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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Ignoring devolved nations on Brexit "risks breaking up the UK"

Theresa May is meeting with Scottish, Northern Irish and Welsh representatives. 

The Westminster government risks the break up of the union if it tries to impose a Brexit settlement on Scotland, Northern Ireland and Wales, the Institute for Government has warned.

On the day Theresa May is meeting with representatives from the devolved administrations, the thinktank said there were "worrying signs" the Tories were ignoring them instead of treating them like partners. 

The Institute urged the UK government to take steps to prevent "political spats from escalating into a full-blow constitutional crisis".

It stated:

"Imposing a Brexit settlement in the absence of consent from the devolved bodies may be legally possible, given that the UK Parliament remains sovereign. 

"However, this would run contrary to convention and to the spirit of devolution, which recognises the right of the three devolved nations to determine their own
form of government. 

"It would also be a reckless strategy for a government committed to the Union, since it would seriously undermine relationships between the four governments, and increase the chances of Scottish independence and rifts in Northern Ireland’s fragile power-sharing arrangements."

Instead, Brexit ministers from the devolved nations should be represented on a specially-created committee and held jointly responsible for the outcome of talks, it recommended. The devolved nations are expected to want a softer Brexit than the one outlined so far by Westminster. 

It noted that despite the Prime Minister's commitment to developing a "UK approach" to Brexit, there are "worrying signs" that the devolved governments are being ignored.

So far key decisions, such as the deadline for triggering Article 50, have been taken by Westminster alone. Legal experts have warned a stand off between devolved authorities and Westminster could lead to a constitutional crisis.

While civil servants across the UK are now trying to work together, the Institute for Government said their ability to do so "has been hindered by lack of agreement at a political level".

A Brexit settlement could also lead to new powers for the devolved nations, the report said, such as on employment and immigration.

The report said it was likely devolved parliaments would wish to vote on any settlement.

The Scottish First Minister, Nicola Sturgeon has already threatened to hold another independence referendum if Westminster does not take account of Scottish interests, and has pledged that the SNP will vote against the Brexit bill in Parliament. 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.