PERSONAL ACCOUNT

If we are allowed to keep our money, why express that as a ‘cost’ to the state?

There is a creeping tendency among politicians and commentators, including Conservatives, to talk about the “cost to the Exchequer” when what they really mean is the public getting to keep their own money.

Government departments have long set the tone on this, but now it’s gaining hold.

Take a recent HM Revenue & Customs update bearing the title “Estimated costs of principal tax reliefs”. The subhead is “Tax expenditure”.

What follows is an exhaustive list of circumstances in which taxes are not applied to our incomes or savings. For example, taxes don’t apply to income earned on cash inside an Isa. Nor do taxes apply to Premium Bond winnings. Neither does VAT apply to food or to certain disability aids; air passenger duty doesn’t apply to children aged under 16. And so on.

Call me a pedant, but there’s a difference between money to which the Government, under current legislation, has no entitlement and actual expenditure by public bodies. But in the politicised vocabulary and illogic of HMRC’s document, as just one example of many, that distinction vanishes.

If people are allowed by law to keep their own money, under what distorted rationale can that be described as an

I do not, for example, accept HMRC’s claim that £130m is the annual “expenditure” somehow implicated in Premium Bond winnings.

Premium Bond prizes have never attracted tax. That is the very point of them. They were invented with another purpose in mind: the function of saving the Treasury money by reducing the usual costs of borrowing through the issuing of gilts.

It is at best irrelevant, at worst specious, for the taxman to attempt to calculate a figure for tax forgone where tax is not, and was never, due. Its footnotes claim that it is showing the “effects of taxing the income generated from assets held in these accounts”. But that itself is an astonishingly tenuous assumption: with so many changes in recent years to the taxation of savings, and in any case the collapse to near-zero of savings interest, in what scenarios would the money in Premium Bonds now attract tax anyway? The £130m figure has no meaning. Many readers will predict where I am heading with this. Pensions.

One of the biggest “costs” to the Exchequer – and one that is growing rapidly, if you subscribe to HMRC’s distorting snapshots – arises because of the law that allows us not to pay tax on our earned income if we put it in a pension.

Saving into pension schemes “costs” HMRC £24bn a year, plus a further £17bn in lost National Insurance contributions, giving an alarming total of more than £40bn for the year 2017-18. The equivalent figure for 2013-14, the taxman calculates, was about £30bn. With those huge and rapidly growing

One of the Conservatives’ least forgivable moves has been to limit the size to which an individual’s pension pot can grow during the course of his or her life.

This is very different from limiting, for example, the amount of money you can a pension. The latter at least has the merit of fairness in that everyone would face the same limit. The wickedness of a lifetime cap is that it taxes those who save early and invest successfully. High earners in their 20s – such as sportspeople, whose earnings span is often brief – are especially disadvantaged.

Ultra-high earners, especially if young, have now been virtually excluded from Britain’s pension system