Increasing the interest rate to 5%, is this really the fairest way to slow inflation?

VAT replaced purchase tax and was a consequence of us joining the EU. I think it's still seen as being a more progressive tax because poorer people pay a lower % of their income than those who are better off and there are still many essential goods that are free from VAT or have a lower rate of 5% eg home energy. I think I'd like to see a wealth tax similar to the one they have in France eg anyone having assets of say £1.5m or more would be subject to a progressive annual tax. I think it would help to keep house prices down as for many of us, it's the value of our homes that constitute our greatest asset.

Doodledog

I'm sure that when VAT came in (I was a child) it was genuinely charged only on 'luxury' goods, but that is no longer the case. I don't see it as a 'fair' tax at all.

It's not Doodledog. It's very regressive.

Germanshepherdsmum

Why are you consistently so rude and aggressive towards me, Daisy? We have different views on many things but that is no excuse.
Rent controls were introduced in 1915 when nine tenths of the housing stock was privately rented, By 1988 the figure had fallen to one tenth and it was considered that this was largely due to rent controls, which were abolished by the Housing Act of that year.
I expect many tenants lived very happily under housing control but the figures demonstrate that landlords did not.

And you consistently make declarations with no argument to support them. That is incredibly insulting to the rest of us. Why are you so rude?

You should know by now that people tend to reply in the same tone as the post they are replying to. Expecting people to accept what you say, just because it is you saying it, is always likely to raise hackles.

I'm sure that when VAT came in (I was a child) it was genuinely charged only on 'luxury' goods, but that is no longer the case. I don't see it as a 'fair' tax at all.

DiamondLily

I'm paying tax on all my pensions. If any increase is needed, I'd sooner it was on VAT - essential goods aren't taxed, and we have a choice whether to buy the rest.🙂

Of course you would rather it was VAT. That way the poorest pay the highest proportion of their income should they ever dare to want something others don't consider essential.

Why not kick them when they are down? It's been happening for the last 13 years!

Why are you consistently so rude and aggressive towards me, Daisy? We have different views on many things but that is no excuse.

I agree that there is no need for rudeness. This is just a discussion, and people are put off joining in when they feel that their character will be assassinated just for having a different opinion.

All the same, GSM, you haven't convinced me that rent control is not a good idea. If landlords weren't happy, what would they do? There seem to me to be two options - live with it or sell up. In both cases renters would have more chance of being able to save for a place of their own, and find something more affordable than they could now. Hard lines on landlords, maybe - but if we are looking at what is fairer for the country as a whole, a solution that allows everyone the chance to have a decent roof over their heads that doesn't cost them so much that they can't enjoy it is far better than one which allows those who can afford several houses to have a guaranteed income.

Rent control not housing control.

Why are you consistently so rude and aggressive towards me, Daisy? We have different views on many things but that is no excuse.
Rent controls were introduced in 1915 when nine tenths of the housing stock was privately rented, By 1988 the figure had fallen to one tenth and it was considered that this was largely due to rent controls, which were abolished by the Housing Act of that year.
I expect many tenants lived very happily under housing control but the figures demonstrate that landlords did not.

Germanshepherdsmum

Rent controls would be another nail in the coffin of the private rental sector.

You are not the Oracle of Delphi GSM. Why should your views above be the case? What is your thinking on this?

Many people lived very happily under rent control in the past. With better regulations than we had then, I'm sure they could again.

You seem to have a belief in an almost oligarchic capitalism. However, I really doubt that's what everybody wants.

Batworthy

Increasing interest rates has never slowed inflation when implemented on 13 previous occasions, so I'm baffled as to why our nutty government thinks it will work this time.

Wondering where you found that information please?
I wouldnt mind reading that article.

I'm paying tax on all my pensions. If any increase is needed, I'd sooner it was on VAT - essential goods aren't taxed, and we have a choice whether to buy the rest.🙂

Doodledog

But (and I'm no economist either!) how will what you are suggesting reduce inflation?

I am absolutely in favour of increasing taxes, and yes, that would (up to a point) be fairer, but those who don't pay income tax don't get 'hit' by that either - it is workers on PAYE who subsidise non-workers whether or not they are better off, and VAT hits the poor more than the rich.

Balancing the economy is always going to have winners and losers, but the balance between saving and borrowing tends to be swings and roundabouts over a lifetime.

If people don't pay income tax because they are on benefits or very poorly paid, then definitely they should not be targeted. I'm retired, I pay income tax, so does my OH. I'm a bit confused about who you mean! With VAT the more you spend the more you pay and some essential goods are VAT exempt, so more wealthy people pay more because they buy more. I'd put up VAT on luxury goods and foreign travel just as a starter. Yup over the years the balance between savings and borrowings swing back and forth but only for those who have savings and many people literally live from one pay check to the next.

Doodledog

But (and I'm no economist either!) how will what you are suggesting reduce inflation?

I am absolutely in favour of increasing taxes, and yes, that would (up to a point) be fairer, but those who don't pay income tax don't get 'hit' by that either - it is workers on PAYE who subsidise non-workers whether or not they are better off, and VAT hits the poor more than the rich.

Balancing the economy is always going to have winners and losers, but the balance between saving and borrowing tends to be swings and roundabouts over a lifetime.

I'm not an economist, either, but I think I can apply logical thought to the various economic theories and have been doing this for the last few years because I find it interesting.

As regular N & P posters will know, I, and one or two other posters would say that state spending comes before taxation, but, if people are worried about the the tax take, one of the most obvious solutions to the current pressure on people's incomes is to give pay rises which are close, or equivalent to, inflation. Particularly for the public employees whose wages have fallen far behind over the past decade. This would automatically increase the tax take, both income tax and NICs, and from VAT as they spend their incomes into the economy. Increased wages for public employees would not be inflationary because increasing them would have absolutely no effect on prices. (Besides which, some research shows that the wage/price spiral is basically a myth so long as wage increases don't exceed inflation.)

Not only would it increase the tax take via direct taxation, but it would sustain businesses, both those which supply the public sector and those patronised by public sector workers. Which would also increase the tax take.

Norah

Foxie48

Unkind reply, Doodledog never advocates for poor becoming poorer.

I didn't say that she did, "The rich get richer and the poor get poorer. If you are OK with that, there's nothing more to say." is what I said, giving her the opportunity to reply if she disagreed or not. Please don't put words into my mouth.

But (and I'm no economist either!) how will what you are suggesting reduce inflation?

I am absolutely in favour of increasing taxes, and yes, that would (up to a point) be fairer, but those who don't pay income tax don't get 'hit' by that either - it is workers on PAYE who subsidise non-workers whether or not they are better off, and VAT hits the poor more than the rich.

Balancing the economy is always going to have winners and losers, but the balance between saving and borrowing tends to be swings and roundabouts over a lifetime.

its taught me about equality (or lack of it!)

I come from a working class background and I married a man from a similar background. We were both lucky enough to be able to take advantage of higher education and we both became teachers. Where I really learnt about lack of equality was when I was teaching in an ordinary state school but my husband got a job in a fairly minor, but good independent school. It was probably because he graduated in Classics and they wanted a Classics HofD. Anyway having seen the advantages that children in his school enjoyed, I became determined that my children would have those advantages. I went back to work full time when my youngest was five so that my oldest could start senior school in my husband’s school. It was hard work raising three young children and working full time, but I don’t regret it for a moment. As a result, they all achieved extremely well.

Foxie48

Unkind reply, Doodledog never advocates for poor becoming poorer.

I wouldn't increase bank rate to control inflation because it targets the wrong people. BTW I am aware that the BoE is not under govt control........I am not an economist but a higher interest rate will just put ordinary families, whether they are renting or with a mortgage, under huge pressure. Those of us who own our own homes mortgage free, don't get hit at all. How can that be right? I don't have a problem with people being wealthy but when times are hard I think we ( and I am quite well off) should pay our share. tbh I think it would be much fairer to increase taxes including inheritance tax. I have no problem with paying for my social care, should I need it and if this reduces what I leave my children, I really don't have a problem with that either. Home ownership causes the greatest disparity between those who have and those who have not, I am prepared to try to make a small difference. That's who I am and what I believe. For the record I come from a wc background and have married into an upper mc family with all the benefits. I love my extended family and feel fortunate to be part of it but my goodness, it's taught me about equality (or lack of it!)

Germanshepherdsmum

Rent controls would be another nail in the coffin of the private rental sector.

How? It would reduce the incentive for people to buy up houses for rent, but that would reduce house prices, surely? That would give people more chance of becoming owners themselves. There will always be houses to rent, as people can only live in one at a time, and death, divorce and work moves will always leave people with properties they don't need, even if only temporarily.

I think that social housing is a more important priority though.

Of course I'm not OK with the rich getting richer and the poor getting poorer. There is really no need for that sort of personal dig - a point can be made just as well without them, and it is not remotely true.

I did buy a house just before interest rates rose - twice. Both times we really struggled when the monthly payments shot up, and the second time round we fixed for 5 years at 16 or 17%, as we really thought they could go as high as 20%. There was no bank of mum and dad for us, either.

I am not at all unsympathetic to the plight of young people, and nothing I said would suggest otherwise unless someone is determined to see it. As I actually said, I don't know if the move is a good one economically, but I don't think it is 'unfair'. There is nothing fair or unfair about market forces - how would you regulate mortgage rates to be fair, Foxie48?

Rent controls would be another nail in the coffin of the private rental sector.

Doodledog

I don't know if increasing rates is a good idea for the economy as a whole (or whether it will slow inflation), but I don't think it's particularly unfair. Mortgage rates, like savings rates go up and down, and this should be taken into account when people take them out.

Buying a house (or 'purchasing a property' as many prefer to call it ) is a gamble and always has been. There is no guarantee of anything, yet people seem to think that they have been swindled if they don't make a fortune.

There have always been 'corrections' in the housing market, and yes, it's grim for the casualties (of which there were many in the late 80s/early 90s) but those same people would very probably have been delighted if the houses that cost them dear had instead made them a huge profit and cost someone else an arm and a leg when they sold it to them.

I think we need far more social housing, and rent controls on private rentals. That would give people more options and would ultimately be likely to bring house prices (and thus mortgages) down too.

I totally agree with having more social housing but private rentals will be just as affected by mortgage rates as buying a house. Let's be realistic here about the actual situation faced by so many people now, if you had been faced with paying a high rent or scraping together enough deposit to buy a house when interest rates were so low, what would you have done? Also try to factor in the repaying of student debt at 9% for those with a uni education. Those who were able to buy with the help of well off parents, probably don't have the student debt, probably have had a better education and got a better job and have had help with their deposit. The rich get richer and the poor get poorer. If you are OK with that, there's nothing more to say.

Good post Doodledog.

I don't know if increasing rates is a good idea for the economy as a whole (or whether it will slow inflation), but I don't think it's particularly unfair. Mortgage rates, like savings rates go up and down, and this should be taken into account when people take them out.

Buying a house (or 'purchasing a property' as many prefer to call it ) is a gamble and always has been. There is no guarantee of anything, yet people seem to think that they have been swindled if they don't make a fortune.

There have always been 'corrections' in the housing market, and yes, it's grim for the casualties (of which there were many in the late 80s/early 90s) but those same people would very probably have been delighted if the houses that cost them dear had instead made them a huge profit and cost someone else an arm and a leg when they sold it to them.

I think we need far more social housing, and rent controls on private rentals. That would give people more options and would ultimately be likely to bring house prices (and thus mortgages) down too.

People forget we had tax relief on mortgages back in the 70sand 80s. House prices were much lower and a much lower multiple of income. Many could afford for the wife to stay at home. It is much more difficult now. If we were young teachers in London now we couldn’t afford the house we bought back then as young teachers. We were lucky - not more financially astute- we shouldn’t try to pit generations against each other.