Simple taxes are progressive taxes

The TPA's Matthew Sinclair argues that it is lack of take-up that makes the tax system look biased a

I’m glad Alex likes the graph we made yesterday. Hopefully it makes it a little easier to understand how much everyone is paying. I don’t think he is fair on loss relief, though.

While he says it is difficult to argue with the principle, he also sees it as a “wonderful example of a tax system built with one set of rules for the rich, and another set for everyone else.” But loss relief should be available to anyone who has made a loss in their “trade, profession or vocation”, or is entitled to a share of a loss made by a partnership of which they are a member. Not just the rich. I think lots of traders on quite low incomes, nowhere near the top 50 per cent of the income distribution let alone the top 1 per cent, will make a loss one year and a gain the next and deserve relief for that. If someone loses £30,000 one year, then makes £30,000 the next, they need loss relief.

They might be much poorer over time than a writer who makes £10,000 a year for a few years then £250,000 in a single year – the alternative scenario Alex outlines. But they do have the same fundamental problem: a progressive tax system isn’t very fair on people with volatile incomes.

There is actually a relief that caters to Alex’s example too: “Averaging for creators of literary or artistic works”. In that example, it would mean that the writer could average together the year they earned £250,000 with a year they earned £10,000 and pay tax as if they had two years of earning £130,000. That would mean they could avoid the Additional Rate and pay a tax bill that better reflected their earnings over time. So good news if the New Statesman is a bit stingy but Alex has a masterpiece up his sleeve!

The actual difference between how tax reliefs affect the rich and the poor is less that the rules particularly favour the rich, though they do in some cases. It is more that the rich are much better equipped to take advantage of them. Unclaimed tax reliefs and benefits save the Chancellor billions every year and under claiming is almost certainly concentrated among people on lower incomes, who are less likely to have lawyers and accountants to help them. The take-up rate for Working Tax Credit is only 57 per cent, for example, and businesses have failed to claim tax relief on fittings in commercial properties worth billions.

That is one reason why the simplification of taxes and benefits can be more progressive than it appears. Simpler rules help those without the time or professional support to work their way through a thicket of regulations and reliefs. Tax reform is the only way to cut through that thicket and make it easier for everyone to pay no more, and no less, than their fair share.

Is the tax system stacked against the poor? Credit: Getty

Matthew is the director of the TaxPayers' Alliance

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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