Skip to content

Savouring the Taxing Wealth 2024 Report

Just to run through what I’ve understood of Ritchie Murphy’s latest gut spasm about taxation.

A number of things that are stated as necessary.

Horizontal equity – therefore the source of the increase in financial well being doesn’t matter. All should be taxed the same way. Therefore capital gains should be taxed like income. Further, an increase in uncrystallised capital gains should be taxed like income.

There should be a 15% unearned income supplement to the standard income tax rate to account for the absence of NI on higher incomes.

Uncrystallised, untaken, capital gains should be taxed as income.

There should be no inflation indexing of capital gains.

Finally, and the leap I’m adding here, is an implication of that it doesn’t matter what that source of increase in financial position is. I take this to mean that an increase in the capital value of a defined benefits pension should be taxed the same way as an increase in the value of a defined contributions pension. Which should both be taxed the same way as just an increase in the value of savings that might be used to pay for old age. Or, in fact, savings that should be used to pay for anything else.

So, let’s run through the effects of that.

Capital gains are to be taxed at the top marginal rate of the recipient. 40 to 45% then.

There’s a 15% surcharge on investment income. 55 to 60% then.

There’s no indexation allowance.

Defined benefits pensions should be taxed as defined contribution, both the same as an increase in simple financial assets.


So, civil service pay – or say the pay of a GP, like the Spud’s wife – rises 10% simply because of inflation. Given the last year or two we can imagine that pretty easily. OK, the pay related pension rises by 10% because it’s defined benefit with a link to pay. The standard calculation is that the capital value of a defined benefit pension is 20x the annual income from that same pension. That’s an underestimate but that’s what’s used.

So a 10% rise in this year’s pay leads to a 200% of this year’s pay rise in the capital value of the defined benefit pension. All rises in financial wealth are to be taxed the same, at that 60%. The tax bill – for those with a defined benefit pension like civil servants and GPs – of a 10% rise in pay will be 120% of this year’s total wages.

Has anyone told Mrs. Murphy yet? And can we all just be grateful that lithium is getting cheaper as more mines open?

Yes, there is a joy at the idea of senior civil servants – and GPs – facing a 120% tax on this year’s income just for an inflation matching pay rise. But that is where Spud’s logic and insistences take us.

Now yes, I have gone to the extreme with this. But we can relax my conditions and still end up at the same place.

OK, so defined benefit pensions will be privileged. But let’s say share prices rise 10% (a not unusual variance in stock markets) and you’re nearing retirement age. Your pension fund – defined contribution, or even just plain savings outside a formal scheme – rises 10%. On, oooh, £300k say? So that’s a £30k increase in capital value – £18,000 in tax please. Oh, and you don’t get a tax credit if the markets fall. House prices rise – 60% tax on that. No credit if they fall tho’.

Yes, I’m aware that the numbers are different in the two cases. Because the rise in the value of a pension fund is the capital value of all the future pension payments. The rise in the capital asset like shares or the house is the rise in the value of just that thing. There’s not that net present value thing to consider which is why the multiple.

So, can we all just agree on crazed loon on the loose here? Good, thank you.

Because there’s one further joy. We’ve been told that the behavioural responses to these tax changes will be much of a muchness. Will even out to no change, no change really, in labour supply. Folk are going to face 120% of annual income tax bills because of the change in value to their pension from a 10% catching up with inflation pay rise? And this won’t cause changes in labour supply?

As I’ve been pointing out for more than 15 years now, man’s a loon.

54 thoughts on “Savouring the Taxing Wealth 2024 Report”

  1. Is it not the case that the capital value of a DB pension is deemed to be 200% of the income benefit projected from the pension itself, not of the income that provides the contributions? I may be mistaken, but I think that would remove a chunk of the tax bill in your calculation.

    Probably not enough to undermine your main point but…

  2. As I’ve been pointing out for more than 15 years now, man’s a loon.
    Set against the current government’s policies on transport, energy, immigration…. he seems entirely sensible.
    Lunacy is the new erudite.

  3. I’ve challenged Spud multiple times in this (under various different names) but he obviously avoids the question and it would highlight his ignorance:

    1) his proposal to remove higher rate tax relief on pensions – given that he explicitly said there will be no increase in employee contributions (or reduction in benefits), he is simply expecting the taxpayer to pick up the tab, leaving public sector employees unaffected. Of course private sector employees, predominantly in DC schemes, will suffer an immediate reduction in their pension schemes.

    The fact that Spud is a beneficiary of public sector DB schemes (and hence unaffected by the proposal) is entirely coincidental, I’m sure. So much for ‘horizontal tax equity’.

    As Tim points out, financial wealth comes in many forms. For consistency (aka horizontal tax equity), a wealth tax should be applied to all wealth (or increases in wealth) which would include DB pension schemes.
    The true annuity factor for these inflation-protected schemes is typically closer to 35 than the 20 which was in legislation for the lifetime limit (yet another generous benefit for the public sector which goes unrecognised).
    Spud repeatedly ignores this, and refuses to publish any of my comments on his blog, as it would show up his ignorance.

    The man is an arrogant, ignorant, hypocritical c*nt of the highest order.

  4. As soon as enough people realise that he wants to tax – at their marginal income tax rate plus 15% – the increase in the price of their home every year and that a large part of the proceeds will go to pay the army of estate agents needed to calculate the price of every owner-occupied (or owned by a private sector landlord) house in the country every year, his idiocies are likely to be disowned by Starmer and every other lefty who actually wants to win an election.

  5. Is the 20 times pension on the low side, I have seen valuations up to 40 and am unsure if that allows for the GPs scheme is better than most DB pensions and given their jobs a long life expectancy should boost it further

    He implies pensions should be treated as a benefit in kind with income tax payable at marginal rate less a basic rate credit plus 15% NI

    For an average GP partner income 140k * 60% pension cost *40% =33.6K extra tax

  6. @ Michael
    20 times is the figure used for calculating “Life Time Allowance”
    40 would be more appropriate for Civil Service Pensions which are fully inflation-proofed – in contrast with Private Sector Pension schemes which are not allowed to be fully inflation-proofed.

  7. “in contrast with Private Sector Pension schemes which are not allowed to be fully inflation-proofed.” Really? When was that introduced?

  8. @john77

    There is absolutely no reason why a private sector scheme cannot be fully inflation-linked – they typically aren’t due to the high cost.

  9. So a 10% pay increase for someone in a DB scheme leads to 120% tax on income. By his previous “logic”, an extra tax burden means they will choose to work more in order to earn more to maintain their standard of living ……. oh dear.

  10. Tim, you should know by now that Murphy’s tax rises will never apply to him. So defined benefit pensions will be excluded (as he will be dependent on his wife’s NHS pension) and any tax on properties will only start when the property value is more than £500k (the value of his house).

  11. As a simple worked example using the UK tax year and ignoring inflation: The FTSE-100 dropped by 20% in the year to April 2020, and then rose a little over 20% by April 2021. With an aymmetric wealth tax, that would imply a tax of 20% of “gains” on a fund tracking the FTSE despite a significant net loss over that period.

    …since April 2021 the FTSE has risen a further 10% or so, bringing it back to the original level, but with an overall tax on 30% of the overall investment for “gains” that are entirely an artefact of the valuation dates. In fact, any investment held through an economic cycle would be exposed to similar tax rates which could more than offset any gains through growth (I didn’t check). So obviously the whole concept is utterly absurd.

    Of course, no sane government would implement such a policy… but then sanity seems to be in short supply these days.

  12. One major flaw of taxing unrealised capital gains is that the required valuation does not include the effects of supply and demand.

  13. Potato Chips

    Spot on in your description

    He is certainly as close to pure evil as any political commentator I’ve seen in cyberspace. A man bereft of sympathy, human kindness, empathy or basic courtesy, he embodies everything that has destroyed the country over the past century.

  14. So if there’s no allowance for losses, does that mean a portfolio of shares is taxed on all the ones that go up, but ignoring the ones that goes down? So in any given tax year a portfolio could be level (or indeed down overall) but still incurring a tax charge?

  15. Any guarantee of full inflation-linking of a DB pension scheme by an employer is an acceptance of an unlimited liability and the company would be, technically, potentially insolvent. Hence when BT was privatised the liability for pensions relating to past service, which included unlimited inflation-proofing, was covered by a government guarantee.

  16. @john77

    The liability for a pension scheme is not based on what ‘techically’ could happen in the future, not least because the liability could easily be hedged with inflation-linked bonds.

    Of course in practice, to manage costs (as much as risks), the inflation linkage typically refers to CPI or LPI rather than RPI.

  17. So, there’s horizontal tax equity, and vertical tax equity.

    What the hell is the word “equity” actually supposed to mean in all this?

  18. @ Potato Crisp
    When inflation-linked bonds offer a negative real return, which has been the case for the large majority of the time since the Blair/Brown government effectively mandated their use by insurance companies to match liabilities, one is unable to use them to *guarantee* solvency. Long-dated baked beans have offered a better real return than long-dated gilts.
    If one hires an 18-year-old school-leaver or a 21-year-old graduate, anticipating that he/she will work for forty years and then retire with a DB pension two-thirds final salary then one is looking at the prospect of the value of an index-linked gilt halving during the time that one is paying their pension.

  19. “Uncrystallised, untaken, capital gains should be taxed as income.”

    Where does he say this?

    Because in response to my alter ego ‘Andy Boyd’ he’s just said the following:

    “Richard Murphy says:
    September 14 2023 at 1:49 pm
    I am not proposing unrealised gains be taxed
    I have said no such thing”

    So has he said it or not?

  20. Jim

    I don’t think even be’d be stupid enough to say it out loud – it’s very strongly implied but unless he’s completely gone senile then he’s merely implying it. His response to any criticism is simply to say ‘I hadn’t said that – point out where it is’- very reminiscent of a relative of mine who worked with him. Effectively he can make any blanket comment about ‘fascists’ or ‘neoliberals’ and make up patent bullshit but call him on flaws in his approach and you have to specify clause and sentence. His son got a 2:1 from Aberystwyth which perhaps is why his output today has been mercifully lacking. Apparently one of the next posts is on ‘Private schools’ which I’m looking forward to like an episode of ‘Mrs Brown’s boys’

  21. @Jim – “does that mean a portfolio of shares is taxed on all the ones that go up, but ignoring the ones that goes down?”

    Most likely. What you need to remember to understand the left when they talk about tax is that they are frequently motivated by extreme greed (which might also explain why they complain about greed so much). The whole purpose is to extract as much money as possible and then keep people poor so that they are forced to rely on the state, thereby allowing the state ever more control over the population.

  22. ‘When inflation-linked bonds offer a negative real return, which has been the case for the large majority of the time since the Blair/Brown government effectively mandated their use by insurance companies to match liabilities, one is unable to use them to *guarantee* solvency.”

    This is absolute nonsense – where are you getting this from?

  23. @ Potato Crisp
    Which bit do *you claim to be* nonsense.
    If the real return on index linked gilts is -1%, then an index-linked pension of £1 in 2023 money to be paid in 2093 will cost > £2 today, if it’s -2% then it will cost £4 today. Wages/salaries tend to rise not just in line with inflation but in line with inflation and growth in real GDP/head. Lots of arguments about growth rates (partly because Brown oversaw the introduction of an error in the formula for RPI so that RPI was understated by up to 1% pa under New Labour and growth was consequently overstated by up to 1% pa) but it’s of the order of 2% pa, so final salary – without promotion!! – will be c.2.2x starting salary. Average life post-retirement c.20 years, so the cost of a civil-service-standard 40-60ths index-linked pension funded by index-linked gilts is, at -1%, 1.4x nominal wage/salary , or at -2% 2.7x nominal salary.
    Do you think that anyone is able to hire school-/uni-leavers and get value-added of 2.4x (let alone 3.7 times) nominal salary plus NI costs plus HR costs out of them? *Which* company can afford to subsidise recruits to the extent of more than 100% of nominal salaries?
    Or are you just trying to be a joke based on Tim calling Murphy a potato?

  24. ‘Blair/Brown government effectively mandated their use by insurance companies to match liabilities”

    That’s bollocks.

  25. Potato Crisp

    I will yield to your knowledge and experience on that specific point – but surely you can’t be defending Blair/ Brown – even with the current mob it is still arguably the worst government in global history (given the context) let alone the U.K! indeed almost every problem we face can be traced back to that fateful period.

  26. @ Potato Crisp
    You were managing “annuity funds”, rather than Pension funds, but how did you fail to notice the abolition of ACT relief on dividends for Pension Funds? I don’t know any annuity funds other than those provided by Life AssuranceInsurance Companies, so I am amazed that the regulations on reserving for future liabilities didn’t apply to your employers. As a fund manager – presumably focussed on fixed interest – did you not notice that the yield on index-linked was lower than conventional gilts by more than 2% which was Brown’s inflaton target, and wonder why?

  27. You were talking about insurance companies being mandated to buy index-linked gilts to match liabilities, exactly what liabilities were you referring to?

    When DB pensions schemes are transferred to insurance companies the resulting liability for each member is an annuity.

    Changes to ACT were therefore irrelevant to insurance companies managing index-;inked liabilities resulting from DB pensions.

    It appears you are mixing up your liabilities which might explain your confusion.

  28. I was not talking about DB schemes being transferred to insurance companies as instances of those were extremely rare in the Blair/Brown era 1997-2007.
    I was talking about insurance company regulations wanting index-linked assets (or “equivalent security”) to match future expenses except those defined in terms of gradually debasing currency.
    Prior to 1997, the taxation treatment of my employer’s investment funds were pro-rated between Pension and Life Insurance in the ratio of the reserves held against our pension business (plus the Staff Pension Scheme) and our life assurance business [the relatively tiny “Shareholders’ Funds weretreated separately]. So the change to ACT was VERY relevant to that Life Assurance company.
    I am getting progressively less concerned about what *you* think since I was discussing index-linked assets to match liabilities which were not specifically index-linked, and I have not mentioned index-linked liabilities, so I find it ludicrous that *you* should claim that *I* am confused.

  29. So you are now claiming:
    “..since I was discussing index-linked assets to match liabilities which were not specifically index-linked, and I have not mentioned index-linked liabilities”

    And yet what you actually said was:

    “When inflation-linked bonds offer a negative real return, which has been the case for the large majority of the time since the Blair/Brown government effectively mandated their use by insurance companies to match liabilities”

    Oh dear…

  30. @ Potato Crisp
    Read 9.08 pm
    “Wages and salaries tend to rise not only in line with inflation but in line with inflation and growth in GDP/head. … but (growth) is order of 2%pa so final salary – without promotion!! – will be c.2.2x initial salary ”
    That is indubitably not an index-linked liability.
    So your comprehension skills could do with a bit more exercise than you have giving them this evening

  31. @ Potato Crisp
    You wrote “at no point …” 24 hours after I wrote that comment.
    You are just being annoying, without any sound arguments, in your attempts to be annoying

  32. No, you made a claim that was incorrect (or ant best anmbiguous) and were trying to backtrack to explain that what you meant and what you said were two different things. I now understand what you were trying to say.

    I will leave it there.

  33. @ Potato Crisp
    Now you are just making things up to try to justify yourself. Nowhere did I backtrack and any ambiguity was only in your imagination – it is nonsense to suggest that I, or any other Actuary with an IQ greater than his show size – would complain about matching index-linked liabilities with index-linked assets.
    It would have been obvious to anyone who was thinking about the subject instead of trying to “score points” that *your* claim that liabilities could easily be matched by index-linked bonds was patently erroneous through ignoring growth in real wages/salaries over time. Elementary textbooks on Pension Schemes hammered that into us decades ago.

  34. You aren’t the only FIA (or FFA) in this conversation, so have nothing to feel superior about.

    When a pension scheme moves to an insurance company (through a buy-in or buy-out) then that (normally, and certainly historically) related to pensioner liabilities, so the benefit link with salaries is broken.

  35. @ Potato Crisp
    There are several, to my knowledge. actuaries who comment on this site, so there is no question of my feeling superior.
    The value of pension liabilities moved to assurance/insurance companies through a buy-out is a very small percentage of total pension and life assurance liabilities. I don’t have the data any more but I should be very surprised if was as much as 1% prior to Brown’s tax raid. Future service liabilities did not disappear as a result – they only disappeared if the employer closed the scheme totally or to future accruals.

  36. Buy-ins were very much more common in those days, as compared to buyouts now, but yes, not a huge proportion.

    But this is where I don’t understand your point – Insurance companies were not taking on the liabilities for DB pensions for active members / open schemes. Only for pensions or deferred members where there was no future accrual and the link to salary was removed.

  37. @ Potato Crisp
    You seem to be regarding the “bought-in”/”bought-out” schemes as your universe, rather than as an asteroid. Insured Pension Schemes were far more common – admittedly some small schemes were DB fixed in money terms (mostly ones set up by benevolent employers prior to the Wilson/Healey hyperinflation) but many larger insured Pension Schemes were DB Final Salary schemes, including some where the insurance company did virtually all the administration apart from recording the salaries (which were notified to us by staff/personnel/HR department) and some where the insurance company handled the investment and little else.
    Insurance companies were not “taking on” the liabilities of these schemes because they already, and always, had them.

  38. Doing the admin is one thing, managing assets on their behalf is another thing.
    I’m pretty sure what they did not do was take on DB pension liabilities onto the insurance balance sheets where they had no control about future accrual rates due to salary increases.

  39. @ Potato Crisp
    It’s a long time ago but I’m quite certain that those liabilities of the pension schemes that we insured were on our balance sheet and so were the assets that we had purchased to match them. Some assets were segregated in a subsidiary company that dealt with the schemes for which we *only* provided investment, but they would still be on the consolidated balance sheet. In the latter case our risk might have been nominal, but you would be technically incorrect.

  40. My understanding would be:
    The Sponsor has the responsibility for its own Staff pension scheme, but it’s not part of the insurance liabilities (it still falls under DB pension legislation, not insurance legislation), but IS part of the insurance company balance sheet.

    Anyway this is somewhat academic now!
    Have a nice evening,

Leave a Reply

Your email address will not be published. Required fields are marked *