Following other work on tax, I have just been listening to a student paper about the flat tax in Kazakhstan. Most earned income is subject to a flat tax of 10%, one of the lowest rates in the world, but the incomes of some groups are exempt. They include soldiers, police, veterans of the second world war, fire services, some disabled people and their families, the victims of a nuclear accident and lawyers.
Author: Paul Spicker
Simplifying the tax system
Because I’ve been looking at the tax system in the course of the last week, I’ve been considering some of the arguments for “simplification” and the possibility of a flat tax. Some of the allowances and approaches being used are bizarre, and several complications seem unnecessary – for example, the calculation of NIC on a weekly basis when everything else is monthly or annual, the arcane mechanisms for clawback, and the lack of integration with tax credits.
However, I’ve argued in the past that attempts to simplify social security systems are illusory. Benefits have too many aims, they deal with too many people in complex and changing circumstances. The same arguments seem to me to apply with as much force to taxation. Taxation is supposed to do many things at once. Richard Murphy begins with five: raising revenue, repricing, redistribution, fiscal policy and solidarity (though Richard found a way to begin the last two with an “R”). To that I can add at least two others – changing behaviour (incentives, disincentives and subsidies) and conveying a moral position (e.g. in support for families). Add to that the complexity of people’s lives, the things that are being taxed, and the constant changes in circumstances, and I am sceptical that taxation can ever be anything other than complicated.
That doesn’t mean, that nothing could be simplified, or that the system could not be made more comprehensible – for example, by unifying allowances with credits, or by harmonising rates between employment, self-employment and taxation of companies. One thing is unavoidable; in any reform, there will be gainers and losers. If the system costs the same, then some people will be worse off; if no-one is to be worse off, the system must cost more. There is no way round that.
More job seekers
The DWP has sent out 124,000 letters today to tell lone parents with children aged 5 to 7 that they will have to claim JSA instead of Income support, from this May onwards. Yesterday I commented critically about the assumption that the claimant count is expected to fall by half a million in five years …
Taxing pensioners
The government’s plan to reduce the tax allowances of pensioners was clumsily presented. The issue is not, as the IPPR suggested, that pensioners must be expected to bear a greater burden in deficit reduction – that argument seems feeble when the purpose of economies is to support handouts in corporation tax and to reduce the demands made of very high earners. It is, rather, that the distributive implications for pensioners need to be seen in the round. “The net changes made by this government … mean that pensioners are better off.” That is the answer George Osborne has given to criticism, and it is a strong argument.
Pensioners are gaining in some ways, primarily through proposals to increase the level of state pension and in the ratcheting effect of the “triple lock” which means that pensions will rise faster than inflation. They are likely to lose in other ways – through this tax increase, the loss of the state second pension, increases in the pension age, and reductions in housing benefit. (The poorest pensioners, recipients of Pension Credit, will not gain in the short term – but they will nto lose out because of the tax increase, either.) The Chancellor may well be right, but it would be helpful to see the figures laid out more clearly.
Budget 2012
The Budget documents are generally available as soon as the Chancellor sits down, and as always there is a convenient summary in tabular form (though annoyingly, this time it is in the middle of the document, starting at page 50). I am always puzzled by the elements that the press pick out for attention, and those they do not. For example, this morning’s reports include coverage of the measures that benefit Dundee (which is of great interest to me, but possibly not to all of you) while some important measures seem to have passed under the radar. Examples include announcements of
- a single-tier State Pension, ending the state second pension (para 1.212); and
- the intention to allow the minimum wage to be eroded by inflation – it will no longer be uprated to maintain its value (1.242).
Although it has been announced more than once that plans to stop mobility payments for people in residential care were to be dropped, the savings from that measure are back in the tables (top of page 53).
I should add that the numbers of unemployed people are predicted to fall by about a quarter in the next five years (para 1.23), and the numbers of unemployed claimants are predicted to fall to 1.2 million. This will happen at a time when more than half a million people currently on ESA will be reclassified as fit for work and required to claim Jobseekers Allowance instead. The figures are not credible.
Missing appeals
I am not sure that a blog is the best place to solicit information, but a query to Rightsnet has not given me an answer, and I am going to try it here as an experiment. It looks from the stats as though a very large number of appeals are lodged about ESA decisions, but then nothing happens – there is no process, no decision and no outcome. I talked a couple of weeks ago with a group of CAB workers who were expressing concern about disappearing forms, submitted evidence going missing and responses not being received. Is this a more general experience?
Physical activity and sport
I’ve been looking belatedly at the Scottish Health Survey 2010, published six months ago. In the report of the 2008 survey, physical activity is broken down into four categories:
- heavy housework
- manual labour, gardening and DIY
- walking, and
- sport and exercise.
Housework is consistently the most important category; specific engagement in sport and exercise decline rapidly as people get older. In the 2010 report, figures for housework, domestic activity and walking are not given, but there is a breakdown of sports and exercise – including some activities that have little to do with sport, such as cycling and dancing. The tables tell us that participation in sport is heavily biased towards younger males, and that within the category of sporting activity, competitive sports scarcely feature as contributing to exercise.
The report states, rightly, that “there is abundant evidence that regular activity is related to a reduced incidence of chronic conditions of particular concern in Scotland, such as cardiovascular disease, obesity, and type 2 diabetes.” However, the report also claims that “sports and exercise are important elements of any physical activity strategy, and major events such as the 2012 London Olympics and 2014 Glasgow Commonwealth Games are considered valuable ways of promoting physical activity in the population.” There is no good evidence to support that contention. Athletics, and indeed competitive sport in general, make very little contribution to the physical activity of the population. If we want people to engage more in physical activity, we ought to be promoting walking, gardening and cycling.
Additional note, 20th January 2019: An article in New Scientist (edition of 19.1.2019) explains that calorie consumption has a surprisingly limited association with exercise. As obesity is only weakly related to physical activity, physical activity is only weakly related to sport, and elite sport is only weakly related to participation in sport, it’s unsurprising that obesity has no visible relationship to major sporting events.
Raising tax thresholds
There are three main problems tied in with raising tax thresholds. They are all well-known about, but I don’t see them being reported or discussed in the press.
First, it costs a great deal to raise tax thresholds, because it delays the point where rich and poor alike start to pay tax.
Second, the people on the lowest incomes benefit least, because people who pay tax on only a part of their income will not get the full benefit of the increased threshold.
Third, the tax threshold interacts with higher tax rates. Increasing the tax threshold directs more money to rich people than to poor ones, because it delays the points at which rich people become subject to higher tax brackets. It is possible to compensate partly for this effect by lowering the bands for higher tax brackets early. That is what the government has been doing. The threshold for the 40% rate has been applied to progressively lower bands:
| Date | Tax threshold | 40% band | Income level at which 40% tax is paid |
| 2010-11 | £6475 | £37400 | £43875 |
| 2011-12 | £7475 | £35000 | £42475 |
| 2012-13 | £8105 | £34370 | £42475 |
| 2013-14 | £9025 | £32245 | £41450 |
There is a simpler way around the problems. If people are paid the equivalent of a tax relief in cash, and then all income above that is subject to tax, the second and third problems disappear, and it’s possible to pay for the cost of the first by raising the tax. We did this once when we converted child tax reliefs into a cash payment. The allowance is called “Child Benefit”.
Public sector pay
The government expresses concern that public sector pay has risen above private sector pay. That is only to be expected. Whenever services are commissioned from the private and voluntary sectors, lower-paid workers are moved out of the public sector. Those who are left behind are the senior managers whose task is to commission services, and their pay tends to be higher than those of the employees who have been transferred out. This has been the policy of both Labour and Conservative governments for more than twenty years.
Golden oldies
I’m delighted to see that P J Proby has been acquitted of social security fraud. I’m reminded irresistibly of a series of decisions in the 70s and 80s about the replacement of trousers, especially focusing on what was “normal wear and tear.” Examples include a parliamentary debate or the Commissioners’ decision in R(SB) 33/85, when the hapless claimant needing new trousers complained “I felt as if I was on trial for some criminal offence”.
The seam connecting these points will probably only be visible to those over 50. There’s a place for us.