Paying for the pandemic

[Lootman]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it.

What about a case where someone worked for (say) 15 years and then had to stop due to illness or being laid off. Now suppose that person made sacrifices to continue to buy NICs for another 15 to 20 years in order to qualify for the maximum state pension amount.

Do you propose that that person then lose 100% of that pension because of means testing? Including the proportion of it that he paid for out of his own pocket in the reasonable belief that the government would honour its commitments?

The problem with your idea is that treats the state pension as just another welfare handout, when in reality it is completely different because it is earned via contributions. In other words it is more like an insurance contract than a welfare handout. Pension credit, on the other hand, boosts the pension of those who have not bought the stamps, and that is rightly means tested.

[NeilW]

Simply isn't true.

In that case you'll be able to give me the precise operational processes by which it isn't true.

And you can't can you. Hence why you cut out my explanation of how QE works - where the BoE can cap yields at any value they want all the way up the yield curve.

Or that the DMO could just as easily switch from an auction format to doing all its Gilt placements alongside or via the Repo market only if it gets the price it wants.

[dealtn]

Simply isn't true.

In that case you'll be able to give me the precise operational processes by which it isn't true.

And you can't can you. Hence why you cut out my explanation of how QE works - where the BoE can cap yields at any value they want all the way up the yield curve.

For primary issuance the DMO gets orders from the GEMMs, mostly for their own books, a very small amount is customer orders. The price is determined by this process with the DMO accepting the price as agent for the Government.

For secondary trading the market price is determined (mainly) by GEMMs trading with customers of that market determined by participants views on price (and yield). It is extremely rare for the DMO (or any other Government Agency) to be a counterparty in this market. There are a few other, but much smaller, trading venues for Gilts.

For QE the Asset Purchase Facility (APF) being an agent of the BoE, in turn an agent of the Government invites the panel of Banks, which are not exactly the same as the GEMMS, through a tender process to set the prices it wishes to sell across the range of applicable Gilts. By reference to the prices against a "snapshot" of the yield curve the APF accepts, or declines those offered prices.

In none of the 3 scenarios is the government, or any of its agents, the price setter.

That is the mechanism.

Alternatively can you provide the last instance where the government, or any of its agents, set the price for a Gilt transaction?

You have no "precise operational process".

Disclosure 25 years in the City as a Fixed Income trader, and senior manager. One of the few people alive to have set up a GEMM, been forensically interviewed and approved by the DMO, and BoE as part of that process.

[NeilW]

For primary issuance the DMO gets orders from the GEMMs, mostly for their own books, a very small amount is customer orders. The price is determined by this process with the DMO accepting the price as agent for the Government.

Because it chooses to at present under current policy. And what will they do if the DMO sets a non-competitive price market wide as they currently do for the approved group and returns to a more historically usual tap process?

For QE the Asset Purchase Facility (APF) being an agent of the BoE, in turn an agent of the Government invites the panel of Banks, which are not exactly the same as the GEMMS, through a tender process to set the prices it wishes to sell across the range of applicable Gilts. By reference to the prices against a "snapshot" of the yield curve the APF accepts, or declines those offered prices.

In none of the 3 scenarios is the government, or any of its agents, the price setter.

And when the BoE decides to stand ready to purchase a set of Gilts at a particular price in unlimited quantity, what will happen to yields on those Gilts?

You are not explaining mechanisms. You are explaining current voluntary policy - which I can read in the nonsense that is the 1995 debt management review paper.

Neither the GEMMS, nor the market, can force the DMO to auction Gilts, nor can they force the BoE to stop buying Gilts at a particular price if that is what government decides it wants to do - particularly if it wants to force down prices. And that's the key point.

Government currently chooses to be price taker - specifically to avoid affecting rates - as a matter of policy. The DMO trades in a peculiar way to avoid standing on toes. And that means that it can if it wants to, and there is nothing the Gilt market can do about it.

The peculiar setup since the mid 1990s is historically atypical, and it will be replaced in due course. Because it doesn't work as economic policy.

“There’s simply no polite way to tell people they’ve dedicated their lives to an illusion.” - Daniel Dannett.

[AsleepInYorkshire]

Why has the government refused to give Manchester £65m instead opting for £60m? Surely if it's a perfectly closed self full-filling environment then the amounts are meaningless?

AiY

Politics. It would cost government nothing to do that, but would give Burnham the one up over other areas and the government.

A better solution would be for the Bank of England to buy all spare labour at £10 per hour across the country and pop them on the famous "volunteer list" - and which would then replace all the other schemes. Then we can lockdown whenever Boris has one of his visions, and firms can layoff and re-hire staff as required. Completely counter-cyclical and automatic with no argy bargy required.

Dropping the state pension age to 60 or 50 would help too. It gets the most vulnerable out of the way if they want to, and frees up a lot of now scarce job positions for younger people.

Is there really no money for free school meals?
Amid the talks over Manchester's request for an extra £30m a month for jobs support, or indeed the tens of millions for half-term free school meals in England, and the debate over a tougher lockdown, the government and its top supporters are citing the idea that there is no money left.

...

of the £262bn that the Treasury has borrowed by issuing gilts, £246bn has been bought by the Bank of England.

...

However, these Bank of England purchases do, in theory, have to be sold back into the market after the crisis.

"In theory the debt has to be sold into the market"?

AiY

[johnhemming]

Magic money only goes so far.

[Wizard]

Two points. The number of people admitted to the NHS were disproportionately elderly, so it is higher numbers of elderly Covid-19 cases that would have / did overwhelm the NHS. It is now generally admitted that the NHS did become the National Covid Service for a period of time in the spring and there now seems to be an acceptance that there will be more deaths for years to come, from amongst other things cancer, because of delayed diognosis and / or treatment. So the lock down did not really stop the NHS from being overwhelmed, it was anyway.

I don't think you understand what overwhelmed would really look like.

But really what you're suggesting is that all people, over a given age, should pay for a national response to a problem because a relatively higher percentage of them were at risk?
Much like how pedestrians should pay for traffic calming, or children for operation Yewtree?

-sd

I am suggesting older people should pick up a decent share of the cost and not leave it for younger people to pick up the cost in the tax they pay for years to come. But instead the State pension is going up by 5 times the rate of inflation, ridiculous.

[Wizard]

If the death rate from Covid-19 had been at the same level per 100,000 for all age ranges as it was for under 65s there would have been no lock-down, indeed we would not have noticed it in the statistics.

Imagine that the distribution of disease was random and you took no action
Do you not think you would notice all your hospitals were full?
Do you not think you would notice?
Do you not think you would?
Do you not think?
Do you?

-sd

If the death rate for all people had been the same as for under 65 the hospitals wouldn't have been full.

[dealtn]

The peculiar setup since the mid 1990s is historically atypical, and it will be replaced in due course. Because it doesn't work as economic policy.

It's worked so well for over 25 years despite it being nonsense.

Never mind, just scrap it.

Replace it with something else, use the Ways and Means account. Let's have an overdraft facility and roll over debt at the shortest part of the curve despite the largest obligations and size of Balance Sheet in history.

Lets announce that tomorrow and see how the market and currency fares at one of the points of highest potential stress in our country's history.

It will be a "brave" decision.

Any idea on when this change in policy will be introduced or will we have to wait for that unspecified "in due course"?

[Wizard]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it.

What about a case where someone worked for (say) 15 years and then had to stop due to illness or being laid off. Now suppose that person made sacrifices to continue to buy NICs for another 15 to 20 years in order to qualify for the maximum state pension amount.

Do you propose that that person then lose 100% of that pension because of means testing? Including the proportion of it that he paid for out of his own pocket in the reasonable belief that the government would honour its commitments?

The problem with your idea is that treats the state pension as just another welfare handout, when in reality it is completely different because it is earned via contributions. In other words it is more like an insurance contract than a welfare handout. Pension credit, on the other hand, boosts the pension of those who have not bought the stamps, and that is rightly means tested.

We can all come up with very exceptional examples to try to make our point, that doesn't make it right. But if it really was a contractual arrangement then the increase in the age you can draw your pension at would have been the subject of legal action for breach of contract.

[dspp]

[Hope this is the right forum for this: it is, after all, taxes....Mods: feel free to move as applicable].

Moderator Message:
Relocated following two alerts in quick succession. The Taxes board is for Tax Practical matters please. We will try Macro & Global, as the other option is PD ..... regards, dspp

[tjh290633]

As I see it there are two options. Increase taxes or reduce government spending.

They could probably abolish half of the Government Departments and not lose anything of value. All the think tanks and quangos would not be missed.

VAT is the only tax increase that makes sense. Most essential spending is zero rated, and more is taxed at the lower rate. So you are taxing discretionary spending. Make all taxes 20% and the take would probably go up. Much simpler and doesn't need so many civil servants to collect and monitor it.

Don't try and tax or suppress the cash or black economy.

TJH

[Gengulphus]

They could probably abolish half of the Government Departments and not lose anything of value. All the think tanks and quangos would not be missed.

You're wrong about that. They definitely would be missed - by their directors and employees if by no-one else!

Gengulphus

[Lootman]

I voted something else, that something else would be a cut in the level of State pension and an immediate introduction of means testing with only those that need the State pension continuing to receive it.

What about a case where someone worked for (say) 15 years and then had to stop due to illness or being laid off. Now suppose that person made sacrifices to continue to buy NICs for another 15 to 20 years in order to qualify for the maximum state pension amount.

Do you propose that that person then lose 100% of that pension because of means testing? Including the proportion of it that he paid for out of his own pocket in the reasonable belief that the government would honour its commitments?

The problem with your idea is that treats the state pension as just another welfare handout, when in reality it is completely different because it is earned via contributions. In other words it is more like an insurance contract than a welfare handout. Pension credit, on the other hand, boosts the pension of those who have not bought the stamps, and that is rightly means tested.

We can all come up with very exceptional examples to try to make our point, that doesn't make it right.

It is not "exceptional" in my case but actually quite close to my own situation. So again, do you think it would be fair if my state pension were voided on grounds of "means" when I went out of my way to purchase many years' worth of NICs out of my own pocket specifically and only for the additional pension it would get me?

And if not what remedy or compensation would you deem appropriate for my loss?

[Dod101]

Lootman's example illustrates why I stopped contributing to this discussion because means testing of the State pension is simply a non starter. As Loot says it is not a welfare benefit; it is paid for by the beneficiary. I, in fact, paid Class 3 contributions for 23 years during which time I lived overseas for the express purpose of preserving my State pension.

Those who are arguing for it to be means tested simply do not understand how it works and unfortunately they are making themselves look a little silly I am sorry to say.

Dod

[Wizard]

Lootman's example illustrates why I stopped contributing to this discussion because means testing of the State pension is simply a non starter. As Loot says it is not a welfare benefit; it is paid for by the beneficiary. I, in fact, paid Class 3 contributions for 23 years during which time I lived overseas for the express purpose of preserving my State pension.

Those who are arguing for it to be means tested simply do not understand how it works and unfortunately they are making themselves look a little silly I am sorry to say.

Dod

There is no accumulation of your pension contributions, your NICs was spent years ago. I am not the one who is demonstrating ignorance, though I suspect you know that and you are misrepresenting the facts to try and support your position, as you did when you claimed most over 60s that died were in care homes.

[Wizard]

What about a case where someone worked for (say) 15 years and then had to stop due to illness or being laid off. Now suppose that person made sacrifices to continue to buy NICs for another 15 to 20 years in order to qualify for the maximum state pension amount.

Do you propose that that person then lose 100% of that pension because of means testing? Including the proportion of it that he paid for out of his own pocket in the reasonable belief that the government would honour its commitments?

The problem with your idea is that treats the state pension as just another welfare handout, when in reality it is completely different because it is earned via contributions. In other words it is more like an insurance contract than a welfare handout. Pension credit, on the other hand, boosts the pension of those who have not bought the stamps, and that is rightly means tested.

We can all come up with very exceptional examples to try to make our point, that doesn't make it right.

It is not "exceptional" in my case but actually quite close to my own situation. So again, do you think it would be fair if my state pension were voided on grounds of "means" when I went out of my way to purchase many years' worth of NICs out of my own pocket specifically and only for the additional pension it would get me?

And if not what remedy or compensation would you deem appropriate for my loss?

There are always exceptions, but I would not see your personal circumstances as sufficient to base policy decisions on. So whether fair or not I would still advocate means testing the state pension. You are a smart guy, so I am sure you knew the risk of a change to the pension system before you made the voluntary contributions.

[Dod101]

Lootman's example illustrates why I stopped contributing to this discussion because means testing of the State pension is simply a non starter. As Loot says it is not a welfare benefit; it is paid for by the beneficiary. I, in fact, paid Class 3 contributions for 23 years during which time I lived overseas for the express purpose of preserving my State pension.

Those who are arguing for it to be means tested simply do not understand how it works and unfortunately they are making themselves look a little silly I am sorry to say.

Dod

There is no accumulation of your pension contributions, your NICs was spent years ago. I am not the one who is demonstrating ignorance, though I suspect you know that and you are misrepresenting the facts to try and support your position, as you did when you claimed most over 60s that died were in care homes.

I certainly agree with you as regards there being no accumulation of my NICs which is why I phrased my original response as I did, but at the same time there is a lingering acceptance that our NI contributions are payments towards securing the pension and indeed that is how it still works. Had I not paid my Class 3 contributions for the 23 years I was non resident my State pension would have been a lot less than it is. Wizard, your idea is a non starter irrespective of which political party is in power. I suggest that you look for another bright idea for repaying the huge cost of Covid. Inflation is probably a better idea.

Dod

[Gengulphus]

Lootman's example illustrates why I stopped contributing to this discussion because means testing of the State pension is simply a non starter. As Loot says it is not a welfare benefit; it is paid for by the beneficiary. I, in fact, paid Class 3 contributions for 23 years during which time I lived overseas for the express purpose of preserving my State pension.

Those who are arguing for it to be means tested simply do not understand how it works and unfortunately they are making themselves look a little silly I am sorry to say.

There is no accumulation of your pension contributions, your NICs was spent years ago. I am not the one who is demonstrating ignorance, though I suspect you know that and you are misrepresenting the facts to try and support your position, as you did when you claimed most over 60s that died were in care homes.

IMHO what's going on here isn't misrepresentation of facts by either of you: what is actually going on is misrepresentation of facts by governments (of all political stripes) over many years. Dod101 is correctly describing the facts about what governments have told NIC payers the deal is; Wizard is correctly describing the facts about what governments have actually done with NICs. Governments have got away with that misrepresentation so far because they've delivered the deal they offered... (*) They could means-test the State pension, but it would be a major break from delivering that deal and they would pay quite a big political price for doing so. Of course, any method of raising extra taxes involves paying a political price - e.g. my least-disliked method of raising Income Tax rates in all bands has a particular political disadvantage for the current government, namely that it would involve breaking their "We will not raise the rate of income tax, VAT or National Insurance" manifesto commitment. And alternatives like letting inflation rise and erode away the real value of the debt also involve paying a political price - and a reputational price as giltholders see the real value of their holdings fall...

So paying a political price seems inevitable - the question of what they will do (as opposed to what they should do, which is what I think the OP is about) is essentially one of which method minimises that political price - or as the old quote says, "The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing."

(*) Well, more-or-less delivered it. They have done things like raising the pension age that tweak the deal retrospectively - and paid a political price for those tweaks when they've turned out to be significantly disadvantageous for the NIC payer, as they have for some women in particular.

Gengulphus

[NeilW]

It's worked so well for over 25 years despite it being nonsense.

It clearly hasn't has it. A financial crisis and now inflation way below target and millions unemployed. It may have worked well for you, but not for others. Much like EU membership.And we've just scrapped that.

What "the market" thinks is becoming less and less important, because the market isn't one thing. It is lots of people with different opinions. And those that realise putting money in people's pockets and letting them spend is better than unnecessarily draining money to hit a pointless numerical target that has no economic bearing will move into the UK, displacing those that believe otherwise.

Which amusing is the market doing what it does.

Let's have an overdraft facility and roll over debt at the shortest part of the curve despite the largest obligations and size of Balance Sheet in history

Interesting that you see it as an "overdraft" rather than what it actually is - replacing a bond with a high interest rate with one that has a low interest rate. Sterling is just a bond that only pays interest to banks.

Permanent zero base rates are on the horizon. No more "basic income for those with money" from the Gilts market.

Still interesting that you won't answer my points about the policy change. I'll take it from that that you accept that "the market" has no power over interest rates - when up against a government that decides that it doesn't.