Follow the Money

by Paul Johnson

This is an easy to follow whirlwind tour of where the UK government gets its money from and how it spends it. Full of facts and figures as well as some insightful commentary and significant critiscism of past taxation decisions across all parties. The biggest one being the lack of consistency, closely followed by lack of foresight and unwillngness to challenge current vested interests to improve the future of the country overall. Note that the latter is less about big business and lobbying and more about not wanting to upset the electorate.

Definitely worth a read as it won't take you long. It took me a week. But what is missing is any real solution to these problems. Politicians have to win elections every few years so taking decisions which make some people poorer in the short term, but others better off in the long term is hard if you want to be re-elected. This conunmdrum is not solved by the book, which finishes with lots of good tips none of which will necessarily lead to an election victory in the current political climate. It finishes with the simple comment "must do better if we are to cope with the next crisis". (Which, according to the book is going to be the climate crisis hitting at the same time as a really ageing population comes along.)

Finally, there was one point which I didn't quite agree with. In the discussion on student loans the book compared the current loan system to the new one being brought in from September 2023. In the current system, the student loan increases at RPI + 3%, the threshold above which you have to repay at 9% is £27,500 and the loan is written off after 30 years. The estimate was that about 25% would repay their loan in full. In the new system the loan increases with RPI only, the threshold is £25,000 (and increases with RPI from 2025) and your loan is written off after 40 years. Paul's comparison of these two systems made the point that the old system was actually fairer because it penalises higher earners more. With the loan increasing above RPI higher earners are going to be repaying more overall in monetary terms than in the new system.This is because they will be repaying for longer as the amount owed increases quicker. Whereas for lower earners it doesn't matter because the amount owed is cleared after 30 years no matter how much was repaid. In the new system the amount owed does not increase so quickly, so higher earners will pay off their loan quicker and therefore pay less overall whereas lower earners will pay more because it is now 40 years before the loan is wiped.

This analysis is obviously correct, but there is one point not mentioned at this point in the book. And that is the relative parental wealth of higher vs lower earners. I found this strange because otherwise the book is generally covering wealth aspects well, often making the point that tax should be equitable and the wealthy should be taxed more, when this makes economic sense. I feel the analysis of the current system is wrong, because higher earners mostly come from wealthier backgrounds so it is more likely that their university fees will simply have been covered by their parents, putting them completely outside of the loan system.