Monday, March 26, 2012

Owen Jones and other tax errors

Oh great, you wait weeks for a post and then he does one about tax.

Now funnily enough I don’t claim to be an authority on UK tax law – this being so unfathomably complex that the Coalition felt the need to establish a whole Office dedicated to its Simplification - but having written professionally about the last fourteen Budgets I do have a grasp of the most basic basics. Which is more than can be said, it seems, for many media commentators who do claim the authority to pronounce loftily on matters fiscal and budgetary.

Consider Owen Jones, a genial, baby-faced 1970s Trotskyite throwback, who appeared on This Week last Thursday with a little film in which he claimed, to my unfolding astonishment, that the cut in the top rate of income tax from 50% to 45% was like ‘‘writing
a cheque for £40,000" to 23 members of the cabinet which would enable them to purchase 288 bottles of Cristal champagne every year.

Jones had come to this bizarre conclusion by confusing the idea that 23 members of the Cabinet are ‘millionaires’, ie. worth over £1m pounds, with the idea that each must earn one million pounds every year.

Thankfully, Andrew Neil did point out the gaffe (and to his credit, Jones did later own up to an ‘embarrassing cock-up’) but I’d like to know why the BBC’s producers allowed him to make it, complete with champagne flutes as props, in his film? It was humiliating for Jones and also misleading for any viewers who might have turned off before Neil corrected it. So either the Beeb knew Jones was talking twaddle and allowed him to do so anyway for the purposes of starting a row in the studio, or, more likely I suspect, the producers of one of the BBC’s major in-depth politics programmes don’t have a sufficiently solid grasp of the fundamental principles of taxation that a screaming error like this does in fact scream at them.

Owen Jones has a simple, reactionary political view: he thinks it’s morally wrong that some people are richer than others. The problem is that he feels competent to make public comment on the details of the Budget in the light of this view. There’s a lot of this sort of thing about, largely driven by the UK Uncut movement, which tries to aim the radical protest politics of the Occupy ethos at the tax arrangements of big businesses and wealthy individuals. Sometimes tax stories are legitimate, but mostly they just confuse, conflate and oversimplify.

Take this story entitled ‘One Direction become company directors to avoid tax’, in which it is insinuated that because the members of a boy band will receive their earnings through a company rather than being paid directly, they can save huge amounts of tax:

Private companies in the UK pay around 28% tax on profits, compared to 50% income tax for individuals earning over £150,000 a year. Expenses such as travel, clothing and make-up also become tax-deductible.
One Direction could save up to £220,000 for every £1m they earn.

Leaving aside that using a company is a much more sensible way for them to structure their earnings than trying to operate as individuals (they will have multiple, international income streams with jointly incurred expenses and will presumably equally share the net results of all that), the claim that they can make tax saving of £220,000 per £1m income is crazy, first because they would only pay 50% income tax on earnings over the £150,000 top rate threshold; but more importantly second because it assumes they won’t actually extract any income for their own use (as soon as they do that they have to pay tax on dividend income, the rates of which are no less eye-watering than income tax ones).

I guess you wouldn’t expect DigitalSpy to apply much in the way of standards to its reporting, but my conclusion following the Budget coverage is that nor does the rest of the mainstream media. The ‘granny tax’ debacle – only an issue because the Lib Dems leaked all the good stuff instead of this ahead of the Budget – is a perfect illustration of how a memorable label can frame the debate. Probably some guy on Twitter coined ‘granny tax’ to describe a freeze in a proposed future allowance increase, and suddenly the Budget narrative on the BBC, Channel 4 and virtually all the newspapers is: “Osborne funds tax cut for millionaires by taxing pensioners” – a ridiculous way to summarise a Budget the net changes of which, most significantly the increase in the basic rate threshold ,will make the vast majority of pensioners slightly better off than if they hadn’t been made, but one nonetheless propagated even by Tory papers like The Telegraph and the Mail.

You can find some informed commentary on tax legislation but you have to ignore the front pages and the TV news and read the comments section of the broadsheets, the weeklies or the FT. But I suppose that’s just yet another complaint about headline-mongering and applies to most areas of news coverage.


Recusant said...

Brit, can I borrow you to stand next to me as I shout at the TV? I need a back up man to pass me informative notes as I conduct an unheard argument with whichever idiot is currently spouting adolescent nonsense on the box

Brit said...

A sort of Cyrano de Bergerac role, only with cold hard facts instead of love poems?

David said...

The US, too, has an Uncut movement, but it's significantly different.

As for confusing income with wealth (and revenue with income), it's an incredibly common mistake that I sometimes think explains the entire platform of the Democratic Party.

Hey Skipper said...

Perhaps because of some intrinsice desire to see things as how they need to be, rather than how they are?

The conundrum here is whether, and two what degree, the non-collectivistss are equally susceptible. Even granting limited powers of self awareness, it seems the vast majority of these sorts of collosal errors come from one direction, and are always in service of The Narrative.

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