Fund Manager's Diary May 2020
Comment of the Day

May 06 2020

Commentary by Eoin Treacy

Fund Manager's Diary May 2020

Thanks to Iain Little for these two editions of his letter. The first is a somewhat tongue-in-cheek look at fat targets for future UK taxes. The second contains a fitting reminder of David's contribution to the field of behavioural analysis and a short summary of my thinking on markets over the last while. Here is a section from the former:

This Corona Lockdown has cost the UK government a whole chunk of change, about GBP 300bn.  The cupboard’s going to be pretty bare for a dose of pre-electoral stimulus in 2023.  The Resolution Foundation says that job subsidies could cost GBP 40bn a quarter; that’s GBP 160bn a year.  But there’s a simple solution and it’ll come with a cheer from the voters that really matter to you: the working class, pro-Brexit, patriotic northerners you won over to the Tory cause in 2019.  They’re the ones you need to win the 2024 General Election.

The key is the 2 million owners of UK second homes, worth GBP 1 trillion.  They’re in the Top 5% by income and wealth, and they’ve benefitted from the second mortgage, second home boom of the last 30 years.  That’s one trillion quid to be harvested and it simply can’t be moved.  OK, wealth tax is unknown in the UK, but people have gotten pretty used to it here on the Continent.

How about a patriotic 5% “special Corona” wealth tax on second homes?  That’ll earn you about GBP 50bn.  Then, as we move towards election time, a second home wealth tax tapering from 5% down to 3%.  That’ll scoop you another GBP 40bn a year.  Legacies from the oldest Baby Boomers will add to this taxable property pile, and you’ll be able to grab some Inheritance Tax at 40% on the way through.  You can apply the wealth tax retrospectively, to reduce tax dodges like passing title into the kids’ names, or incorporating.  (The Americans can’t do this retrospective taxation thing, as it’s prohibited by the US Constitution since the Brits tried it before 1776).

Eoin Treacy's view

As we travel further down the road of modern monetary theory, or perhaps more correctly debt monetization, the question of how it will be paid for is becoming more urgent. Raising taxes is going to be extraordinarily unpopular, but most especially in the UK where buy to let schemes have proliferated over the last 30 years. A broad swathe of the middle class has staked their retirement on the property market.

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