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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Expressions of sympathy for terror's victims may seem banal, but it's better than the alternative

Angry calls for "something to be done" play into terrorists' hands.

No sooner had we heard of the dreadful Manchester Arena bombing and before either the identity of the bomber or the number of dead were known, cries of “something must be done” echoed across social media and the airwaves. Katie Hopkins, the Mail Online columnist, called for “a final solution”, a tweet that was rapidly deleted, presumably after she remembered (or somebody explained to her) its connotations. The Telegraph columnist Allison Pearson wanted “a State of Emergency as France has” and “internment of thousands of terror suspects”, apparently unaware that the Nice attack, killing 86, happened after that emergency was declared and that nobody has been interned anyway.

It cannot be said too often that such responses play into terrorists’ hands, particularly if Isis was behind the Manchester bombing. The group’s aim is to convince Muslims in the West that they and their families cannot live in peace with the in-fidel and will be safe only if they join the group in establishing a caliphate. Journalists, striving for effect, often want to go beyond ­banal expressions of sympathy for ­victims. (It’s a mistake I, too, have sometimes made.) But occasionally the banal is the appropriate response.

Pity begins at home

Mark Twain, writing about the “terror” that followed the French Revolution and brought “the horror of swift death”, observed that there was another, older and more widespread, terror that brought “lifelong death from hunger, cold, insult, cruelty and heartbreak”. The first, he wrote, we had been “diligently taught to shiver and mourn over”; the other we had never learned to see “in its vastness or pity as it deserves”.

That is true: more children across the world die each day from hunger or disease than could ever be killed in a terror attack. We should not forget them. Nor should we forget that the numbers killed in terrorist attacks in, for example, Baghdad far outnumber those killed in all European attacks of our times combined. In an age of globalisation, we should be more cosmopolitan in our sympathies but the immediacy of 24-hour news make us less so.

When all is said and done, however, pity, like charity, begins at home. We naturally grieve most over those with whom we share a country and a way of life. Most of us have been to concerts and some readers will have been to one at the Manchester Arena. We or our children could have been present.

Cheers from Highgate Cemetery

What a shame that Theresa May modified the Tory manifesto’s proposals on social care. For a few giddy days, she was proposing the most steeply progressive (or confiscatory, as the Tories would normally say) tax in history. True, it was only for those unfortunate enough to suffer conditions such as dementia, but the principle is what counts. It would have started at zero for those with assets of less than £100,000, 20 per cent for those with £120,000, 50 per cent for those worth £200,000, 99 per cent with those with £10m and so on, ad infinitum. Karl Marx would have been cheering from Highgate Cemetery.

Given that most people’s main asset – the value of their home – did not have to be sold to meet their care costs until death, this was in effect an inheritance tax. It had tantalising implications: to secure their inheritance, children of the rich would have had to care for their parents, possibly sacrificing careers and risking downward mobility, while the children of the poor could have dedicated themselves to seeking upward mobility.

The Tories historically favour, in John Major’s words, wealth cascading down the generations. In recent years they have all but abolished inheritance tax. Now they have unwittingly (or perhaps wittingly, who knows?) conceded that what they previously branded a “death tax” has some legitimacy. Labour, which proposes a National Care Service but optimistically expects “cross-party consensus” on how to finance it, should now offer the clarity about old age that many voters crave. Inheritance tax should be earmarked for the care service, which would be free at the point of use, and it should be levied on all estates worth (say) £100,000 at progressive rates (not rising above even 50 per cent, never mind 99 per cent) that yield sufficient money to fund it adequately.

Paul Dacre’s new darling

Paul Dacre, the Daily Mail editor, is in love again. “At last, a PM not afraid to be honest with you,” proclaimed the paper’s front page on Theresa May’s manifesto. Though the Mail has previously argued that to make old people use housing wealth to fund care is comparable to the slaughter of the first-born, an editorial said that her honesty was exemplified by the social care proposals.

On the morning of the very day that May U-turned, the Mail columnist Dominic Lawson offered a convoluted defence of the failure to cap what people might pay. Next day, with a cap announced, the Mail hailed “a PM who’s listening”.

Dacre was previously in love with Gordon Brown, though not to the extent of recommending a vote for him. What do Brown and May have in common? Patriotism, moral values, awkward social manners, lack of metropolitan glitz and, perhaps above all, no evident sense of humour. Those are the qualities that win Paul Dacre’s heart.

Sobering up

Much excitement in the Wilby household about opinion polls that show Labour reducing the Tories’ enormous lead to, according to YouGov, “only” 9 percentage points. I find myself babbling about ­“Labour’s lead”. “What are you talking about?” my wife asks. When I come to my senses, I realise that my pleasure at the prospect, after seven years of Tory austerity, of limiting the Tories’ majority to 46 – more than Margaret Thatcher got in 1979 – is a measure of my sadly diminished expectations. l

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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