Fairer Taxes: My Article for Lib Dem Voice

Yesterday, I had an article published on Lib Dem Voice.

Here it is. This is the text as submitted, rather than as edited - so you can play spot the difference!:

Earlier this week I saw this tweet from Paul Lewis of BBC Radio 4's Moneybox programme:

The 2014 rise in personal tax allowance worth £112 a year for basic rate taxpayer but £39 if on U Credit, & £195 for higher rate taxpayers.
— Paul Lewis (@paullewismoney) April 2, 2013

This struck me as odd, so I asked Paul how he calculated the £195 figure (I do not know enough about benefits and Universal Credit to make a judgement on the £39 figure). He quickly answered:

@oneexwidow >> Correctly! Checked by accountants. Using these figures hmrc.gov.uk/budget2013/tii…
— Paul Lewis (@paullewismoney) April 2, 2013

As I was busy with other things at the time, I was only able to have a brief look at the document and, initially, slightly mis-interpretted the info:

 

@paullewismoney Thanks! Have had look as puzzled - down to interaction of Personal Allowance rise equating to 0.6% vs. 1% increase in HRT
— Andrew Brown (@oneexwidow) April 2, 2013

The glaring mis-calculation I made was the percentage increase in the Personal Allowance (PA) which is of course 5.9% rather than 0.6% as I wrote! The underlying analysis however was right - the discrepancy in figures is due to the interaction between the increase to the Personal Allowance and the increase in the Higher Rate Threshold.

 

It stuck in my mind as something worth looking into further - and worth questioning whether this met with our aims of Fairer Taxes.

 

By 2014, the Personal Allowance will have increased by over 54% from its level in 2010. It's something that we're justly proud of, and which we can be reasonably sure neither of the other two parties would have done alone (as I outlined here http://oneexwidow.blogspot.co.uk/2012/12/a-free-ipad-mini-for-everyone.html).

 

Since 2010, the threshold at which Higher Rate Tax become payable has fallen to help offset the rise in the Personal Allowance. This has led to the Basic Rate Limit (earnings between the PA and the Higher Rate Threshold) being squeezed from both ends, and to the upper threshold being reduced from £43,875 to £41,450.

 

Next year, however, the Higher Rate Threshold will rise by 1%, and it is this rise which gives every taxpayer earning above the new limit (but less than £100,000) a tax cut of £195 as opposed to "just" £112.

 

So, the question: is this fair?

 

Now, it could be argued that £112 is worth much more to someone earning £10,000 than £195 is to someone on £41,865 or above - and this is certain to be true in the vast majority of cases. It can also be argued that reducing the Higher Rate Threshold is, effectively, a tax on aspiration - and I am not without sympathy to this view. But at a time of austerity when we are making a big spending commitment on increasing the Personal Allowance, should we be providing greater benefits to Higher Rate Taxpayers?

 

Although the numbers of Higher Rate Taxpayers have increased over the years, it should be noted that the threshold at which 40% becomes payable (£41,865) is still some way above the median gross income (£26,500).

 

It may not be the stuff of popular campaigning, but perhaps we should be pushing behind the scenes for the Higher Rate Threshold to be frozen. Going forward, we should consider how we manage tax bands so that they remain progressive whilst minimising such anomalies.

 

Andrew

Corporate Tax Avoidance

I put a speaker's card in for Stephen Williams MP's Corporate Tax Avoidance motion today (page 44) but didn't get called. But this is what I would have said...

Conference,

Taxation is a vast and complex area but it is also one in which it is easy to be populist and to create scapegoats. Where perceived injustices are used to draw dividing lines between us and "them" as movements such as Occupy do.

When determining taxation policy we need to be clear about our aims, objectives and targets.

We should be seeking a taxation code that is fair and reasonable. Where individuals and companies can contribute to society but not be penalised for success.

Conference, it's easy to be populist - and it's easy to attack large earners. But we should resist doing this without a broader strategy for taxation policy: we should speak out against inequalities in our tax system but we should resist the damaging rhetoric of Occupy and others on the left.

We're not - or shouldn't be - out to get the 1%. We're not "for" the 99%. We're for - or should be for- the 100%. Where everyone but the poorest contributes, the richest contribute more, and where everyone benefits from an effective tax code.

And when it comes to Corporate taxation, we should likewise exercise care in our language and motivations. It is easy to attack multinationals but we shouldn't attack big successful companies just for being big and successful. We should attack them when and where they transgress - and we should recognise and seek change where our taxation system is no longer fit for purpose.

But Occupy have one thing right: this is a global issue.

This motion seeks to address the global nature of modern business. To work towards a world where profits are taxed where profits are made - where a latte made in Basildon isn't taxed in Basle.

A world where contrived and artificial corporate structures designed to reduce tax rates are called out for what they are.

It seeks a transparent world, a world where corporate tax receipts will benefit the employees who generated the company's profits - wherever they are.

It's a motion which seeks tax justice - addressing a culture of tax avoidance in less developed areas of the world. That seeks to shine a light on the movement of profit not just out of the UK, but also out of the developing world and to extend the principles we have historically applied in the west so that others can develop more robust regimes and generate revenue.

It's ostensibly about tax avoidance but ultimate it's about moving towards tax fairness internationally.

Conference, please support the motion.

(Note: the motion was carried unammended)

Andrew

The end of the affair... falling out of love with Starbucks

Reader, dear reader, I am heartbroken. Once upon a time, I was in love. Now, no more. The objection of my affection has featured on these pages before. Back in March last year they were wowing me with their enthusiasm and theatricality.

Oh, I knew that their coffee wasn't the best - but I was in love with an idea. A contrived Americana on every corner. Years ago, at the height of my habit, in one store I used to frequent, they would be making my drink before I'd even got to the till. More recently, I enjoyed a weekly treat from Apple's iTunes - an App, or Book, or Song. They called me by name, they even made my previous drink of choice (a Double Tall Caramel Macchiato) into the standard Tall Caramel Macchiato. I felt, well, special...

My cousin and wife may have worked for Costa, the independent café I visited every morning (£2.20 for Latte and Croissant) may make better coffee, but there was still a soft spot in my affections for... No, I can't even bear to say the name.

You see, dear reader, a month or so ago, news broke that my love had managed to arrange their affairs in such a way as to pay minimal tax. Now, there is nothing wrong with arranging your tax affairs so you don't pay more than you need to, or should do. But when you contrive your arrangements in such a way as to pay next to nothing - well, it crosses a line. A subjective, moral line perhaps, but a line none the less.

Despite appearances to the contrary, it now seems they declared losses in the UK in 14 of the past 15 years. A 15 year period of constant and rapid expansion - it seems odd, does it not, to keep flogging a dead horse for so long. Perhaps a shop on the next corner will be the one which makes us profitable...

Of course, all that time, they've reported to shareholders that the UK is profitable and promoted their UK head to a post in their home market. Indeed, they promoted their UK head, Cliff Burrows, to be president of their US business. Talk about reward for failure...

They've tried to win me back. The day after I discovered their dirty little secret, I received a voucher for a free latte (part of the regular reward programme). They've tried to explain themselves here and here. But, dear reader, it's all too little, too late. How can I ever trust them again?

And, like every break up, we need to work out whose stuff is whose. They had £10.40 of mine* - I'll be damned if they're keeping that. I don't think I have anything of theirs. Turns out, I was always the honest one in our relationship.

Now they're trying to make things up HM Revenue and Customs. Seeking to re-negotiate what they will pay tax on - volunteering not to offset the royalties paid to their EMEA Headquarters in the Netherlands against Corporation Tax. How very big of them...

But now, today, comes news that Starbucks are to seek to change the terms and conditions of their employees. They may be giving with one hand, but it looks like the other is ready to take away from their "Partners".

I'm not a fan of "Big is Evil" type arguments, I'm not normally a fan of consumer boycotts either, I know that Amazon, Google, Apple and IKEA (amongst others, and all of whom I have relationships with, such a tart as am I) all have similar practices, but it's time to draw the line. 

Starbucks is, it seems, one of the worst offenders - it's time to take a stand. 

You can sign a Lib Dem sponsored petition here and stop patronising them. Perhaps then they will stop taking us all for a ride.

Andrew

*I've got special dispensation from Stephen Williams MP - the Lib Dem leading the charge against Starbucks - to use up the funds on my card. A Venti Gingerbread Latte and Mince Pie were much enjoyed last week; if you see me with another, that is my excuse...

Some thoughts on... the Autumn Statement

Today it was the Autumn Statement  - as ever there was a mixed bag of measures: some good, some bad. Here are some of my thoughts on a handful of the key areas:

Growth

Growth - or the lack of it - is the biggest issue stalking our economy. Labour would have us believe that we could have spent our way out of the aftermath of the 2008/09 recession, created growth and maintained our international standing. The Tories (and the Government) are adamant that we had no choice in the course of action we took, that we are more stable as a result and that lack of growth is a global, not national, issue. Many Tories would have liked to go further, of course.

The truth is, of course, more nuanced and somewhere between the two positions outlined. I have no doubt that we needed to reign in spending and address the deficit and put in place a plan for the debt. I don't believe that we would have retained our AAA rating this long without doing so - although that is likely to go in the new year. I don't believe there was (or is) a magic bullet to creating growth and I think that continued spending would have created an illusion of growth whilst storing up greater problems for the future. 

And - just as Labour were right in 2008/09 to say that the recession was a global phenomenon (albeit they had squandered a surplus that could have helped us weather it) - the Government is right to point out that other countries have their own growth issues with forecasts abroad being revised down as regularly as ours. It is true, though, that we have lagged behind Germany and the US in this area over the past few of years.

But we patently haven't done enough on infrastructure, capital expenditure and bank lending. There are signs of movement on this but real action needs to be taken right across the country (and not just on Crossrail, the Northern Line, the M1 and M25!).

Benefits

Last year, the Lib Dems won the battle for benefits to be increased by the full rate of September's CPI (an unusually high 5.2%). This year, it is suggested that the Tories wanted a freeze but have conceded to a 1% rise for benefits (excluding Disability and Carer benefits, and the State Pension) for each of the next three years.

Whilst I was supportive of the move from RPI to CPI in indexation for benefits - and am sympathetic with those that argue that many working people have had to endure sub-inflation rises or pay freezes for many years now - benefit levels are set so low it seems iniquitous to increase them at a rate lower than the rise in inflation. Indeed, low income households are disproportionately hit by higher than inflation rises in heating and food costs.

Whilst working people haven't had it easier - those at the lowest end of the earning spectrum have benefit from rises in the Personal Allowance and the National Minimum Wage which will have (to some small extent) offset rises in CPI in a way that those on benefits will not be protected from at all.

Taxes

Good news - very good news - came in the form of the announcement that next year's personal allowance will be increased by an additional £235 to £9,440. That means that, from April, basic rate taxpayers earning more than this threshold will be £47 better off, over and above the £220 already earmarked. An extra £22.25 per month.

We may go on (and on) about it - but this is one policy that Liberal Democrats can be truly, truly proud off: the £10,000 Personal Allowance threshold is in sight, and our aim must move beyond that. Next stop: taking Minimal Wage earners out of Income Tax altogether.

Pensions

As someone who works in the Life and Pensions industry, I have mixed feelings about today's announcements. The added complexities and transitional arrangements that the new limits for tax relief on pension contributions (and what can be accumulated over a lifetime) will create more headaches in area already reeling from a series of reforms and changes.

Personally, I do think there's room to simplify the rules around tax relief, to save fund for the exchequer and to avoid pensions being used to avoid too many other taxes - whilst still encouraging pension savings. Reducing the amount that can be contributed annually to £40,000 does not seem unreasonable in the current climate. 

Historic note: Labour introduced the annual allowance in 2006, since which it has been cut twice - once to £50,000 and now to £40,000. It's starting level? A cool £215,000 rising to £255,000 before being slashed by the coalition. The Lifetime Allowance has gone on a similar journey - from £1.5M to £1.8M and back to £1.5M, with a cut to £1.25M now announced for 2014...

I think, on balance, I'm now in favour of tax relief being limited to the basic rate on contributions made - and an annual allowance around the level at which higher rate tax becomes payable (which the current level of £50,000 would be - I'm not going to quibble at the £40,000 level, though!)

I do think more work needs to be done on the passing on of pension savings - allowing them to inherited on the basis that they remain pension funds, subject to pension rules on the taking of benefits. At the risk of introducing complexity, such inherited funds could be made liable to taxation prior to the inheritor becoming eligible to (or taking) benefits. Thought should also be given to allowing earlier access to a proportion of pension savings - this may help people who would otherwise baulk at locking their funds away to save more.

What is needed, more than anything, is a long-term, sustainable, stable approach to pensions which encourages savings, gives certainty on the benefits and introduces some flexibility into the system. 

Fuel 

The cancellation of the latest (and already postponed) rise in fuel duty will be very much welcomed. I, though, must pronounce myself sceptical on this: the logic of the fuel escalator (present for year, and formalised by Gordon Brown, let we forget) is that as fuel becomes more expensive, people are encouraged to seek alternative forms of transport. Whether or not incremental changes would or do achieve such an aim is, perhaps, a moot point.

The escalator was put in place prior to the some pretty steep rises in the price of oil (and exchange rate fluctuations haven't helped, even if the Dollar price has eased). The price has gone up (seemingly*) constantly but people are still buying fuel. These external pressures have meant, though, that the escalator has, more often than not, stalled.

As things stand, prices of Unleaded Petrol have dipped from their high point in the summer; the three pence (2.25%) rise in duty would have resulted in prices still six pence per litre shy of their high point. For comparison, rail fares are due to go up by (on average) 4.2% in January.

This may not be popular, but I'd have left this rise in duty in place.

There is, of course, much more that can be said about the Autumn Statement - and I'm sure much of what I would have said will be said elsewhere. For now, though, I've said enough.

Andrew

A Question of Tax Reliefs

So George Osborne is shocked that some of the highest earners in our country organise their tax affairs to minimise the amount of income tax they pay in order, presumably, to live off capital and, perhaps, dividends. To be fair to the chancellor, it is the scale of the issue which has shocked him. Nonetheless, Twitter has been awash with witty rejoinders, my favourite of which was:

Much has been made of the various reliefs and schemes which are being used (and abused) to achieve very low rates of tax for the best paid. The government is absolutely right to target those that use schemes which are designed for the good of society to minimise what they contribute to the state.

And the government should go further and target those companies which package products - within, say, the EIS and VCT rules - but which major on the benefits to the investor and invest in relatively safe sectors. EIS relief, for example, on the basis that such investment is risky, hard for companies to raise elsewhere and essential for the economy. Should we really be granting relief to those investing through structures where the risk is spread and the capital is reasonably secure?

But a lot has also been made of tax reliefs on gifts to Charity and this is the point at which I fear we may be in danger of throwing the baby out with the bathwater. Providing tax relief on charitable giving is a genuine social good, a real example of the Big Society. It also provides donors large and small with the reassurance that the state appreciates that there are some things it's not appropriate to fund from taxed income. The Charities Aid Foundation has responded robustly along these lines.

There was a suggestion from a No.10 spokesman that some of the gifting in question is "to charities and those charities don't, in all cases, do a great deal of charitable work." If this is the case, then such organisations need to be referred to the Charity Commission (or equivalent in Northern Ireland and Scotland).

There may, of course, be alternative approaches to this issue. Perhaps we should seek to encourage the wealthiest to share it through charitable giving from their accumulated capital, rather than income? I've given this a little thought and put together a modest list of proposals:

1. Open Gift Aid to everyone - including non-taxpayers. Rather than donors declaring that they are a UK Taxpayer who has paid tax at least equivalent to that reclaimed, a simple "I am a UK citizen and/or I am a UK Income Tax Payer. With the raising of the personal allowance and hundreds of thousands being moved out of paying tax - we should not be disincentivising those people from giving.

2. Limit Tax Relief on donations through the gift aid system to the level of threshold for Higher Rate Tax (£42,475 gross in 2012/13 - equivalent to a net gift of £33,980). This should provide incentives for sizable gifts from those on incomes in the hundred's of thousands of pounds whilst limiting the extent to which charitable giving can be used to minimise income tax.

3. Provide compensation for the limit of Income Tax relief by introducing the ability to offset capital gains made on gifts to charities against gains made elsewhere. This could be done through a scheme I've christened "Charitable Assignment".

It could work this way: A donor decides he wishes to donate invested assets to charity. Rather than encash their assets, make the gift and complete their tax return accordingly (paying Capital Gains Tax (CGT) on the gain whilst claiming Income Tax Relief on the full gift) they complete a Charitable Assignment form. The provider then cashes the investment, pays the proceeds direct to the nominated charity and issues the HMRC and the Investor with a certificate detailing the gains made. The donor can then offset this against other gains and reduce their Capital Gains Tax bill.

Of course, I have no knowledge of the cost implications/revenue potential of these suggestions or of any legal implications - but I do think that in addressing the issue of abuse of income tax reliefs, we should seek to negate the effect of the rule of unintended consequences.

Andrew

What would you do with £60 a month?

This is a cross-post from Lib Dem Gains.

This is another post about the Liberal Democrats push to increase the Personal Allowance towards (and beyond) £10,000. I make no apologies for that, although I do promise to focus on other things in future posts.

I mentioned in this post about Caron Lindsay's idea that we should relate the figures of tax saved to real-life examples of what this money could be spent on. It appears that Caron's wise words have been listened to by the party as members got an e-mail from Party President, Tim Farron on Friday.

In it he discussed this issue and launched a website encouraging people to think about how they would spend an extra £60 a month. (This represents* the basic rate tax saved by increasing the Annual Allowance from £6,475 when the coalition took power - which was unchanged from previous year - to £10,000.)

So what are you doing with the £16.67 you're already saving in income tax each month? What would you do with an additional £43.33?

For myself, it'd make things a bit more comfortable while I pay down debt and save for a trip to Australia. I appreciate, though, that that isn't going to help with an economic stimulus, so I shall also purchase new clothes, which are even more desperately needed now I've lost over a stone in weight!

You can respond here and say what you would do? Note that the website asks for an e-mail address which is, presumably, for authentication purposes but may also lead to you being added to a mailing list.

Once you've completed the form, the site will also give you information about the impact of the policy locally. In Bristol, 16,200 people will be taken out of Income Tax altogether.

Andrew

*Pedants note - the actual figure before rounding is £58.75.