Fuel protests and prices
I can't quite see the sense in
allowing lorry drivers to block a large part of one of the major roads into London - and surely they are just using up more fuel? Maybe it's not illegal as long as they keep moving.
On the question of oil taxation, John Redwood was quoting some pressure group saying that the government has collected £505m in extra taxation because of the higher oil price in just six weeks - so perhaps (given it has been rising over that period) it is now getting more than £100 a week extra. However when you look into those figures the vast majority - I think £400m - comes from higher taxes on oil company profits, not directly on the motorist.
I can't see any point in the goverment lowering taxes on the oil companies. There is also a problem with lowering the duty on fuel. It might seem reasonable, as essentially those advocating a lowering or not raising of fuel duty imply, that the government should have a target price for oil, say something like £158/barrel, which translates to £1 a litre, at which it believes the price meets its environmental and economic objectives, and as such when the world price is far below that it raises taxes and when it is rising it lowers taxes (note the world price is about 43p a litre [1]). Yet there are at least two major problems with this. First, to a small extent given we are a net importer, and a larger extent if other countries followed this policy, it allows the oil exporting countries a free-ride, immune from the impact on demand of their raising prices. So they'll raise prices and all the money will flow out of the country. Second, it's not at all obvious that the UK governmet is a better judge of the oil price than the market, imperfect as it is, and that any taxation to cover environmental or political externalities of oil should not be on top of the market price, rather than contained within it.
Having said all of that, an increase in the fuel duty at the moment does seem politically a bad idea without some other measure. So what I would do is note that (assuming no declne in demand) a 2p per litre rise in fuel duty will raise the government something like £1.4m per day, or about £0.5bn in a year. This could be refunded to motorists by a reduction in the vehicle excise duty, or even a refund, of £100-£150 per vehicle, including commercial vehicles. Hence the environmental and geopolitical arguments in favour of higher oil taxation are maintained, but 'motorists' are not losers.
[1] There are some complicating factors such as the amount of petrol/gasoline you get from a barrel and various costs in refining and delivery.
Labels: Taxation
Residential care for the elderly
The enormous house price inflation the UK has witnessed since Labour took office has created large windfall gains for homeowners, gains which decline the more recently they purchased their house. The generation, then, that is likely to die in the next 20-30 years has been the biggest winner, and it seems Tory policy is to do anything to let them, or more accurately their children, keep hold of those gains. First we had plans for cuts in inheritance tax, at the expense of higher taxes elsewhere, and now we have suggestions of
free (after a time limit) residential care for elderly people who can't look after themselves (and neither can/will their children).
I can see arguments in favour of this policy, but more against it. As normal it will mean higher taxes elsewhere, i.e. mainly on people aged 20-40 today. I would suggest a compromise in which the cost can be deferred until after death, and come in the form of a special inheritance tax (which otherwise won't be levied given the tax changes).
Labels: inheritance tax, Taxation
The 10p starting rate
Robert Chote, of the IFS, has a
good article on what is going on. Basically its the policy that Labour have followed since 1997 - support for pensioners and households with children, at the expense (or at least without benefitting) single adults. There is of course a good case for this as Chote notes -pensioners and children have the least ability to do anything about their own income. But it perhaps doesn't feel like that if you are a poor to relatively poor single person.
Labels: economics, Taxation
North South divide in tax and spend
The
Daily Mail has some figures (not necessarily correct, however I find the Mail more accurate than say the Telegraph in these matters). There seems no recognition, however, that the differences between areas might to some extent reflect difference in income, and what is seen as regional transfers are also income redistribution. You might not agree with that, but it should at least be referred to.
Labels: economics, Taxation
What % of Americans are richer than you?
Well you have to go back to 2005, as that's the
last available data.
To be in the top 1% of
income tax payers you need to earn (individually) $365k, whcih is about £180k or I guess £200k back then. To be in the top 5% you need $145k, or about £70-80k, and the top 10%, $104k, which his £50k or a bit more.
Labels: Taxation, usa
Inheritance tax again
The Daily Mail is hilarious today. It says at one point that the government's proposal does nothing for the 500,000 couples who already split their assets so as to both benefit from their nil rate of inheritance tax. Er...yes, that's because they aren't paying the tax.
What does the Mail want - perhaps George Osborne should counter with a proposal that the government will 'top up' inheritances, perhaps matching them £1 for £1. On the score I presume the Tory policy will quietly be dropped, as it now just seems like a £1bn bonus for the very rich.
Labels: Taxation, Tories
Inheritance Tax again
Why does it arouse such anger? The principle seems sound - tax mostly unearned inheritances rather than productive work. It is one of the easiest to pay, as it is levied as a % of money you are about to receive - not say like council tax. But in any case, most people don't pay it (about 5% of estates paid it in the latest available year, 2004/2005), and most people will never pay it if present trends persist (the rate goes up, house prices are likely to stagnate).
Many explanations can be easily dismissed. That it could be because they
think (wrongly) they are going to pay it, or because they
expect to pay it, much like people put their income in much higher bracket than it really is. Yet today's Mail on Sunday has a poll which puts
paid to this line of thinking:
Only 20% say they would expect to inherit enough to qualify for inheritance tax at its present threshold of £300,000. And only 33% expect to leave enough money to make their children liable to pay death duty.
Given people must know the threshold will increase in 10-50 years before they die, this last figure must actually massively over estimate those who even
think they will pay it. And yet the article says
71% welcome the Tories' proposal. It is also suggested that this issue is more salient in Britain than in many countries.
Another often heard suggestion is that people resent double taxation, i.e. the money has paid income tax when it was earned, and then again when it is disposed of. That this only applies to the dead person, and also that much of the concern is said to be highly inflated house prices, which of course weren't taxed, are factors to consider here. But more importantly, people don't seem to get so upset about double taxation that affects them every day, most noticeably VAT on expenditure funded by income that has been taxed. I think I even saw a poll that said people would prefer a cut in inheritance tax that won't benefit them even if it means a rise in VAT which will hurt them.
Is it the rate then - at 40% -- seen as simply too high? I find this a little hard to believe too given people seem to think its fine that higher-rate taxpayers pay that marginal rate on
productive work, or at least if not 'fine' then there is not a huge campaign to get it reduced.
It must then, I think, be something to do with the nature of inheritance itself, an d as such although it won't affect most people much, and they realise that [1], they simply don't believe inheritance per se should be taxed. The most obvious explanation here is that it is a rare example of inter-family transactions on which tax is paid. The same would be true if your father employed you, which doesn't seem to be such an issue, but that is pretty rare. Nevertheless again I'm a little sceptical to this as an explanation as Britain hardly has the most close of family ties. The Daily Mail not only wants no inheritance tax but it also wants the state to pay for nursing care for people's parents, so 'they don't need to eat into their savings'.
I think for the inheritors it might have something to do with a British love of a "freebie", the idea that if you can get away with doing no work you should do no work. For many people their parent's house has risen in value far more than any savings they could ever hope to accumulate. This idea is boosted by the fact that many of the people who get most exercised about inheritance tax always strike you as the ones who aren't going to make the money any other way [2]. Maybe those who aren't going to benefit still enjoy the thought of others' doing so. Yet I don't really know if this is a particularly British characteristic, and if it is one that is strong enough to outweigh the other factors, or what those who have money to leave get out of it.
Unfortunately the case is probably lost. Will Hutton has a go
here, and his arguments are sound, but even he somehow seems to have decided it is a tax the poor pay (his figures seem all screwy).
[1] Although I have doubts people realise the tax is 0% rated below £300k or thereabouts and tax is paid only on the balance - as two people I know who have financial-related jobs didn't know this.
[2] This would fit in with Tim Worstall's argument, that inheritance is good for social mobility because the children always fritter it away.
Labels: Taxation
Inheritance Tax proposal
The inheritance tax threshold is to rise to £1m. The proposal will cost around £4bn, which is going to be funded by an annual levy on the right to declare yourself 'non-domiciled' for tax purposes.
The proposal is very skewed towards the rich. In 2004/2005, 5.4%, or 32,000, estates paid inheritance tax, which raised £3bn. Of this 2,700 estates of over £1m paid £1.3bn. The beneficiaries of these super-estates will under Osborne's proposal receive an extra £280,000 or so. 6,722 estates over £0.5m paid just under £1bn, an average of £142,000 each, which they would now not have to pay.
I can't agree with in terms of good governance. All taxes have opportunity costs. The opportunity costs of this seems particularly extragavant. It would (on 2004/2005 figures) lower the tax of people inheriting between £0.5m and £1 by £142,000 on average, and of those above £1m by £280,000 on average. The money foregone here, from less than 10,000 estates, could have been used to cut income tax by 1-2p in the pound for millions of hard working families.
The more thoughtful advocates of such a proposal note that with rising house prices more and estates would be subject to inheritance tax. Yet this means that income tax could have been lower and lower. I'd rather tax bequests (often simply due to house price inflation) than productive work.
Labels: inheritance tax, Taxation
Tax and Smith & Williamson
"Familes pay 50% more tax under Labour", screams the Daily Telegraph, repeating (I assume, as the conclusions seem as absurd) an updated version of the completely flawed analysis undertaken by Smith & Williamson three (can it really be? - must be because of the prospect of an election). As I noted last year, here and here, the implications of this analysis are either that the average family buys a £1m plus house, or they move house every year.
More based in reality is the Sunday Telegraph's rather similar story, which is that "income tax had doubled under Labour". By this the mean twice as money is now collected by income tax than it was in 1997. This seems plausible. However they then say:
Official figures show a 100 per cent increase in the tax burden faced by wage earners – whose income has only risen 40 per cent since 1997.
This is less defensible. The wording 'burden' implies usually the % paid in tax, rather than an absolute figure. In any case it is only correct if 'wage earners' means ALL 'wage earners' as collective group, not an average individual. As the article notes later there are more 'wage earners' than there was in 1997. Finally, that 40% figure looks very suspect. It would mean that average earnings have risen by 3.4% a year since 1997 - in NOMINAL terms. So less 2.5% inflation, that would be real wage growth of just 0.9%, which I think is too low. The National Statistics data suggests more like 50%.
Labels: economics, Taxation
Northern Rock and the Taxpayer
Press coverage of the Northern Rock, credit crisis, etc has been all over the place. Business editors of newspapers are suddenly experts on monetary policy, able to tell Ben Bernanke how it should be done. There's been almost no consistency either, with sometimes the same article appearing to both demand government intervention, and attack it. On the whole there has been much criticism of the Fed -
This was a particular favourite.
Alan Greenspan, the Fed chairman's celebrated predecessor, spent 20 years putting off the day of reckoning by cutting the cost of money at the first whiff of trouble.
TWENTY YEARS putting off the day of reckoning? So it should have been in 1987, 1988, 1989 and so on? Given the US economy must have nearly doubled in size in those 20 years I suspect almost everyone would take the putting off, rather than the apparently desirable pain.
This story quotes the Taxpayer's Alliance. I have some sympathy for their view, although the political realities were such that I doubt any government would follow the course they suggest. My concern though is that the Times calls them an 'organisation representing British taxpayers'. I think this should be 'organisation that purports to represent British taxpayers' at the least, unless they have a huge mass membership I am unaware of.
Labels: economics, finance, monetary policy, Taxation
Trident
I'll post a
comment I made over at Jamie's:
I'm strangely optimistic about Trident's replacement, or moreover, it not happening. A lot has been made about the lack of controversy over replacing it compared with that of the early 1980s. But there seems also a lack of controversy about scrapping it too. This might reflect general political apathy, or just that the support/opposition for it is spread more evenly across the polical classes.
In the end I think it'll be like ID cards - popular (ish) until the cost is known, and then given a choice of the carriers or the subs they'll go for the carriers.
Labels: Decent Left, defence, England, Nukes, Taxation
IDS and Blair's Breakdown Britain
I thought there were a lot of worrying statistics and facts in this
IDS piece on current British society (via Chris Dillow) based on a report he is releasing today:
Our report shows that 750,000 more people have incomes below 40% of median income than a decade ago [MT update: Note, I calculate this to be (in 2004/05) £122 per week for a two adult household, £66 per week for a single adult, £180 per week for two adults living with two children, and £124 per week for a single adult living with two children - It'll be interesting to see the Report as you would have thought any access to government benefits would have raised income above these levels - maybe he means pre-benefits? Or students?]
Almost 11m people in Britain today suffer from relationship problems as a result of debt
Last month the prison population reached 80,000 for the first time. In 1993 the number incarcerated was just 45,000.
On the other hand I am less convinced by its view that it is all the current government's fault - most parents after all were born and went to school under Tory governments, and most of the worse trends have been getting worse for quite some time. Furthermore:
Even those who win promotion or salary increases can face marginal tax rates of up to 90%, leaving a large section of society with little incentive to better itself.
This is an oft-repeated statistic and usually you know it is going to lead to the right-wing quackery solution of a 'flat tax' (though IDS is nowhere near that simple, at least in this piece), but I really question how important it is. Chris Dillow again noted that there are two incentives going on - the first to get a job, and the second to get a better paid job. Labour have worried most about the first, and least about the second. This is not necessarily the wrong priority - how many people on below 40% of median income have jobs?
Finally IDS says:
A child from a family in poverty today is less likely to rise to the top of the income scale than a child in 1970.
I've heard this before, and it obviously is not outlandish if - as we know - inequality has risen and social mobility has fallen. But how do they know about children born today?
Nevertheless this report certainly sounds a more useful occupation for IDS than flying to Washington and agreeing with Republicans that Britain needs to increase its defence budget (and in any case that role is now over filled by excitable Blairites). He concludes:
The increasing gap between those in severe long-term poverty and the rest of us has depressing implications for the future health and cohesion of our society.
Update: Here's the
report - which a quick glance suggests could be quite informative.
And here's the chart on the issue of poverty. IDS's claim is that the 60% of median income target has been abused, so there's now a larger proportion of people on 62% (say) than on 58%, which helps meet the targets set on poverty reduction. However this has been bought at the expense of more people on 40% (125,000 families with children, apparently). I wonder if the data is accurate enough to arrive at that conclusion, but its certainly thought-provoking. Here's the chart - click for larger version.
Labels: economics, England, politics, Taxation
The Ashes, 3rd Test
England are 9-1 to win. I think that's generous of the bookmakers and have bet accordingly. Please note this is not a tip - my betting record is terrible.
Labels: economics, sport, Taxation
New lows
I can't quite believe
that the Shadow Chancellor of the Exchequer took 14 handwritten words from the Chancellor of the Exchequer and gave them to a handwriting 'expert' to come up with a character profile. What was the point? Are all the Shadow Cabinet going to submit to the same 'analysis'? The sooner David Cameron appoints 'Save the Pound' to the job the better.
Labels: economics, politics, Taxation
Taxation out of the control
Fascinating chart in The Economist this week which shows
PwC's attempts to calculate the entire tax burdern on a typical small firm. The UK seems to have the 5th lowest, whilst its compliance costs in hours is (I think) the 4th lowest
Labels: Taxation
