The Obscurer

Category: Economics

Concerning Immigration

There are, no doubt, some genuine concerns around regarding the matter of immigration; but there are undoubtedly some racist reasons for opposing immigration too. When we say “It’s not racist to want controls on immigration” then, whatever else we’re doing, we’re also placating racists by telling them their racism isn’t racist.

Genuine concerns about immigration tend to include such issues as the increased pressures that migrants bring to GP services, school places and the housing stock. We could cut immigration and that, along with a heroic dose of ceteris paribus, should alleviate these issues. But this broad brush approach would also mean we would be indulging the racists in their racism.

Alternatively we could respond to pressures on GPs, schools and housing by, you know, employing more GPs, expanding schools and building houses. This cunningly targeted plan should deal with those genuine concerns, meaning the only ones left are those that are intolerantly racist.

Show me a genuine concern around immigration and I reckon I can show you a solution which does not require tighter immigration controls, and so does not include the collateral damage of placating, indulging or tolerating racists and their racism. Sometimes the obvious needs spelling out; but for all of us opposed to racism, whatever our other concerns, the path we should choose seems pretty clear.

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For The Avoidance Of Doubt

I’d written a quick draft of that rare thing called a “post” last Thursday when a phone call from school signalled a sickly daughter who needed collecting and caring for, and therefore the consigning of said draft into a saved items folder. And now the sickly one is back at school, and I’m not in work, and I’ve cast my eyes over the draft and decided it’s more-or-less fit to post as is, with minimal tidying-up, so I may as well.

For it’s the tax avoidance versus tax evasion distinction that was and is a frustrating one for me, relying as it so frequently does on such lazy thinking. Often is seems enough for someone to simply say, “ah, tax avoidance, remember, is perfectly legal” and consider it job done, as if “legal” and “right” are synonyms. We saw a close cousin of this attitude during the MP’s expenses scandal, with many of our elected representatives protesting that buying Persian rugs and duck islands at the taxpayers’ expense was within the rules and therefore fully justified and defensible. But we don’t, I think, feel that morality is or should be wholly defined by the law, or vice versa. And so the “tax avoidance is perfectly fine because it’s legal” argument is self-evidently bollocks.

For myself I think that tax avoidance is such a broad term that it is not an especially useful one. At one extreme you can have someone whose accountant is simply trying to make your money work for you by ensuring that you take full advantage of any tax reliefs available. Tax relief, I think we can assume, is put in place to encourage certain behaviour, be it home ownership, philanthropy, investment or whatever. Regardless of whether you think government should be promoting such things, it seems almost rude not to take the treasury up on its offer to partake in such activities. Personally I would baulk at even calling such things tax avoidance. They are, rather, just part and parcel of common sense money management and planning. At the border of the other extreme is, of course, tax evasion, which is illegal, plain and simple.

It is the middle ground where I think true tax avoidance lies; and “lies” seems to be the appropriate word. Take the K2 scheme that Jimmy Carr has been unfortunately vilified for (and I say unfortunately because I doubt he devised the scheme, and he’s surely not the most egregious example of tax avoidance in the country (that’s not even mentioning that there seem bigger fish to fry than tax avoidance) but is being picked on mainly for being famous; although, even at the most sympathetic face-value reading you would have to wonder why he didn’t ask questions when he was told his tax rate would be plummeting to 1% rather than just assume all was well). Insofar as I understand the scheme (and I doubt I do), money is received as income, but then rather than being taxed at source as it would be for (probably) you and (definitely) me, it is spirited away to a “company” in Jersey, and then “loaned” back to the original recipient at a vastly reduced tax rate. It is those inverted commas that show why it is dodgy; the company is not just any old financial institution providing a variety of services, but a shell existing solely to temporarily house someone’s income (yes, income); the loan is nothing of the sort, rather it is said aforementioned income being returned to that original someone minus the usual amount of tax. In short, the company and loan are a fib. What type of fib? May I suggest a big fib, and quite possibly a fat one as well?

That for me is true tax avoidance. It differs from tax evasion only in that it is considered legal, but it is considered legal only because the law hasn’t yet caught up with it; rather like a brand new hallucinogenic drug is legal only because the law cannot ban something that hitherto hasn’t existed, oh but it soon will. It is a world way from a financial expert carefully stewarding your money through the thicket of tax reliefs and exemptions to reduce your tax bill and ensure you don’t pay any more tax than you need to; rather it is a flagrantly dishonest procedure designed to shirk your genuine tax rate. And if we started referring to the former as, say, “tax planning”, and reserved the term “tax avoidance” for the latter – or even called it what it is, namely “tax evasion which isn’t quite illegal…yet” – then I think this debate may become a little more intelligent.

Cui Bono

I’m going to write that post if it kills me.

Not this post. Oh no, not this post. This post I’m dashing off because it seems to me that lots of people are missing the point about the impending changes to child benefit. And after all, erroneously thinking I’ve a cogent response when others are missing the point is the only reason to keep this blog this side of the mothballs. No, I’m saying I’m going to write that post if it kills me, the post I’ve spent the past fortnight trying to find the time and inclination to finish off.

But enough about that post. The point of this post is to address to the fact that (almost?) every report over the past few days referring to the half-brained clusterfuck that is the government’s “plan” for child benefit has been premised on the fictional idea of one household with a single-earner on an income of £80,000 losing their child benefit, while the dual-income household next door bringing in two incomes of £40,000 are allowed to keep theirs. Oh the humanity!

Perhaps. But why get hung up on child benefit? If we leave that to one side for a minute, the anomaly we are all suddenly getting worked up about is baked into the tax system already. Let’s take those two households again, each with the same gross income of £80,000; even without child benefit the household with two incomes will be better off in the first place due to their having two tax-free personal allowances; add in the fact that the single-earner household will then pay some of its income tax at the higher 40% rate while the dual-earners only pay at 20% and you could say we have another inequity right there.

This objection to the child benefit plans, then, rather than highlighting some terrible new unfairness, in fact just illustrates an existing quirk regarding how individuals, couples and households are taxed in this country, and how clunky our system already is. Things are complicated even further once National Insurance is factored in; something that slightly benefits the single-earner household in this example, but more by accident than design, and which in truth provides yet another layer of clunkiness. But it is a clunkiness that universal benefits such as child benefit can ameliorate; they are simple to understand, cheap to implement, given to all so that the deserving* receive them while the undeserving* get them taxed away elsewhere while they’re not looking. The alternative is complicated rubbish that the deserving* don’t claim for while the undeserving* pay their accountants to collect for them. Despite all Iain Duncan Smith’s talk of a universal credit, the direction of travel seems to be towards the latter.

The real daftness about these child benefit reforms is not so much the aforementioned and well-worn scenario of two fictional households, but more the case of an individual who earns just above the higher-rate income tax threshold and who, while paying 40% tax on but a fraction of their income, will also lose all of their Child Benefit at a stroke, potentially leaving them with a lower net income than a supposed lower earner situated just below the threshold. I don’t know if there is such a thing as a negative marginal tax rate, but if there is then this government has just found it. So well done them.

You’d almost think they’d cooked up a nefarious scheme to serve as an object lesson in the value of universal benefits, only they haven’t. This isn’t so much the “cliff edge” problem people have been talking about as some demonic game of financial Snakes and Ladders. Now, the government has stated it is looking into methods to deal with the problems thrown up by their half-baked plan dreamt up overnight to grab headlines during a party conference. But what?

Well I suppose they could concoct some further sort of means test, devise a kind of taper system, this would necessitate implementing an appeals process, and of course a review system when the wrong amounts are paid out…basically bugger about with child benefit until it is as expensive to administer and inefficient as the rest of the benefits system. Alternatively you could leave child benefit as is, and expend your energies instead on trying to make the the tax and benefits system in general more simple and straight forward.

I’d favour the latter myself, perhaps utilising something as a benchmark so we can gauge our progress, that of an actually existing example of a simple and efficient benefit. Child benefit, say?

 

*There must be some better terms to use here rather than “deserving” and “undeserving”, but I can’t think of them. Intended target group and unintended target group? Optimal and sub-optimal recipients? They sound almost as clunky as the government’s plans for reforming child benefit.

Divide And Rule

The worst thing about yesterday’s strike by public sector workers was the fact that you just knew it would give rise to some people trotting out a load of tired old bollocks in the ongoing private sector versus public sector ding-dong; and you were right, witnessing the testing of the “little knowledge is a dangerous thing” motif to destruction by people missing the point by several counties. You know the sort of thing, so I won’t go into detail (although, for what it’s worth, I’m beginning to deduct points for those who refer to the private sector as the wealth-creating, productive part of the economy, as that’s just too hackneyed and ignorant to ignore any further).

That said, one of the complaints I read, numerous times over, was the furious assertion that don’t you know it’s the private sector that pays for the public sector in the first place, providing the slackers with their pensions, and their wages?! Now this, it seems to me, is undeniable. It also doesn’t appear to be a problem. Where does this sense of grievance come from, I wonder?

Put another way, rather than clefting the nation in twain and labelling us as either public sector workers or private sector workers, why don’t we use the terms government workers and non-government workers instead? Lest we forget that it’s the non-government workers who are the ones who pay their taxes to finance those wages and pensions for government workers? It’s a disgrace I tell you, something must be done!

Oh really? How about, just for fun, we cut the pie a different way? Talking of pies (and pasties!) how about we divide the country into Greggs employees and non-Greggs employees? Did you know that it’s down to the non-Greggs employees to hand over their hard-earned cash to feather the beds of those pampered Greggs workers, with their wages, and their pensions, and their natty uniforms! It’s an outrage! Oh…er…hang on; that doesn’t actually sound unreasonable, does it? More like a mere a statement of fact, in fact. What’s the difference?

Basically, nothing*. Taxpayers pay for government, customers pay for Greggs. Otherwise, it’s as you are. The reason they are considered differently is down to ideological oafishness. No one would dream of getting angry at Greggs workers for having a decent pension paid for by the likes of you and me. And yet…and yet…

…we get the common sight of newspaper columnists, sneering down their noses at public sector workers who earn a fraction of their salary, and demanding they endure a shittier retirement. And incidentally that, if anything, is the problem with Jeremy Clarkson’s comments. Not that he’s said something controversial (yawn†); he made a joke, and as is his way, it wasn’t all that funny. It’s the suggestion that behind the joke lies the unsurprising lack of self-awareness of a pampered rich man looking down on others while pocketing a handsome cheque from the state broadcaster. He’s a tit.

In summary, then, yes; it’s the private sector that pays for the public sector. But that isn’t a matter to feel aggrieved about; it’s a matter of bookkeeping.

PostScript: Another post! And a vaguely topical one! Good God! Can I keep it up?

*You get further points deducted for stating that we can choose to shop at Greggs but we’re forced to pay for government. True, but irrelevant.

This, for what it’s worth is the correct response to whatever Clarkson says or does. For heaven’s sake don’t complain. It just makes you look silly.

The First Sign Of Madness

Re-reading the final section of my previous post, I imagine a reasonable person could make an obvious riposte to my comments on public sector pensions. This person would work in the private sector, he doesn’t have an occupational pension scheme, and the personal private pension he is paying into each month is building a pension pot that, at current rates, will pay him an annuity on retirement which will just about cover the daily costs of a cup-a-soup and a small bottle of supermarket own-brand cola. He has little time for my whining, and with fair cause. After all…

“Why should my taxes rise to help pay for your gilt-edged pension, when I can’t afford to pay for a decent pension for myself?”

It’s a good point, I say, and I don’t think your taxes should rise for that reason. If there is a shortfall in public sector pensions then that should be met by the employees, or by employers within existing budgets, but it would certainly be unfair for you or others to pay more to ensure I have a good pension. As it is, whether or not public sector pensions are unaffordable is, I think, more arguable than the media often allows. That is when they aren’t just complaining that public sector pensions should be cut for the sake of it, because they are usually better than most private sector pensions.

“Ah, right,” he says, seeing me on the back foot, “but they are usually better than private sector pensions aren’t they, and that isn’t fair, is it? Why should I pay into your pension at all, when you don’t pay into mine?”

Well, it’s true that my pension may well be better than yours and you may not consider that fair. On the other hand, your pay may well be better than mine; is that also unfair? Perhaps you get a company car; why can’t I have one? We both have our pay and benefits and a good pension is one of my benefits; it doesn’t seem reasonable to me to cherry pick one area where my benefits may be better than yours and decide to reduce it for reasons of fairness, while leaving untouched other areas where your benefits may be superior to mine.

“But I don’t care if your pay or benefits are better than mine. I care that I’m paying for them. And not just me; millions of people in the private sector are paying a premium in taxes so that those in the public sector can have better pensions than we can ourselves afford.”

And millions of public sector workers pay for goods and services in the private sector, and so we pay into your wages and benefits, including into your pensions, or into the wages that you then invest in pension funds. Have a word with your employer if they choose not to provide as good a pension as my employer does. But if you must reduce things to this simplistic public sector versus private sector argument, as if both are just opposing homogeneous blocks, then whilst it’s true that you pay my wages, it’s truer to say that we all pay each other’s wages. And while your taxes do help pay for my pension, your consumption spending is also going to help pay for the occupational pension schemes of private sector workers whose pensions may similarly be better than the one you are able to afford. What’s the difference?

“Oh come on! The difference is that they are private companies and can do what they like with their revenue. That’s completely different to what government agencies do with public money. Our money.”

But it’s your money that private companies receive, just by a different method, through your discretionary spending rather than through taxation; it’s different, yes, but not, I think, completely different. Put it another way; you complain that public sector pensions are better than yours, and you are paying a premium on your taxes in order to pay for them. But many private sector occupational pensions schemes are also better than yours, because the employer pays into the pension scheme. In effect aren’t you therefore paying a premium when you buy their goods, paying a premium for their workers to have a better pension than you can have? And that premium is your money too, your money that you have had to pay on top of the price of the goods to pay for someone else’s pension. Should private sector companies also cut their occupational pension schemes in some great levelling down, simply because the benefits of such schemes are better than your own?

“No. But. That really is different. I can’t choose whether or not to pay taxes; I have to. I don’t just decide to pay my council tax, I am forced to by law, and some of that money gets paid into pensions whether I like it or not. With private sector companies I can choose who I give my money too, and so I’m not forced to pay into someone else’s pension if I don’t want to. I can always take my custom elsewhere.”

But would you?

“Eh?”

Would you?

“Would I what?”

Would you take your custom elsewhere in order to avoid paying into a private company’s staff pension scheme? It seems to me that we have reached a point where your main objection to public sector pensions being more generous than your own is because you have to pay for their services and so pay into their pensions schemes regardless; but you don’t seem to mind some private sector schemes being more generous than your own because you can simply avoid paying into such schemes by avoiding using their goods and services. So the question is, would you? Would you avoid using a private sector company solely because it means paying into a decent pension scheme? Would you ever consider not shopping at Tesco if you were to discover that some of their turnover goes into paying for a staff pension scheme that is better than your own? Would your hunt for an alternative supermarket be in any way influenced by whether or not another supermarket pays into an occupational pension scheme for their staff? Would you really object if they did? If not, and so the provision or otherwise of a staff pension scheme by a private employer plays no part in how you choose to spend your money, then surely the fact that you are able to take your custom elsewhere is not relevant to this discussion, and so should have no bearing on the provision or otherwise of a staff pensions scheme by a public sector employer to whom you have to pay your taxes. And indeed you could extrapolate this concept further; whenever you hear of something that occurs in the public sector that you think is outrageous and yet you have to pay for, consider what you would think if you heard of the same thing happening at a private sector firm you patronise, and whether you would still object to the extent that you would exercise your freedom to choose not to pay for it by taking your custom elsewhere. And if you wouldn’t, and if you would still cheerily pay for a private firm to do the self same thing that you find so objectionable in the public sector, consider that perhaps you’re not really viewing these things equally.

“”

I realise, then, that somewhere during my last paragraph, my conversation partner had disappeared. Perhaps I had flummoxed him with logic and reason? Perhaps he had tired of feeding me prepared lines to which I could deliver my prepared responses. Perhaps my mention of Tesco reminded him that he needs to pop out for some milk. Perhaps he’ll return in a few minutes with a crew to make me shut the fuck up. But perhaps, just perhaps…he didn’t exist at all, and was just a compliant FIGMENT OF MY IMAGINATION!

That would mean that I’ve been talking to myself, all this time. “What’s new, on this blog,” you may very well think; that is if, indeed, you exist. But this feels different. I’m tired, so very, very tired. Time to splash myself with cold water and go out for some fresh air.