The Sunday Times today reported:
If you have an annuity which pays you 100 per year and you have a 25 year life expectancy the Treasury will have to wait a quarter of a century to take all its income tax rake from that 2,500. If, on the other hand, you sell the annuity today you accelerate when Treasury gets the tax (moving it from years one-twenty five to year one); but you reduce the amount of income subject to tax (you get considerably less than 2,500 because of the time value of money). The real scandal, though, is that Treasury will treat all of the money in year one as new income available to fund tax cuts. Of course it isn’t; it’s tomorrow’s income which we’re spending today.
I wrote here about how the sleight of hand works. And this will be the fourth huge sleight of hand – giving the impression of more tax receipts without there actually being more tax receipts – in this Parliament. I wrote about a £3.5bn trick around bank losses here. I wrote about the same £4bn trick around accelerated payment notices here. I wrote about the same £3bn trick around pensions ‘freedom’ here.
Selling your annuity will be a bigger sleight of hand than any of those.
The Tories will use it to give the impression that they have delivered a country in rude fiscal health. And that we can afford tax cuts. But neither of those things is true.
The media is ignoring this story: I guess they figure it’s too complicated for the likes of us. The Labour Party is ignoring it too: I can only assume they think the same. But it could hardly be more important; please spread the news.