Your year-end editorial exploring the iniquities of a society increasingly characterised by a growing new class of rentiers is timely (Redistribute the gains now hoarded by owners of capital, 30 December) but fails to name a single concrete measure that will effectively halt and reverse the trend. In this you are far from alone, as even John McDonnell shows not the slightest sign of grasping how the UK tax system has been stealthily tilted to create a tax haven for owners of capital under the falsehoods of “encouraging saving” and “taking the low paid out of tax”.
Here is how it works: anyone who has taken up the annual personal equity plan (Pep) and then individual savings account (Isa) allowance every year from its inception under Nigel Lawson at £2,400 in 1988 to £20,000 under Philip Hammond today will have accumulated, assuming an extremely conservative average total return of 5% pa, a completely tax-free investment portfolio of £508,000 today, which will yield an annual tax-free income of over £25,000 pa without having put any of this capital at substantial risk of loss through real risk capital investment in start-up businesses or volatile emerging markets. When combined with a personal allowance of £11,500 and a standard rate of tax on taxable income up to £33,500, this means it is easy for a middle-class taxpayer in their late 50s to enjoy a gross income, all from onshore and legitimate sources, exceeding £100,000 pa and still not even incur an effective 20% tax rate on total income. To add to this feather-bedded luxury, the same taxpayer is likely to have benefited from tax relief on occupational pension contributions – despite the middle-class squeals of having been robbed of higher pensions by the taxman and pension fund managers – and can not only pass on windfall gains on property largely tax-free to children, but unspent tax-sheltered pension pots too.
It is no wonder the OECD has previously said the UK enjoys many of the characteristics of a tax haven. Stemming the growth of this new rentier class will require abolition of these wholly unwarranted tax-free investment schemes, which all the evidence shows merely divert savings that would be made by those with surplus income anyway into tax-sheltered schemes, plus more radical taxation of land value. This will cause squeals of pain and moral outrage from those who want to politically divide the society into “good” savers and an “undeserving” poor, but is the only way to break the poisonous economic division that has become entrenched in UK society since Nigel Lawson’s social wrecking budget of 1988.
• Join the debate – email firstname.lastname@example.org
• Read more Guardian letters – click here to visit gu.com/letters