Pension taxes become a battlefield for the budget

Two seperate groups are pushing for changes to how pensions are taxed in the budget, but could they

There have been two seperate calls recently for the budget to include major changes to the way pensions are taxed, each coming at the topic from a completely difference angle.

The Telegraph reported on a call from the Office for Tax Simplification, an independent body working under the aegis of Treasury, for the state pension to be made exempt from income tax.

James Kirkup writes:

In a report to Treasury ministers, the advisers said that there was a “patchwork of allowances and rules which many in their later years find very confusing” and that taxing the basic state pension made the system significantly more complicated.

"Many of those who do understand that it is taxable feel that this is unjust, given that they have contributed through the national insurance system through their working life," the report said. Among the options identified by the OTS was: "Exempt the state pension from tax altogether."

A full basic state pension is worth £5,311 a year. Exempting that sum from the 20 per cent basic rate of income tax would be worth around £1,060.

The recommendation is one of many in a report explicitly concerned with highlighting "problem areas and possible directions of travel for the future", but it has been leapt upon by the paper -- and it's readers, over 80 per cent of whom want pensioners to be exempt from income tax, according to an entirely unscientific poll on the site.

While one group is pushing for less tax on pensioners, another sees them -- or their pensions, at least -- as a potential source of revenue.

The Times reported (£) yesterday that, in exchange for dropping proposals for a mansion tax, the Liberal Democrats have secured a government review of the tax relief on pension contributions from top-rate taxpayers. Richard Murphy explains the logic in The Guardian:

If I decide to make a contribution to a pension (I'm self employed) I say to my pension company I want to pay £5,000 this year. There are two forms of tax relief: one is at source and one at higher rate. So if I decide to pay £5,000, I actually pay £4,000 and and get topped up 20 per cent in tax relief. If I'm higher rate tax payer then I put that payment into my tax return and as a result I get tax relief at 40 per cent so I get another 1k of tax saving. At the moment there are lifetime limits of around £1.4m. For those over £150,000 there is an annual limit to their contribution of £50,000. This means their tax bill goes down by 25k. People earning over £150,000 get a benefit of £25,000 at a time when the government is saying that the maximum any family can get in welfare benefits is £26,000.

When you come to retire, your pension schemes requires you to buy an annuity, a way of paying you back over your expected life. That's the money you paid in, plus interest. You get get taxed on those payments. The reason you get taxed is that you didn't pay at the time you earned it. It's deferred tax. But if you were liable to higher rate taxes when you earned it, you are likely to pay basic rate when you receive it.

As Murphy points out later, the problem with removing this relief is that it would lead to double taxation -- being taxed when you earn your wage, and then again however-many-years later when it is payed out as a pension. His response is that double taxation is a normal part of tax, since "we tax income then spending"; but if that is the case, then this change would lead to triple taxation.

Instead, these two measures would go nicely hand-in-hand. If the tax on pensions were removed at the same time as the relief on pension contributions is shrunk, then double -- or triple -- taxation would cease to be a problem. And it could still be a net increase in revenue, since it would trade income tax on pensions, which is almost always basic rate, with income tax on wages, which is often a lot higher.

George Osborne waves to delegates at the Tory Conference in 2011. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Inside Big Ben: why the world’s most famous clock will soon lose its bong

Every now and then, even the most famous of clocks need a bit of care.

London is soon going to lose one of its most familiar sounds when the world-famous Big Ben falls silent for repairs. The “bonging” chimes that have marked the passing of time for Londoners since 1859 will fall silent for months beginning in 2017 as part of a three-year £29m conservation project.

Of course, “Big Ben” is the nickname of the Great Bell and the bell itself is not in bad shape – even though it does have a huge crack in it.

The bell weighs nearly 14 tonnes and it cracked in 1859 when it was first bonged with a hammer that was way too heavy.

The crack was never repaired. Instead the bell was rotated one eighth of a turn and a lighter (200kg) hammer was installed. The cracked bell has a characteristic sound which we have all grown to love.

Big Ben strikes. UK Parliament.

Instead, it is the Elizabeth Tower (1859) and the clock mechanism (1854), designed by Denison and Airy, that need attention.

Any building or machine needs regular maintenance – we paint our doors and windows when they need it and we repair or replace our cars quite routinely. It is convenient to choose a day when we’re out of the house to paint the doors, or when we don’t need the car to repair the brakes. But a clock just doesn’t stop – especially not a clock as iconic as the Great Clock at the Palace of Westminster.

Repairs to the tower are long overdue. There is corrosion damage to the cast iron roof and to the belfry structure which keeps the bells in place. There is water damage to the masonry and condensation problems will be addressed, too. There are plumbing and electrical works to be done for a lift to be installed in one of the ventilation shafts, toilet facilities and the fitting of low-energy lighting.

Marvel of engineering

The clock mechanism itself is remarkable. In its 162-year history it has only had one major breakdown. In 1976 the speed regulator for the chimes broke and the mechanism sped up to destruction. The resulting damage took months to repair.

The weights that drive the clock are, like the bells and hammers, unimaginably huge. The “drive train” that keeps the pendulum swinging and that turns the hands is driven by a weight of about 100kg. Two other weights that ring the bells are each over a tonne. If any of these weights falls out of control (as in the 1976 incident), they could do a lot of damage.

The pendulum suspension spring is especially critical because it holds up the huge pendulum bob which weighs 321kg. The swinging pendulum releases the “escapement” every two seconds which then turns the hands on the clock’s four faces. If you look very closely, you will see that the minute hand doesn’t move smoothly but it sits still most of the time, only moving on each tick by 1.5cm.

The pendulum swings back and forth 21,600 times a day. That’s nearly 8m times a year, bending the pendulum spring. Like any metal, it has the potential to suffer from fatigue. The pendulum needs to be lifted out of the clock so that the spring can be closely inspected.

The clock derives its remarkable accuracy in part from the temperature compensation which is built into the construction of the pendulum. This was yet another of John Harrison’s genius ideas (you probably know him from longitude fame). He came up with the solution of using metals of differing temperature expansion coefficient so that the pendulum doesn’t change in length as the temperature changes with the seasons.

In the Westminster clock, the pendulum shaft is made of concentric tubes of steel and zinc. A similar construction is described for the clock in Trinity College Cambridge and near perfect temperature compensation can be achieved. But zinc is a ductile metal and the tube deforms with time under the heavy load of the 321kg pendulum bob. This “creeping” will cause the temperature compensation to jam up and become less effective.

So stopping the clock will also be a good opportunity to dismantle the pendulum completely and to check that the zinc tube is sliding freely. This in itself is a few days' work.

What makes it tick

But the truly clever bit of this clock is the escapement. All clocks have one - it’s what makes the clock tick, quite literally. Denison developed his new gravity escapement especially for the Westminster clock. It decouples the driving force of the falling weight from the periodic force that maintains the motion of the pendulum. To this day, the best tower clocks in England use the gravity escapement leading to remarkable accuracy – better even than that of your quartz crystal wrist watch.

In Denison’s gravity escapement, the “tick” is the impact of the “legs” of the escapement colliding with hardened steel seats. Each collision causes microscopic damage which, accumulated over millions of collisions per year, causes wear and tear affecting the accuracy of the clock. It is impossible to inspect the escapement without stopping the clock. Part of the maintenance proposed during this stoppage is a thorough overhaul of the escapement and the other workings of the clock.

The Westminster clock is a remarkable icon for London and for England. For more than 150 years it has reminded us of each hour, tirelessly. That’s what I love about clocks – they seem to carry on without a fuss. But every now and then even the most famous of clocks need a bit of care. After this period of pampering, “Big Ben” ought to be set for another 100 or so years of trouble-free running.

The Conversation

Hugh Hunt is a Reader in Engineering Dynamics and Vibration at the University of Cambridge.

This article was originally published on The Conversation. Read the original article.