A tax on aspiration?

The complex new student support system will result in eye-watering effective tax rates for many low-

Governments, like individuals, often like to believe their varying instincts and aspirations all fit comfortably together even when they don't. They prefer to try to keep these tensions under wraps and sometimes don't even like to admit them in private to themselves. And the coalition is a case in point.

One of its favourite claims is that, despite the fact that all sorts of welfare support is being removed from families on middle incomes, when it comes to the very poorest they are doing more than their predecessors. The pupil premium usually gets a mention here, followed by the expansion in student support for the most disadvantaged.

Another cherished claim is that punitive marginal tax rates for those struggling on modest incomes seeking to earn their way up will be reduced - a point  made with great passion by David Cameron in his 2009 Conservative party conference speech when he railed against an example of a 96 per cent tax rate hitting a single mother. At this point, the coalition tends to highlight the Olympian ambition of the Universal Credit and its effort to integrate benefits and tax credits and create a single, smoother means-test in our welfare system. 

A final claim is that it is right and proper to localise decision making about how to allocate scarce financial support – for instance through the decentralisation of council tax benefit.

Many would want to challenge each of these claims; but let’s leave that to one-side. What should be beyond dispute – though this is rarely recognised – is that these three agendas don’t make for comfortable bed fellows; indeed, they don’t really belong in the same room at all. Try and defend them individually if you so wish, but don’t pretend they add up to a coherent strategy.

The recent Child Benefit saga gave daylight to some of these tensions, demonstrating in vivid terms how poorly designed middle-class welfare retrenchment can generate nasty means-testing problems that then have to be mitigated.  As of next January the removal of Child Benefit from households with someone on over £50k will mean a new 50p or higher effective tax rate for these families if they have one child, and 60p for those with two kids. If the Budget hadn’t had so many other highlights the dragging of the 50p tax rate from the super-rich down the income scale would surely have received more notice.  

Now a new report by professor John Hills, perhaps the UK’s foremost authority on the welfare state (together with his LSE colleague Ben Richards), provides us with another dramatic case study of how different policy objectives combine to form a nasty cocktail. The perhaps unintended and unforeseen effect of a shift to greater private contribution in welfare (this time in the form of higher tuition fees), combined with efforts to protect the position of the very poorest (increased bursaries and grants aimed particularly at families with earnings under £17k), and a nod towards localism (universities run their own support system) is to create a new aspiration trap – truly eye-watering effective tax rates hitting families in low-to-middle income Britain sending a child to university this autumn.

This stems from the way in which the complex patchwork of student support gets withdrawn as household earnings rise. Some of the resulting ‘cliff edges’ soar high above those that triggered the Child Benefit row. 

To understand how this will actually play out in practice Professor Hills considers two families each with a child about to go to the University of Oxford. One family has earnings of £17k and the other £44k – so a difference in gross earnings of £27k.  After we take account of the impact of the overall tax and benefit system the difference between these families falls to £13,250. But once we factor in the additional impact of all the different elements of the new student support system the gap collapses to a grand total of £200 (yes, you read that right).

To restate: an initial difference in gross earnings of £27k between (broadly speaking) a low-income and middle-income family is completely wiped out. The withdrawal of student support, together with the tax and benefit system, creates an effective 99 per cent tax rate on earnings between £17k and £44k. There is no point being better off. And that’s before we consider some truly scary effective tax rates at particular points in the earnings distribution (see chart). I think it is fair to say that the coalition hasn’t fully got its head around the politics of this.

And don’t think this is just some quirky Oxford phenomenon, though the issue is most dramatic there (which, to be fair, is because the support on offer at Oxford for those with the very lowest incomes is most generous). Hills surveyed the support at our largest 52 universities representing 60% of all HE students and finds that it is common for small differences in parental earnings to lead to several thousand pounds less support. 

Now, we can ask questions about aspects of this. There will be some parents who couldn’t care less about the financial position of their 18 year old, so they won't view a drop in support as any sort of hit on the family budget. And the report significantly understates the extent to which the withdrawal of some financial support, like cash bursaries and maintenance grants, may feel more like an effective 'tax rise' on the family than others, such as the removal of fee discounts (which may seem like a problem for the student tomorrow rather than the family today). Despite this the overall argument is strong.

The usually understated Hills concludes that despite the towering rhetoric about the what the universal credit will achieve, some parts of government are moving in “precisely the opposite direction”,  giving rise to new poverty traps. “It looks as if we will see a lot more of this in the future.  Already councils have each been told to work out their own way of making savings on Council Tax Benefit, which could result in them withdrawing benefit faster, adding to the poverty trap – but with rates and rules varying across local authority boundaries.  With budgets under pressure, it’s an obvious reaction to withdraw services from those with higher incomes, while keeping means-tested support for the poor. But what may seem a reasonable response to fiscal constraints while trying to protect the poorest in one sphere may overlap chaotically with other attempts to do the same thing”.

If this new twist to the student finance reforms sparks to life, as its impact on household budgets becomes clearer, it will send a shiver down the spine of leading members of the coalition. At the time they took the decision to bring in the new funding system they knew, of course, they were in for some choppy politics and that those on middle and high incomes would take a hit. But I very much doubt they grasped that it would lead to what many of them would consider to be totalitarian tax rates being imposed on families in the so-called striving classes whose kids are aiming high.

Students walk under the Bridge of Sighs along New College Lane on March 22, 2012 in Oxford. Photograph: Getty Images.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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After his latest reshuffle, who’s who on Donald Trump’s campaign team?

Following a number of personnel shake-ups, here is a guide to who’s in and who’s out of the Republican candidate’s campaign team.

Donald Trump’s campaign chairman, Paul Manafort, stepped down last week. A man as controversial as Trump himself, he has departed following the announcement last Wednesday of a new campaign manager and CEO for Team Trump. Manafort had only been in the post for two months, following another campaign team reshuffle by Trump back in June.

In order to keep up with the cast changes within Team Trump, here’s the low-down of who is who in the Republican candidate’s camp, and who-was-who before they, for one reason or another, fell out of favour.

IN

Kellyanne Conway, campaign manager

Kellyane Conway is a Republican campaign manager with a history of clients who do a line in outlandish statements. Former Missouri Congressman Todd Akin, whose campaign Conway managed in 2012, is infamous for his comments on “legitimate rape”.

Despite losing that campaign, Conway’s experiences with outspoken male candidates should stand her in good stead to run Trump’s bid. She is already credited with somewhat tempering his rhetoric, through the use of pre-written speeches, teleprompters and his recent apology, although he has since walked that back.

Conway is described as an expert in delivering messages to female voters and has had her own polling outfit, The Polling Firm/WomanTrend for over 20 years and supported Ted Cruz’s campaign before he was vanquished by Trump in May. Her strategy will include praising Trump on TV and trying to craft an image of him as a dependable candidate without diminishing his outlier appeal.

She recently told MSNBC, “I think you should judge people by their actions, not just their words on a campaign trail”. Given that Trump’s campaign pledges, particularly those on immigration, veer towards the completely unworkable, one wonders what else besides words he actually has to offer.

Perhaps Conway, with her experience of attempting to repackage gaffes will be the one to tell us. Conway also told TIME magazine that there is “no question” that Trump is a better candidate than Hillary Clinton. Given Trump’s frightening comments on abortion, to name just one issue, it’s difficult to see how this would prove true.

Stephen Bannon, campaign CEO

While Conway may bring a more thoughtful, considered touch to Trump’s hitherto frenetic campaigning, Stephen Bannon promises to bring just the opposite.

Bannon is executive chairman of right-wing media outlet Breitbart, also the online home of British alt-right provocateur Milo Yiannopoulos. Once described by Bloomberg as “the most dangerous political operative in America”, the ex-Goldman Sachs banker can only be expected to want to up Trump’s rhetoric as the election approaches to maintain his radical edge.

Trump has explicitly stated that: “I don’t wanna change. I mean, you have to be you. If you start pivoting, you’re not being honest with people”.

As Bannon leads a news site with sometimes as outlandish and insensitive views as Trump himself, one can safely assume that Bannon will have no problem letting Trump “be himself”.

The Trump Brood, advisers

While his employed advisers come and go, the people that have been unwaveringly loyal to Trump, and play key advisory roles, are his four adult children: Donald Jr, 38, Ivanka, 34, Erik 22 and Tiffany, 22. With personalities as colourful as their father’s, the Trump children have been close to the campaign since its inception.

Donald Jr personally delivered the bad news to Lewandowski, the younger Trumps describing him as a “control freak”. Although it’s common for the offspring of politicians to take part in their parent’s campaigns (see Chelsea Clinton), in Trump’s case the influence of his children goes undiluted by swathes of professionals. This, despite his actual employed campaign directors being experienced establishment figures, adds credence to the image of Trump’s brand as family-based and folksy, furthering also his criticism of Hillary Clinton as being “crookedly” in the sway of bankers and elites.

Lewandowski’s ultimate downfall has been attributed to his attempts to spread negative stories in the media about Jared Kushner, Trump’s son-in-law and husband of Ivanka. Ivanka and Kushner were long-time critics of Lewandowski for his indulgence and encouragement of Trump’s most divisive instincts, and apparently they were integral to his firing.

Whether any good came from this is hard to discern, as Trump still managed to insult the Muslim community all over again with his comments last month about the late solider Humayun Khan, also insulting veterans and “gold star” families in the process.

OUT

Paul Manafort, former national campaign chair

Although Trump called his departing campaign manager “a true professional”, Manafort has recently been beset by personal controversy and criticised for failing to deliver results. Manafort has taken the blame for the poor polling results that have followed Trump’s awful last few weeks, with Trump’s recent (lacklustre and unspecific) apology representing a complete change of tack.

Despite his many years of experience in politics, Manafort fell out of favour with Trump partly because of his spending on media, such as a $4 radio appearance in Ohio, Pennsylvania, Florida and North Carolina. Trump was judging these investments worthwhile.

Manafort’s personal cachet was also diminished by his dodgy links to ex-clients including Ukrainian former prime minister, the pro-Russian Victor Yanukovych. As Trump has already racked up a number of Russia-related gaffes, continued association was Manafort would have likely proven electorally unwise.

Corey Lewandowski, former campaign manager

Campaign manager until Trump’s team shake-up in June this year, Lewandowski was not the picture of a calm and collected operative. With a list of antics behind him such as bringing a gun to work and then suing when it was taken away from him and lacking the experience of ever having directed a national race, Lewandowski was a divisive figure from the start of Trump’s bid for the nomination.

Although Lewandowski most often accompanied Trump on the nomination campaign trail, it was Manafort, even then, who was in charge of most of the campaign’s logistics, making use of his 40 plus years of experience to do so.

Trump was clearly taken with Lewandowski’s aggressive campaign techniques, as he stood by him even when Lewandowski was charged with battery against former Breitbart reporter Michelle Fields. Although the charges were later dropped, these kind of stories do not bode well for Conway’s hopes for a more women-friendly Trump.

***

Perhaps this latest round of hiring and firing will do him some good, but with only three weeks to go until absentee voting begins in some states, the new team doesn’t have much time.