Is London Finished? | IEA Podcast

Ajouté : 2026-05-22

[00:00:00]One of London's big advantages is that now compared to the US, we're basically just a low-wage, poor economy. You you have this quote saying like, you know, P PhD students in San Francisco cost at least double what they do in London.

[00:00:17]This VAT cut is only in place for 2 months. Realistically, very very few restaurants or or cinema tickets are going to introduce completely new pricing system just for these two months. What I really liked about this was he he described this as a wealth tax that works and it works in the sense that it's not a wealth tax.

[00:00:44]Hello and welcome to the IA podcast. A couple of days ago, I thought maybe there's nothing to talk about this time because it's all just political drama.

[00:00:53]But now it's all coming thick and fast because we now have announcements of a wealth tax that is going to work, a working wealth tax. That would indeed be a strange fiscal creature. London is falling behind and the government is finally doing something apparently on the cost of living crisis. I'm joined today by my colleagues, our managing editor, Daniel Freeman, and our senior policy fellow, Lord Frost. And um let's start with the London story. Daniel, you you uh ducked this out. You found this in the Financial Times. Uh London is apparently falling behind um a kind of leveling down happening. Is that a good thing? What's what's the argument there?

[00:01:34]What's what's the development here? Uh yeah, so this was a really interesting long piece in the the Financial Times by Deline Strauss where you know there's there's been an awful lot of sort of interests over the last decade, two decades in various c uh various cities around the country sort of falling behind and and not doing as as well as people sort of think think they should.

[00:02:00]But in a lot of ways, London doesn't actually get as much attention as it as it probably should do. And and this article really goes into some of the issues that London's been facing, especially over the last 5 years. So um one one thing that's uh you know to start with is that London's population growth has actually slowed a lot um in a context where the country's population has increased quite a lot especially due to immigration. So, uh, they they drew out a distinction between in the run-up to the 2012 Olympics, say from 2007 to 2012, London's population increased by about 8%. Um, over the last 5 years, it's only grown by by 2%. Um, and it's it's not as if 2007 to 2012 was a sort of uh a perfect time for London. this was, you know, in the context of the global financial crisis. Uh, and yet you do seem to be having, you know, a city that is not growing as much as it was before. In terms of British nationals, um, London is now actually a net exporter of people. More more British nationals are leaving London than are coming to it. Uh and then what's worse than that is the the level of productivity of people in London is actually falling or seems to be falling uh in real terms. So between 2019 and 2023 productivity falls slightly in London whereas across the country it it grows albeit albeit quite slowly. Um and and they look into some of the possible causes for this. So, um, one of the things that they, uh, they fix on is, uh, the, well, obviously something that we've talked about a lot for, for a long time is the housing issue that, um, you you've got, uh, serious restrictions on supply of new housing in London that has been wor made worse recently by uh, new regulations to do with the building safety regulator uh, which makes it more difficult to build flats. So, um, people in the UK are less likely to move to jobs, uh, in London e because even if they're going to be paid more, a lot of that is going to be eaten up in in higher housing costs. Uh, they they also focused on uh how the impact of student loans has had a big effect on people sort of youngish people in uh very high productivity industries. So now if you have a student loan and you get to £100,000, say between £100,000 and £150,000, you're facing a marginal tax rate of about 71%.

[00:04:57]Which uh disincentivizes people from going into higher productivity jobs, gaining more skills, and that can have an effect on the economy more broadly.

[00:05:07]There's also impacts from COVID, more people working from home, fewer people coming into the city. Um, and also changes to things like the non-dom regime. So um so they they have a quote from uh Tony Travers who is an academic at LSSE who who's who who basically says um you know over over the last 5 to 10 years the UK has seemed to actively go out of its way to discourage very rich international people from coming here.

[00:05:40]Um, and all of these things add up. And the product is a uh a city that is still very productive by UK standards, but that's not sort of growing as quickly as it it once was.

[00:05:57]>> Yeah, of course. So, in so far as it is just explained by population growth there, you could say, well, that's not really a problem. What matters is the per capita situation. But if productivity is also falling, that is bad news. And of course they are not unconnected. The reason why London has been ahead in productivity terms for well and still is in absolute terms of course uh but even in growth terms is of course that it was able to make use of lomeration benefits and if you slow that down then you have a problem. David, what do you make of this? Are you a London doomster or do you think that'll turn this around?

[00:06:27]>> I mean I think we I I certainly feel that there's been a visible um change in the feel in London over the last five years. certainly maybe a little bit longer than that. And I think you know you can feel some of it like um you know the decline in London's night life uh lack of hospitality the sort of rather dead East Berlin style uh feel in some bits of town >> a political vice um you're right um so I definitely think it's happening. I I just a few things to add really. I think I wonder whether there's a bit of a measurement effect involved here that as you say people are not coming into London but perhaps they're still doing the same work from home. There's an argument about whether they're more productive or not doing it obviously but you know working from home is a phenomenon. Um I there's and another sort of measurement effect is you know what is London which is connected to this you know it's so connected to the economy of the broader southeast um and there are some anomalies in it like all the commuter towns uh to the north of London where maybe people have retreated to after the pandemic a bit they're all counted as east of England and actually east of England productivity probably Cambridge as a role here seems to be doing holding up a bit better than the rest to judge by the the FT. So, you know, I'm not I I don't deny there's an effect. I wonder whether it's quite as stark as as people say.

[00:08:03]>> I do also wonder um you know, migration has pros and cons and there's no doubt that London has had a loss of um inward migration in the last few years. Not all of it, how shall we put it, from countries where there's necessarily sort of high human capital, where there seems to have been a lot of dependence, there's a lot of pressure on social housing. There's a symptom of that. And you know, I wonder, I'm speculating really because I don't think we've got enough evidence to tell yet, but whether there's a phenomenon of productive people leaving and relatively less productive people coming in, would you know, you need to check that, but I think it might be part of the story here. Final thing I suppose is you know is it a UK government policy aim to maintain London as such? Um the UK government's policy ought to be to keep productivity and wealth growing in the UK as a whole. um and um I'm not convinced it's a UK policy aim, you know, to pick up that FT article to maintain a kind of niche Peruvian restaurant quarter and center of London for the sake of uh sort of rich people and foreign travelers. And so I I I think the London that we remember for the last 20 years, maybe that was a moment and maybe it is disappearing, but I don't see that as necessarily and unavoidably connected to a failure of the country as a whole. It's related but not there.

[00:09:34]>> Yeah. My my one criticism of the article would be that it felt a bit like a brainstorming session. So there were just rattling of all the possible reasons that could uh explain a slowdown in the growth rates of London and some of them more plausible than others but it is at the level of plausibility.

[00:09:48]there isn't much of an attempt to disentangle how much uh of this is a really big deal and what is just maybe a minor irritation and I realize that's not what you can do if you have to write an article you have a deadline you have to complete it quickly you can't do uh econometric regressions to find out the quant the relative quantitative effect of different sectors but do you have any sense that some of these factors that I mentioned are more important than than others or is is it all just across the board everything is bad >> yeah I mean it well I will say the article isn't exclusively sort of doomerism like it does it does pick out some areas of sort of genuine growth. So one one thing they pick out is the uh development of um you know the tech quarter around around King's Cross um where you know Google have moved in you've got Deep Mind there um and and that's been been a real success. But interestingly, one of the the the explanations they give for that and they they interview someone uh uh an American tech company is they basically uh one of London's big advantages is that now compared to the US we're basically just a low wage poor economy. You you have this quote saying like you know P PhD students in San Francisco cost at least double what they do in London. London's great. You have so much you have so much human capital and they're so cheap. Um, and it it kind of reminds you how there's this sort of joke in uh in Hollywood uh about why there are so many British actors and they're described as like white Mexicans basically because they're Brit Brits are really cheap now by comparison to Americans. And that is actually the positive case for London uh really over over the next decade or two is that um wages in many many um parts parts of the US uh are relatively really high now especially at the the sort of um in various high productivity industries. So there's a lot of scope for some of that being basically uh outsourced to to London because you have a lot of very well- educated people uh who are um who are willing to accept much lower wages than people in the US.

[00:12:13]Um now on on the on David's point actually about sort of the question of should we care about London. Um I think that there absolutely is a case that um yeah we shouldn't you know government shouldn't give uh special treatment to London shouldn't sort of um you know try and do regional policy but forcing people you know that you sometimes saw this about you know you should force people uh back into the office because otherwise you know uh Starbucks isn't selling as much and Pratt is struggling in some parts of central London. I think that's silly. But I think there are you shouldn't you shouldn't sort of do the opposite either. You shouldn't pursue policies that hurt London because you have some sense that you know oh we need to spread uh incomes and wealth more evenly across the country. I think especially today as as Christian points out there are really big benefits of a lomeration of having cities with lots and lots of people with a huge number of varied and and often highly specialized skills which in many cases you can only really get in large cities. um it's it's much more difficult to achieve that if you're you know if you have a lot of cities of say you know 200,000 or 250,000 and London is the only place in the UK that approaches that of that sort of level of scale that you might want for for a lot of these industries. So um yeah there is something to be said for London.

[00:13:53]>> Yeah David could this be a positive outcome of this? So uh I mean because if if London slows down relatively speaking it's not that say uh a lot of skilled people will then move to the aisle of white and that will become the next powerhouse but could there be say a positive effect for Birmingham, Manchester some other regional centers?

[00:14:12]>> I mean there could be there could be of course you don't want this to be zero sum and you know traditionally British governments have treated this in a rather zero sum way. you can't locate in London, you have to go to Birmingham or somewhere else. And it's never works out particularly well. Um I mean so many of these discussions come back to the same point really that you know what you need to do is improve the business environment generally in all sorts of ways in this country. Liberalize lots of things and sort of see what happens. And we're not really willing to do that.

[00:14:46]Maybe if we liberalized um you know the the planning system, reduced employment law, reduced um the burden of employment law, reduce the the burden of taxation on jobs, you would quite quickly get quite a different distribution of activity. But at the moment, we we just don't know it. You know, it seems to me it's possible that a future for London is just as a less elomerated city. that that's the way things are going. Um, you know, where where there's less of a sense of a core center and activity distributed around a wider area. After all, that's how American cities work. We don't think of that as being in Europe, but there's no reason why the greater southeast with liberalized planning laws, more working from home, um, could not develop in quite a different way. And we just don't know. So I think a policy says that says we must always have London at 10 million people and that should be a policy goal.

[00:15:46]I don't think that's a good approach. It it needs to be broader in the interest of the country as a whole.

[00:15:52]>> Well, the only thing I'll add and this is pure confirmation bias because this is one of my ongoing obsessions is the decentralization aspect. So the article said at various points that uh there are several national policy trends that uh yes they are national they affect the country as a whole but they have a disproportionate effect on London. So for the obvious implication would then be well why not have some decision something on building regulation. Surely this is something which you can absolutely do at the local level.

[00:16:18]There's no need for there to be a national and nationwide policy. So if you uh imagine say the the president of Switzerland dealing with building safety stuff that this this would just be seen as absurd then they say this is obviously a cantonal or local matter and why not do the same thing here and you could say this about uh various tax policies or even even on the Brexit side which the article mentioned a couple of times and I know this is a bit trickier but I remember David Lammy actually bringing this up in 2017 or so uh he hadn't uh quite moved on from the referendum result yet and he uh he was still saying well maybe London and on its own should stay in the EU while the rest of the country leaves. Now, this is a bit trickier because you would need a customs border, right? Yeah. But a bit eccentric, but why not? At least some some interesting models there to think about. Let's move on to our second issue, which is uh the cost of living issue. So, there there's actually been some positive movement. We started the week um talking about well voluntary price caps. I I don't really know what that is because you'd think uh if you keep your prices low voluntarily, that's not a price cap. That's just the price, right? That's is a bit of a strange thing, a voluntary price cut. But we we move from that to they're now government is now saying we may suspend uh or or maybe even permanently cut um what was the number about 100 tariffs or so and and have some VAT reductions on selected items and uh in that way address the cost of living crisis in that way. Um any anything positive in there? I mean given where we were starting from? Well, I mean, one should always give credit to positive stuff and reducing tariffs is good. We have been, you know, curiously reticent about doing this, I think, in Britain since Brexit. I I don't really know why. Um there is this theory that, you know, it's leverage in trade deals, but but I think we've perhaps done most of the big trade deals we're going to do. So perhaps for the time being, so perhaps we could we could change that.

[00:18:15]So that's um unambiguously good. Um, I wish you know the the Labour Party would speak and be honest about the fact they wouldn't be doing this if they hadn't left the the EU. But but that's politics for you. You know, the rest of the announcement today, which does include some new stuff, I think is less good. Of course, the hospitality industry will, you know, welcome reduced VAT. And it's true that other European countries often have some sort of reduced VAT for um uh for hospitality, but you know, in the end, this is just a kind of um temporary support mechanism really. It isn't a kind of isn't dealing with the structural problems that have been created by for the hospitality industry by Labour's own policies, unfortunately. And of course, all this apparently is being funded by yet another sort of shakeddown of the oil and gas industry. They've they've they're the ones who are going to be paying extra tax through a complicated restructuring of branch and um subsidiary taxation which no doubt the government is hoping nobody will really understand and that's how this is all funded. So, you know, good in very small parts this, but but really it seems to be a, you know, specific case of the general problem of, you know, the government doing damaging stuff and then having to resort to compensatory measures to deal with it. Uh, one thing layered on top of another, did you get massive complexity?

[00:19:49]>> Yeah. Yeah. I' I'd broadly agree. I think the uh the tariff stuff is the the one bit which I think is um uncomplicatedly a good thing. Um you know the and the government did also introduce some um did remove some other tariffs and agricultural goods uh last year for using basically the same justification. So um you know if if this carries on this is broadly positive. Um, I would say I'm really not a fan of this kind of tinkering around with the VAT system, especially especially with the sort of tinkering that they're they're currently doing where it is uh basically they're proposing uh cutting VAT from 20% to 5% for uh a load of things like uh children's tickets for the cinema, theater, um uh zoos, cinemas, And also, weirdly, um, children's meals on menus.

[00:20:54]And they've they've int they they've released they've released, uh, their own definition of what a, uh, a children's meal counts because currently there's no there's no definition for tax purposes.

[00:21:06]>> It sounds like a substantive meal.

[00:21:07]Again, >> no, but they've specified it's not about the quantity, it's about the uh the marketing. So an if a meal is primarily marketed towards children and would usually have a low would usually be a smaller portion than uh something else on the menu. It's classified as a children's meal. Now I imagine there are going to be lots of restaurants with who or you know lots of decent tax lawyers who are going to be suggesting things like oh well why don't we just introduce a load of uh clip art on our menu and say you know our whole menu is now a children's menu you know this is a this is a children's ribeye steak for my very large child >> revival of comic sands font >> yeah yeah exactly but >> we include a little toy like the McDonald's happiness Yeah, but but I think at at some level this gets to that it is just a gimmick.

[00:22:07]It is only this VAT cut is only in place for 2 months realistically. Very very few um very very few restaurants or or cinema tickets are going to introduce a completely new pricing system just for these two months and then try and work out okay what applies to children. you know, does it count if the parent buys the ticket for the child or if it, you know, does it have to be a child buying it?

[00:22:34]>> It's probably not even worth printing a new menu if it's gone into again in two months.

[00:22:38]>> Yeah. Yeah. Um and also like we have we actually have quite good evidence from previous examples of um uh of VAT exemptions. So when the previous government took uh that of tampons and ebooks um the there is actually really really limited evidence for that being passed on to consumers at least in the first two to three years. I mean there have been some studies from um other countries like Finland where they briefly got rid of um their version of that on um uh on haircuts. But in the vast vast majority of cases, at least in the short term, you don't really get it passed on to to consumers. It takes a few years for this to filter through, if it if it happens at all. So, I would be absolutely astonished if we if we see significant price drops over a VAT cut that applies to two months and one week and still probably a lot of people are not going to be very clear on what exactly it applies to. Yeah, it sounds like they're a bit desperate and just throwing around gimmicks. But again, we need to bear in mind where we were starting from. In the beginning of this week, I did an interview yesterday about uh the the so-called voluntary price caps and um and moving on from that to basically anything other than that is a positive development. What I'm foreseeing though, and that this I think would have been an issue with the the supermarket policy as well. Uh it's all well and good to suspend some tariffs for say tropical fruits uh because why not? But then uh the next step is going to be that this is going to apply to some things that are officially labeled junk food. And Chris Snowden would know more about this. The basic problem here is that uh well when we hear the the the name junk food, we think of Burger King and McDonald's. uh the government's definition at least in so far as they apply it to say advertising bans and so forth is so encompassing that almost everything could be labeled other than maybe apples and pears could be considered junk food and then you will have somebody saying ah well they're caving in here to the junk food lobby and they're now importing this stuff here this is bankrupting our NHS and and this will fuel the obesity >> crisis uh I don't I haven't seen anyone with that hot take yet but I'm sure we yeah well because uh the tariff the tariff cuts do apply to biscuits and chocolate or also dried fruit. Uh so maybe that's to balance it out but uh >> big dried food and big yeah bankrupting our energ and and you know we have already seen slightly depressingly um at least one conservative party spokesman coming out and saying think we think of the farmers you know well worry about tariffs on on on food production. So, you know, the lobbies are everywhere and um it will take some pressure to to resist these. I hope the price cap, whatever it is, um for supermarkets is dead. I'm not 100% sure, uh of that. I mean, in a way, of course, what they were suggesting, you know, is even worse than a price cap. Uh it's a sort of it it's a kind of um you know, it was in return for removing regulation. this sort of, you know, do what we want or we'll send the boys with the clipboards round and make sure you uh, you know, you comply and, you know, that sort of informal compliance is isn't, I think, in many ways worse than just having a law leaves everybody knowing where they stand.

[00:26:18]>> Yeah.

[00:26:19]>> And it's kind of tempting, I think, to the Labour Party to do it in that informal way. So, I worry that we haven't seen quite the last of it. Last thing of course I I mean even if that's gone there are this is price fixing you know they they this the chancellor who spends 1.3 trillion every year is up there with the spouse box telling us what the price of bus tickets and so on is going to have to be. She's setting it as zero uh for children between five and 15. And I think this is all part of the wider thing we've talked about before the war on prices. And yeah, these things are just numbers.

[00:26:57]>> Yeah. I mean on the on the bus thing, I think what what will be interesting actually cuz obviously we we haven't really talked about this much, but this is all downstream from the straight of horses is still closed. You still have 20% of the world's oil supply that is not getting onto world markets. You're still having massive cuts uh in the supply of fertilizer. So what I actually find most frustrating about the last two to three months in British politics is despite Rachel Reeves having made such a big thing of her being, you know, having an economics background and having worked in the Bank of England, etc., etc., there's no attempt to explain the basic economics of the s the situation we're in to the public, which is basically there is less stuff available in the world. there is less stuff that goes into the production of a lot of other stuff. We are poorer as a result.

[00:27:56]Instead, you've got all of this flapping about which I don't think I certainly don't think Rachel Reeves or or Kmer actually believe about, oh, we're we're really going to crack down on the proiteeers in at the TE uh at the the petrol forcourts or we're going to, you know, introduce voluntary price caps or whatever. Yeah, look at them with their 2% profit margin. Well, well, yeah, they're one one point. And and it's it's even even when it doesn't go anywhere, which I think, you know, these uh the the price cap thing probably won't given how the the supermarkets have responded to this. is that it fixes in the public's mind this idea that well, yeah, that prices are just this arbitrary product of greed and that um you know, if if they go up, well, it's the government's job to to step in and command they come down. And that that's something that the government has the ability to do and the duty to do. and and this sort of solidifies a really unhealthy mindset in the public that leads to, you know, much much worse economic policy.

[00:29:13]>> Yeah, that's been my issue with it as well as I said this yesterday that maybe it won't even happen or if it will, maybe it happens in a symbolic way where it doesn't actually have any impact. Uh maybe they just call something that they would have done anyway, the voluntary price cup or whatever. But it's still it's still the case with bad policies quite often that they uh there's the policy as such but they also act as a story as a communication device. They encapsulate a worldview. In this case this is about uh prices are determined by greedy people being greedy. Sometimes they forget being greedy and then uh prices stop rising but then they rem again oh we we're the bastards and we want to be greedy and then things uh are bad again. And well that leads us I guess to our final topic which is the wealth tax that is not a wealth tax. So um who who was it who who came up with this? Is it worth treating? Yes. Um well it's essentially he wants to raise capital gains tax um to align the capital gains tax rates with income tax rates. He he calls that a wealth tax and he does that obviously because that is the the policy of the hour that that's everywhere. That's uh the the big Zack Pollinsky selling point. And of course Gary Stevenson with his millions of YouTube subscribers on on that basis. Uh they're trying to do a bit of what George Osburn was doing 10 years ago when he called started calling the minimum wage the living wage and that was because there was well there were several campaign groups that were the living wage something the living wage this and just adopting that label. He thought he could somehow win the sympathizers over it. it didn't work for him and I don't think it's going to work this time. The one good thing I'll say about West Streeting's wealth tax is that it isn't an actual wealth tax and therefore it avoids the main problem which is the the valuation issue. So um and that's been that's always been even some of the sympathizers of wealth taxes concede that point and uh that when you tax wealth you need a database u you need people who run around the country basically uh either physically or virtually and value everything that could potentially be liable to a wealth tax. Um and I remember I was I was on a panel um in December with uh with Vince Cable and and he said wait why is that a big deal? I get letters all the time from estate agents. They offer me to to value my house. So, of course, it can be done. And I said, "Yes, of course, but they're not going to do that for free."

[00:31:36]These people would all have to be brought into a state bureaucracy or maybe they'll outsource it to actual estate agents or whatever the mechanism would be. You don't have that with capital gains tax because there the principle is that you pay it when you sell something. You pay it on the the increment in value. You you buy an asset today for £100. You sell it next year for 150. Well, okay. We'd obviously be below the threshold, but that with bigger numbers, you you've made a capital gain and you pay tax on that on that gain. Now, there's a transaction happening and the transaction provides the valuation. So, it wouldn't be Vince Cable's estate agents running around and and doing that for money. You have an actual transaction. The downside though is that that's an incentive to hold to uh just hold on to an asset uh and not to sell it or or to delay it for as long as possible in order to avoid the tax. And if you pay it in the future, it is effectively less uh it is worth less because money in the future is worth less than than money today. And that is one of the problems with it. You hold onto assets that you don't actually want to hold. You just do it for for tax reasons. But otherwise, um, what do you make of this? Is this just to show that, uh, Zach Pollinsky and our our old friend Gary Stevenson, are they setting the policy agenda now? What's happened there?

[00:32:55]>> I mean, I what I really liked about this was he he described this as a wealth tax that works. And it works in the sense that it's not a wealth tax as you as you rightly point out like in in no reasonable sense is this what sort of Gary Stevenson or Zack Plansky are talking about when when they're talking about a wealth tax. Um I mean in terms of the policy itself that there are some things to be said to be said for reform to to capital gains tax overall and and some of them uh you know streeting seems to have incorporated into his proposal. So one idea he has incorporated is the idea of um reintroducing inflation indexing. So current currently we have um a system where it it doesn't account for inflation. So So let's say you um let's say you invested £100,000 in a company in in 2016 or so and then you hold on to it for for 10 years until today and you know the company's done okay but not brilliantly. you know, got hit bad bad badly by COVID and you sell it today for £150,000 in nominal terms. Now, for capital gains tax purposes, you now have to say I have gained £50,000 on my £100,000 in the last year uh in the last 10 years. But in terms of inflation, basically 40 40 plus thousand of that has just been eaten away in an inflation. So you've really only gained £10,000 in in cap uh in in real terms from this investment. And yet with a under the current terms with a 24% capital gains tax rate, 24% of 50,000 is £12,000. So it's perfectly possible to end up in a situation where you actually um have a marginal tax rate on capital gains of over 100%. Mhm.

[00:35:11]>> Um, so one one of the reforms that is often talked about is reintroducing inflation indexing so you don't have these sort of ridiculous situations where people can who are actually investing um can be screwed over by the system. Um and you know the the idea of uh linking um linking capital gains tax rates to income uh income tax rates is not in itself sort of mad communism. um you know uh uh Nigel Lawson introduced this in uh in the 1988 budget again in the context of uh inflation indexing and other measures that make it the overall burden sort of more reasonable. Um um but you know the it it's not as bad.

[00:36:10]It it's the proposals are certainly not as bad as any sort of a wealth tax but still could be still could be quite bad depending depending on the details because you know currently if you are actually uh applying you know a 45p rate to capital gains that would probably have an effect that you're sort of disincentivizing investment that's a bit risky because there is you know there is still a that you know you know when when you're receiving an income you can be pretty sure you do actually receive it whereas if you're investing a lot in various different companies um you know there are points on which you you don't make money and I think one one thing you could do is have smoothing over over several years so rather than having to calculate your capital gains in a single year you can sort of average it out over over five years or 10 years and that would help sort of address the the the risks that can uh that can pile up.

[00:37:16]>> Yeah, there was an IFS paper on this a while ago. They said in an ideal world, you would just uh tax the capital gains at the moment when they happened when the appreciation happens. It's just then you would have to keep track of all of the value of all the assets in the country and then you would be back to a wealth tax. But on that on that note, David, do you think there's anything positive to say about this other than it's not as bad as a wealth tax which is um not exactly high price?

[00:37:39]>> No. Um I mean indexation is important and um it was of course Gordon Brown who scrapped that justifying it on the basis that he'd also im abolished inflation entirely which looks a bit uh hollow in the light of events. But but even if of course even if you can hold inflation to 2% a year over time that is not nothing when you're considering capital gains tax. So it's a very bad decision generally I think. Um of course what it shows I mean what streeting is doing is is performing to the Labor Party audience and I don't know that it really tells you anything more than that to be honest. um you know the the the the the economic pros and cons of all this are are very well understood and yet this they're debating it anyway so you know what can one do we just have to let the polics play out and the political forces behind it >> on your point Christian about you know the transaction point that exists for capital gains tax of course >> one of the things that does happen even in a capital gains tax system is um uh the incentive for evasion increases in various ways. And uh to illustrate this, I remember um in one of my diplomatic postings um uh I I was living in a country where it was relatively common to kind of agree uh between buyers and sellers a uh a low price and put cash on the table between you. And so the taxation was at a uh lower level and I had to sell my car at the end of my posting and because I just wanted to sell it and go I had to uh sold it at a lower price and um the tax authorities suddenly didn't believe us imputed a higher price to it uh and um various sort of tax consequences followed from that. So what you you know even a capital gains tax system does not avoid the incentive to kind of dodge the tax the taxation in some way >> um and benefit from it. So you could easily see another round of um kind of anti- avoidance complexity and so on following from these sort of rules that just makes everything worse again.

[00:40:00]>> So you know that's that's none of this is particularly good really.

[00:40:04]>> Yeah.

[00:40:04]>> Yeah. Another effect that it could have is that it would lead to uh people investing in more conservative ways because um it's one of the arguments in favor of it is generally that if assets appreciate massively and um in all in one go this is just a speculative gain.

[00:40:22]It's not that you would adjust your behavior because you you want to avoid that kind of tax. If it's just attacks on brute luck then it doesn't change your behavior. But then again, you can anticipate uh you obviously won't know in advance what the uh what the price of several assets is going assets is going to be in five years or 10 years time.

[00:40:39]But you can of course we we do know some sectors some types of assets especially if we're talking about investment in companies are riskier than others. It could work out well if it's a startup company nowadays AI companies would I guess be the classic example. uh you you may see a massive appreciation, but it could also be that 90% of them will be wiped out over the next couple of years and uh you would then be incentivized to just go for safer options. Uh there's something to be said for safer options, but I don't see why the tax system should uh make you more conservative rather than if you're a risk taker, it shouldn't be the tax system, the the taxment that makes you behave in a different way. Is is that um a downside that we might see if we get the nonwealth tax wealth tax?

[00:41:25]>> Yeah, and I think so. I I mean you can foresee all these kind of effects and you know the truth is that um you know people pay more attention to these things and there are more perverse effects when the tax burden is going up and when the tax burden is going down people generally care about it a bit less because they feel that it's not worth the hassle of adjusting behavior that they would otherwise undertake for tax reasons.

[00:41:50]foreseeably for the next few years tax burden is going to keep going up and these incentive effects will be worse.

[00:41:56]>> Yeah. I mean this this is kind of a point that Julian Jessup our our IIA fellow made on on Twitter a couple of hours ago was that um you know some of the reforms that streeting is proposing to CGT would would be sensible if you're also redirecting this money to cut some of the other taxes on wealth that we already have that are far more penicious and cause far more problems. So, for example, you know, if you're if you're introducing this and then combining it with, you know, we're going to get rid of stamp duty, which according according to their estimates, it would almost exactly map the amount of money gained on uh uh on stamp duty gained from stamp duty. Um I'd say that was a a pretty fair swap, but that is not what we're getting, unfortunately. Unfortunately, we're getting a sort of higher tax burden overall to basically funnel more money into the public sector, you know, and my thing is even if you're coming at it from the perspective of um you know, public services are, you know, we we need to give them more investment. you know, over the first two years of this parliament, we've already increased the tax burden by60 billion pounds and spending in the public sector by about 80 billion. Um, so I'm not sure that another 12 billion is going to really have the transformational effect um that that you know people often ascribe to the wealth tax. Um yeah, but but I mean one one thing just before we end that I do think is interesting and and useful is about the kind of politics of this and the fact that streeting has decided to frame something that is not a wealth tax as as a wealth tax and whether there are kind of lessons for that more broadly because you know on paper wealth taxes are very popular but basically every you know everyone who has seriously looked into this is like they they don't work very well. Um so you know could we not rebrand council tax as a wealth tax or inheritance tax as a wealth tax or or and then just sort of you know say we can all go home.

[00:44:28]>> Well I guess that's going to be my next paper. uh we should just build lots of houses and we will call that a free market wealth tax because it will reduce the wealth holdings or at least the property wealth of those who are already wealthy and it will redistribute it but in a free market way which is non-distortionary and wealthenhancing.

[00:44:44]I'm afraid that's all we got time for.

[00:44:46]Don't forget to subscribe and I hope they keep the policy announcements coming even if they're terrible because at least that gives us something to rant about.