Where the tax burden falls

Where does the tax burden fall, and why do loopholes help the rich?

The TPA's Matthew Sinclair has produced an interesting graph from HMRC's data on the share of income, which charts clearly what it means to have a progressive taxation system (click for big, and note that the top four categories are equal in size to one of the other four; the top 25 per cent has been split up to better show the progressive nature of the system):

Mulling over Osborne's tycoon tax, Sinclair provides an example of a tax "loophole" which he thinks is anything but – loss relief:

Suppose you make a £15 million loss one year, then enjoy a £15 million income the next year. How much have you made overall? £0. If you get full loss relief then you will be taxed on that basis and pay nothing, as you have no income to pay from. If your loss relief is capped at 25 per cent of your income, as the Government seems to be proposing, then you presumably have to pay tax on over £10 million. From an income of £0. Good luck.

It is difficult to argue with the ideal of loss relief; people shouldn't be penalised by being taxed exorbitantly on multiple years' income just because they happen to receive the actual payment in one lump sum. But the existence of loss relief is also a wonderful example of a tax system built with one set of rules for the rich, and another set for everyone else.

Suppose a different pattern of income: You are a novelist working for £10,000 a year, barely supporting yourself while you write on the evenings and weekends. (For simplicity's sake, lets set this in 2015 when the 10k tax threshold is in effect). After five years, your book takes off, and you earn a quarter of a million in a year. Not only are you paying income tax for the first time in your life, you are straight in at the top rate.

In this situation, can you claim tax relief? Of course not. You pay your tax for the year your income comes in, and if you took a hit in earlier years, that's something you have to suck up. Yet if that quarter of a million had been spread out over the five years before, you would have paid at least £50,000 less in tax.

It's easy to see why this isn't the case. It would be hell to administer, and would basically end up with everyone paying tax on their average lifetime earnings. Yet this awkwardness results in a tax system which allows relief for those who are in a position to gamble millions on a business, but not those who can only gamble thousands on a career. It's a pattern repeated throughout the tax system, but as we've seen with the charity debacle, while these loopholes are used, they will be very hard indeed to close.

The BP board, 1960. These gentlemen are probably the 1%. 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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The House of Lords must give EU citizens the right to remain

The government has used more than 3m UK residents as pawns. But the Lords could put a stop to it. 

Theresa May, David Davies and Boris Johnson like playing games. They are well versed in moving around a board, measuring their opponents and using pawns to lure them in.

It is a great relief, then, that the House of Lords are expected to put an end to the game the government is so desperate to play, and stop it from using people as pieces in a negotiation. 

It is my hope the Lords will do this by tabling an amendment to unilaterally secure the rights of EU nationals living in the UK, forcing the House of Commons to think once again.

It will be a welcome move by the Lords, with the country once again relying on an extra level of scrutiny to make sure the government's reckless actions do not risk ruining the lives of people who have lived here for decades.

And if the Lords do so, it will be to support the will of the people: an ICM poll after the referendum found some 84 per cent of British people support letting EU migrants stay, including 77 per cent of Leave voters. And a more recent Opinium poll found that only five per cent of Britons think EU nationals currently living in the UK should be asked to leave.

But those who lead us into the biggest negotiations of our time have said they simply cannot guarantee the rights of more than 3m EU citizens living in the UK until the rights of the 1.2m British citizens in the EU are reciprocated.

Constituents tell me they fear a situation where the government sits contemplating the different ways it can implement its policy of mass deportations.

Indeed, millions of people who are active in our communities and play a vital role in the economy are now worried about exactly that. My own constituents - and those of my colleagues in Westminster - are scared their lives will be torn apart if the government is not given a reciprocal gesture of goodwill.

Migrants make up 10.9 per cent of the workforce. These are people who have added to the sciences, to innovation, to the NHS and social care. These are people, not collateral.

Not only immoral, this approach seems fundamentally flawed. Would it not, as our Prime Minister said, be a good thing to approach the negotiations as friends with our European neighbours? Would it, therefore, not be the greatest gesture of friendship to afford EU citizens their right to reside in the UK at the soonest possible opportunity?

Already a leaked document has indicated the government’s approach making it difficult for EU nationals in the UK to acquire permanent residence is likely to mean British nationals living on the continent can expect a backlash of their own.

So, as the government prepares to quash any amendments proposed by the Lords to its bill, the onus will shift onto MPs on all sides of the house to accept this crucial amendment. 

Before the next vote Democratic Unionist Party and Conservative politicians must all ask themselves, are they happy to use people as “negotiating capital”?

Catherine West is the Labour MP for Hornsey and Wood Green.