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

Photo: Getty
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What Jeremy Corbyn gets right about the single market

Technically, you can be outside the EU but inside the single market. Philosophically, you're still in the EU. 

I’ve been trying to work out what bothers me about the response to Jeremy Corbyn’s interview on the Andrew Marr programme.

What bothers me about Corbyn’s interview is obvious: the use of the phrase “wholesale importation” to describe people coming from Eastern Europe to the United Kingdom makes them sound like boxes of sugar rather than people. Adding to that, by suggesting that this “importation” had “destroy[ed] conditions”, rather than laying the blame on Britain’s under-enforced and under-regulated labour market, his words were more appropriate to a politician who believes that immigrants are objects to be scapegoated, not people to be served. (Though perhaps that is appropriate for the leader of the Labour Party if recent history is any guide.)

But I’m bothered, too, by the reaction to another part of his interview, in which the Labour leader said that Britain must leave the single market as it leaves the European Union. The response to this, which is technically correct, has been to attack Corbyn as Liechtenstein, Switzerland, Norway and Iceland are members of the single market but not the European Union.

In my view, leaving the single market will make Britain poorer in the short and long term, will immediately render much of Labour’s 2017 manifesto moot and will, in the long run, be a far bigger victory for right-wing politics than any mere election. Corbyn’s view, that the benefits of freeing a British government from the rules of the single market will outweigh the costs, doesn’t seem very likely to me. So why do I feel so uneasy about the claim that you can be a member of the single market and not the European Union?

I think it’s because the difficult truth is that these countries are, de facto, in the European Union in any meaningful sense. By any estimation, the three pillars of Britain’s “Out” vote were, firstly, control over Britain’s borders, aka the end of the free movement of people, secondly, more money for the public realm aka £350m a week for the NHS, and thirdly control over Britain’s own laws. It’s hard to see how, if the United Kingdom continues to be subject to the free movement of people, continues to pay large sums towards the European Union, and continues to have its laws set elsewhere, we have “honoured the referendum result”.

None of which changes my view that leaving the single market would be a catastrophe for the United Kingdom. But retaining Britain’s single market membership starts with making the argument for single market membership, not hiding behind rhetorical tricks about whether or not single market membership was on the ballot last June, when it quite clearly was. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.