MoneyWeek roundup: The government's craziest scheme yet
James McKeigue Sep 29, 2012
It’s political party conference season again. These conferences are often breeding grounds for daft ideas. But the Lib Dems came out with the craziest one yet this week, reckons John Stepek.
In Monday’s Money Morning, John wasted little time explaining exactly what’s wrong with the latest ‘crackpot scheme’ to tackle Britain’s hopelessly overpriced housing market.
Instead of building more houses, improving tenants’ rights or letting house prices fall, the Lib Dems’ “big idea is that parents and grandparents should be able to put their pensions at risk in the name of helping their offspring to buy a house.
“One feature of a pension is that when you cash it in, you can take 25% of your pot as a tax-free lump sum”, says John. “What the Lib Dems propose is that parents or grandparents will be able to put this future 25% pay-out up as security for their children’s mortgages.
“The idea is that the bank – knowing it can grab a quarter of granny’s pension pot if the grandkids end up stiffing it for the mortgage – will be happy to write home loans at a lower loan-to-value. So the kids will need a less chunky deposit to secure their mortgage.”
It’s a crazy scheme that demonstrates skewed priorities and a lack of understanding of the UK economy.
“We’re always being told that people in Britain aren’t saving enough for their retirement. We also know that houses in Britain are too expensive. Getting people who already can’t afford to retire to risk some of their meagre pension pots on a scheme that will help to continue to prop house prices up will make both of those problems worse.”
It’s all part of the national obsession with houses. The Bank of England is doing everything it can to prop up the housing market to save banks from losing money on bad mortgages. Meanwhile “the government would rather find some convoluted way to get the older generation to pay for the younger to ‘get on the ladder’, than allow a healthy correction to bring prices back to reasonable levels”. It’s a Ponzi scheme that can only end badly.
John’s piece was one of the most popular articles on the website this week attracting a flood of comments. If you haven’t read it yet, you should – have a look here: This crackpot scheme proves that British houses are too expensive.
Why a wealth tax wouldn’t work
Another policy being bandied about in government circles is a wealth tax. Merryn Somerset Webb explains on her blog why she thinks it would be a bad idea for the UK.
“We aren’t against land taxes, property taxes or location taxes in general at MoneyWeek. Far from it. If we were building an economy from scratch we’d probably base our new tax system on location values.
“But we aren’t starting from scratch: any new wealth taxes or property taxes will come on top of the taxes we have already.”
For starters, says Merryn, we already have a wealth tax in the form of the stamp duty people pay when the buy a house. “So if we get a wealth tax, do we dump stamp duty (so infuriating any recent purchasers), or do we add to the misery of our tax system by keeping both?”
Another problem is that creating a tax on all types of wealth – ie not just property – would be difficult and expensive to collect.
And while a wealth tax might sound politically appealing – ie just a tax for the wealthy – “with fiscal drag, it will be no time at all before it is not a wealth tax, but an everyman tax – just like the 40% rate”.
The idea is that a wealth tax would iron out a rigged market – property. But ultimately, says Merryn, “redistribution has to have its limits”. It wouldn’t be possible “for everyone to be compensated for money made anywhere else in any non-pure market”.
Judging from readers’ reactions it’s a pretty controversial subject and the comments box below the blog started to fill up pretty fast.
‘dr ray’ agreed with Merryn and added to her argument by identifying another flaw with a wealth tax. “Many ordinary wage earners accumulate wealth during their working lives largely as property and pension and then run it down during retirement. A wealth tax would therefore simply tax people who are older and had taken care to provide for their retirement.”
However, ‘robin’ had a radical new proposal. “I say we get rid of income tax entirely. We should get rid of any form of tax that dampens economic activity. Get rid of stamp duty too. Then introduce 100% IHT. What exactly is the rationale that children should inherit wealth from their parents?”
It’s a lively debate so click here to have your say.
Sign up for a 3-week FREE trial of MoneyWeek
and get the following free as well
"The only financial publication I could not be without."
John Lang, Director, Tower Hill Associates Ltd
Long-term MoneyWeek readers know that we are big fans of gold. Yet in recent weeks the yellow metal has started to crop up a lot more in the mainstream press. One reason is that, thanks to the latest bout of quantitative easing in America, (read here if you need a reminder) the gold price has started rising.
However, in Wednesday’s Money Morning, Dominic Frisby examined another reason why gold prices might go up – ‘peak gold’.
Essentially, miners are having difficulty producing enough gold to keep up with demand. With central banks now net buyers of gold too, the problem will only get worse, says Dominic.
Meanwhile, the number of deposit discoveries is declining, while those that are found tend to be smaller. “The average grade of discovered gold is also declining – in other words, there is less gold in the rock, which means it is more difficult and more expensive to extract.”
All of these trends indicate that we are heading towards ‘peak gold’, says Dominic.
If you’re interested in investing in gold you should read what one of MoneyWeek’s newest writers has to say on the subject. Simon Popple has just launched a new investment service, which has a fresh way to play the gold story. His tips are already performing strongly and the newsletter has been our most popular new release this year. If you haven’t heard about it yet, find out more here.
Watch out for doctors
In his Research Investments newsletter this week Dr. Mike Tubbs was in celebratory mood. One of his tips, a healthcare firm, has risen by 40% since he recommended it in 2010. After breaking down the company’s performance, he turned his attention to the medical sector as a whole, and made a very interesting point.
“Do you know the third leading cause of death in the US after heart disease and cancer?”, asks Mike.
“The answer is doctors. Doctors are responsible for at least 225,000 deaths in the US each year because of unnecessary surgery, medication errors, hospital infections, negative effects of drugs and other errors. And these numbers include only deaths and not hospital-induced disabilities.”
This is a problem that needs to be solved – and smart investors could potentially profit by keeping an eye out for the solutions.
“The pressure to reduce costs could easily increase this iatrogenic (doctor/therapy induced) death rate. That’s why I have on my watch list several companies that may be able to combine cost reduction opportunities with a reduced probability of error leading to iatrogenic death.”
It’s an area that Mike will be following in issues to come. Indeed Mike sees a lot of opportunities in the medical sector. As he explains in this report, there’s a little-known way that investors can profit from the relationship between pharmaceutical giants and their smaller peers.
To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds – we've listed them below.
Have a great weekend!
• Merryn Somerset Webb
• John Stepek
• Tim Bennett
• James McKeigue
• Matthew Partridge
• David Stevenson
Metals & Miners and Research Investments are regultated products issued by Fleet Street Publications Ltd.
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.