News Contented Dad on 12 Jan 2009 11:08 pm
Two And A Bit Cheers For David Cameron
In one of his latest speeches on our current economic ills, David Cameron had two very concrete proposals regarding savers and pensioners.
One was that basic rate taxpayers should not incur any tax liability on the interest paid on their savings.
Now that would get my vote every time. For many a long year now I have railed (quietly) against what I saw as the unjustified fiscal theft of interest from small savers and in particular, in times of high inflation.
Why do I say some taxation of interest is unjustified?
Historically most, if not all, of interest paid on deposits has simply acted to restore the real value of the sum deposited against the effects of inflation. My contention has always been that this restorative element should not be taxed as income, in principle it is more akin to the payout of an insurance policy.
Some time back, the government themselves acknowledged this by their way of taxing Capital Gains.
Before Gordon Brown saw a way to increase the tax take - or maybe it really was to simplify the taxation of capital gains - capital gains tax was applied only to the real gain made upon the disposal of a taxable asset. In calculating the gain, the original cost of the asset was increased in line with retail price inflation from the month of acquisition to the month of disposal.
In effect that part of gain caused by inflation was ignored and not taxed.
David Cameron’s proposal maybe goes further than that, but how long will it last if real interest rates reappear?
Given today’s seemingly ever plummeting base rate it looks as if we are now back in the days where the rate of interest is less than the rate of retail price inflation. That’s why I only give David Cameron two and a bit cheers for his proposal – I’ll leave the rest of the accolade for the day when we see a return to positive real interest on savings.
In the meantime we should encourage our political leaders to adopt this proposal as a fair method of treating small retail savers. Be assured, as I am, that those with deeper pockets have always found ways to redress this iniquity.
on 15 Jan 2009 at 7:12 am 1.John said …
Gosh, actually do something that encourages people to save? What a novel idea! ;-)
However as the average UK household only has savings of around £800 the can already avoid the tax using a cash ISA.