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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In Kezia Dugdale, Scottish Labour has picked an unlikely winner

The party leader is making gains internally at least. 

Kezia Dugdale did not become the leader of Scottish Labour in the most auspicious of circumstances. She succeeded Jim Murphy, who lasted just six months in the job before losing his Westminster seat in the 2015 general election. She herself has survived one year, but not without rumours of a coup.

And so far, she has had little reward. Labour lost 14 seats in the 2016 Scottish parliament elections, and not just to the auld enemy, the SNP, but a seemingly decrepit one, the Tories. She backed the losing candidate in the recent Labour leadership contest, Owen Smith. 

Yet Dugdale has firm fans within Scottish Labour, who believe she could be the one to transform the party into a vote-winning force once more. Why?

First, by the dismal standards of Scottish Labour, Dugdale is something of a winner. Through the national executive committee, she has secured the internal party changes demanded by every leader since 2011. Scottish Labour is now responsible for choosing its own Westminster candidates, and creating its own policy. 

And then there’s the NEC seat itself. The decision-making body is the main check on the Labour leadership’s power, and Dugdale secured an extra seat for Scottish Labour. Next, she appointed herself to it. As a counterweight to Jeremy Corbyn’s supporters, Dugdale now has influence within the party that extends far outside Holyrood. The Dundee-based Courier’s take on her NEC victories was: “Kezia Dugdale completes 7-0 Labour conference victory over Jeremy Corbyn.”

As this suggests, Dugdale’s main challengers in Scotland are likely to come from the Corbyn camp. Alex Rowley, her deputy leader, backed Corbyn. But Labour activists, at least, are battle weary after two referendums, a general election and a Scottish parliament election within the space of two years. One well-connected source told me: “I think it's possible we haven't hit rock bottom in Scotland yet, so the scale of the challenge is enormous.” 

Polls are also harder to ignore in a country where there is just one Labour MP, Ian Murray, who resigned from the shadow cabinet in June. A YouGov exit poll of the leadership election found Smith beating Corbyn in Scotland by 18 points (in every other part of Britain, members opted for Corbyn). Observers of Scottish politics note that the most impressive party leaders, Nicola Sturgeon and Ruth Davidson, were given time and space to grow. 

In policy terms, Dugdale does not stray too far from Corbyn. She is anti-austerity, and has tried to portray both the SNP and the Tories as enemies of public service. She has attacked the same parties for using the Scottish referendum and the EU referendum to create division in turn. In her speech to conference, she declared: “Don’t let Ruth Davidson ever tell you again that the Union is safe in Tory hands.”

So long as Labour looks divided, a promise of unity will always fall flat. But if the party does manage to come together in the autumn, Dugdale will have the power to reshape it north of the border, and consolidate her grip on Scottish Labour.