theresa May's dementia taxes, as Labour branded it back then. And it cost her her majority, didn't it? So it's obviously, as we all know, it's one of the least popular tax rises. This is the thing, there is economic constraint and then there's political constraint. And the two are sort of operating hand in hand.
The fiscal situation rather than the fiscal rules in the UK is itself a massive constraint. And then the efforts to actually try and fix that have proved to be a huge political constraint. So you end up just in complete stalemate. And that's the big challenge for Burnham is how he breaks that stalemate where Starmer was unable to.
Well, I suppose he could be super strong and just get on with it. But the obvious route then is to try and go down, as we were just saying with the inheritance tax, to try and go further down the wealth tax route.
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Chapter 3: How will Andy Burnham navigate fiscal constraints as Prime Minister?
So if you put the rate of capital gains tax up, then that becomes even more of a problem. The behavioral stuff that it drives is really out of proportion to the tax take.
Yeah. Well, and actually on the behavioral stuff, as a reminder, the HMRC's own estimates of harmonizing the CGT with income tax rates are for there to be, and you end up losing tax revenue because of this exact thing. Because everybody just assumes we're going to wait it out. We're not going to cash in anything. So there's no tax to be paid.
And then, you know, they hope for a Tory or reform government next time around who will just completely reverse the policy, which, you know, they will inevitably reject. run on. And I mean, they're saying now that they wouldn't enforce such a right. So yeah, so it doesn't work.
And we saw some behavioral action by business owners and others a couple of years ago after it was anticipated the capital gains tax would rise to everybody basically cashed in before the budget. So we've seen a massive spike in actual capital gains tax revenues and it's all been driven by behavioural stuff.
So again, wealth tax is such a difficult one to actually guarantee you're going to get any income off because it is subject to so much behavioural change. More constraints there.
We don't just invest in cutting-edge companies. We look at companies with a history of steady growth and companies whose growth cycle has come round again. Because in the real world, you have to look at growth in three dimensions. Monk's Investment Trust.
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Chapter 4: What are the fiscal rules that Andy Burnham must adhere to?
And the idea of a land value tax is to charge you very much higher amounts for land in areas surrounded by state-provided amenities, etc., to force you to make that land productive, so to prevent people from simply sitting on bits of land and not using them properly. But to introduce a tax like that, I mean, that takes years. So I'm hearing lots of people worrying about a land value tax.
Oh, well, this is going to be awful and how will this work and blah, blah, blah. But I suppose the answer in the end is that we've got a very short time period here and it probably wouldn't work. Don't need to worry about that kind of thing.
Well, as you say, the complications involved, you just thought it would be an obstacle in themselves to this. If he needs to win the next election, he needs to have done something by then. You know, one of the other things people are talking about is, you know, revaluing the council tax balance and revaluing the entire housing stock in the UK so that the 1993...
Valuation estimates are updated for today. But that itself takes a long time, which doesn't sound anything like as complicated as doing this kind of, what is the amenity value of the local services that are provided by the state for the land? And then we'll tax a little bit of that.
But if the council tax revaluation would take a few years to do, that seems implausible that he'll be able to put in a land value tax and actually get anything out of it in time for an election.
Okay. So what do you think he does have scope to do if we're looking at, you know, not much longer than two years here and he needs to win the next election? And, you know, let's say let's say I'm putting this out here that he actually manages to hang on for the full, full period. And we don't have another prime minister in six months or nine months or a year. So let's say he gets the whole lot.
What could he conceivably do within the constraints of the fiscal rules that would actually be A, effective and B, reasonably popular? I mean, I'm coming up with nothing, by the way.
I'm not sure what would necessarily be popular. They're going to have to touch spending in some way because the tax burden is already going to be hitting the highest since in the post-war period. Debt is edging higher. It's getting up to very close to 100% of GDP. The deficit has been running at 5%, between 4% and 5% for the last four or five years.
I mean, it's completely and utterly unsustainable. And the idea that you can find a tax that is going to be an acceptable tax. I mean, I can imagine him increasing inheritance tax, for example, because unpopular as it is, It doesn't touch you immediately. It's something for the future. But the spending stuff, there's talk about the triple lock to try and restrain pensioner spending.
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Chapter 5: What potential tax changes could Andy Burnham implement?
And of course, we would love to hear any of your ideas about how Andy Burnham might actually be able to make things better. Our show email is merrimoney at bloomberg.net.
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