Saved From The Tax System
The UK’s cross-party get-rich-slowly scheme — and the debt trap for young people
Trigger warnings for this story include: too much about money; too much about politics; rich people getting richer; young people getting poorer. Oh, and math(s).
In 1986, the (Conservative) government in the UK introduced the Personal Equity Plan. Every year from then on, you could buy equities and put them in your PEP and they’d be tax-free. Up to a limit per tax year of (initially £2,400 but soon) £6,000.
In 1992, the Single Company PEP (SCP) was added: you could buy shares in one company; limit per tax year was an additional £3,000. Total you could put away every tax year: £9,000.
When Labour took over in 1997, they streamlined PEPs and SCPs into Individual Savings Accounts — which were also tax-free. Your PEP and SCP tax-free investments could be carried forward into your ISA.
Are we rich yet?
ISAs are still with us, and they come in various shapes and sizes, but the key detail is: in 2000, you could put up to £7,000 per tax year into your ISA; . that limit increased over time; from tax-year 2018/19, it’s been up to £20,000 per annum. Tax-free.
Which is to say — to keep the math(s) easy — if you had started your ISA in the 2018/19 tax year, but invested up to the limit every year since, you would now have £140,000 invested (counting this tax year) that was completely free of tax.
Any gains you might have made by investing your tax-free £140,000 would also be tax-free.
And spare a thought for all those PEP and SCP investors diligently putting in £6,000 per annum from 1986, £9,000 every year from 1992, £7,000 from 1997 ... and so on.
I’m useless with numbers, but £6,000pa for a few years after 1986, then £9,000pa for a while, plus £7,000pa for nine years, nine sevens are £49,000, plus another £7,200 for two years, er, then £10,200pa, and I can feel a headache coming on, and more money per annum, plus that £140,000…
…and any gains…
…is a lot of money.
Unforgettable ISAs
Of course, to have a spare £6,000 per annum, and eventually £20,000 per annum, that you can stuff into a tax-free piggy bank — you have to be fairly rich already.
You have to be rich enough, say, to be receiving endless mailshots from companies offering to manage and invest your ISA for you. Unless, of course, you’re rich enough already to have “wealth managers” transferring your assets into your ISA as a matter of course.
Either way, it’s a safe bet that nobody rich enough to invest in ISAs would have missed the opportunity.
Here is a link to the UK government’s Annual Savings Statistics 2023. If you’ve been enjoying the numbers in this story, or if you have available a large pack of frozen peas to hold against your forehead, you can download the table that shows how many millions of pounds Sterling have been going into how many ISAs over how many years.
We’re rich. And free of tax. Or some of us are.
But
I started this story with the idea of wondering what the post-election new government would do to raise money. So many people have taken so much money out of the tax system, over so long, that they’re left with taxing only poor people, many of whom are young people, or life’s pleasures, or both.
That was the plan. Yes, I probably would have mentioned intergenerational conflict and the cost-of-living crisis.
But just now, I looked at the BBC News website and found this headline: Almost 1.8 million people owe £50,000 or more in student debt.
Student loans — to finance higher education — were introduced in 1990. Once students could borrow to pay for their courses, universities were allowed to set the prices for their courses. They didn’t all go for the lowest price they were allowed to charge.
Short version: every government since 1990 has been happy to let students go into debt to cover the cost of their higher education. And now 1.8 million of them — more — are in serious debt.
My anti-government political moment (look away now)
Students can thank the Conservatives, Labour, and famously, the Liberal Democrats for their debts.
Recently, I published a short piece after two young people, separately, asked me for advice on how they should vote. I told them to vote for what they believed in.
If I wrote that story today, it would be different. And I think it would end with the words “Other parties are available.”
Screaming Lord Sutch, where are you now?
