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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Leader: The wretched of the earth

Britain must accept more asylum-seekers - and create a sustainable plan for their integration into wider society.

The quality of our public discourse on asylum is lamentable. The Conservative government, preoccupied with its absurd immigration caps and targets (all missed), has shown little leadership on the issue. In an excellent speech on 1 September, Yvette Cooper correctly denounced the “political cowardice” of ministers for failing to respond adequately and compassionately to the plight of asylum-seekers fleeing turmoil in North Africa and the Middle East. She contrasted the government’s inaction with Britain’s proud traditions of welcoming incomers and the most desperate refugees.

Yet those who agree with Ms Cooper should also accept that admitting large numbers of asylum-seekers – she suggested that Britain should take in 10,000 people fleeing the Middle East – would pose considerable challenges to public services, housing and social cohesion. It is not enough to accept more asylum-seekers. There must be a plan for their integration into wider society, by helping them to learn English, find work and pay taxes. Above all, what is required is not a panicked, short-term response to the immediate crisis but an EU-wide solution for the long term.

The British government, however, does not seem interested in helping to find one, which was why Ms Cooper’s call for a country of 65 million to admit 10,000 asylum-seekers seemed so bold. For all its difficulties, Britain is richer than most other countries in the EU. It can afford to do far more than its intransigent approach to admitting asylum-seekers suggests. Between 2010 and 2014, 15 EU countries admitted more asylum-seekers per head of population than the UK.

In 2014, the UK granted asylum to just 14,000 people, compared to the 47,500 taken by Germany. This year, as many as 800,000 are expected to apply to Germany. Chancellor Angela Merkel has said that the refugee crisis “will concern us far more than Greece and the stability of the euro”, and German regional leaders have agitated for greater federal funding and faster processing of asylum claims. Such an approach is absent from much of the rest of the continent: many European nations seem to have resolved that the best way to deter asylum-seekers is to treat them deplorably. The Dutch government has announced plans to cut off the supply of food and shelter for those who fail to qualify as refugees.

Nor has the EU distinguished itself. A proposal made in May for member states to admit 40,000 asylum-seekers between them has collapsed. The EU has also failed to engage other nations in a larger multilateral response to alleviating the crisis: the wealthy Gulf states, which keep their borders firmly closed to the desperate of Syria ought to be shamed into action. As many as 2,500 people have died attempting to cross the Mediterranean this year; across the EU, the number of applications for asylum reached the record figure of 626,000 in 2014 and it will be even higher in 2015.

David Cameron can legitimately say that he is operating in a climate of great hostility to migrants and asylum-seekers – just read the tabloid headlines. Yet leadership is about informing public opinion, not merely following it. The Prime Minister has a rare opportunity to shape a more enlightened and compassionate public discourse.