A subsidy by any other name

Previously I said George Osborne was talking nonsense when it came to describing child benefit as an example of the poor subsidising the rich. However my response was less to do with what he was saying and more with why he was saying it; what I should have said is that I agree with him.

There are two main criticisms against removing child benefit from high earners. The first is that universal benefits are cheaper to administer than means-testing – which is correct and why the government settled on an imperfect solution of using the income tax system as a cheap and easy test. The second is that as a result, a couple who are each on an income in the standard tax bracket will be able to keep the benefit even though their combined salaries could exceed that of a couple who lose out because one of their salaries is in the higher tax bracket. This is unfair, but no more so than the idiosyncrasy that already exists with a progressive tax system where a couple earning £30,000 each will pay far less tax than a couple with a single wage of £60,000. Fix this anomaly (if you dare) and everything falls into place.

If we ensure the cost of administration remains comparatively cheap there is no justification for universal benefits. That the better off more than pay their way isn’t in dispute, however it isn’t relevant. What’s important is the simple logic reminding us that an increased tax liability from giving a benefit to the rich (or indeed anyone) is paid for through the taxation of everyone else. To quote Harold Wilson:

One man's wage rise is another man's price increase.

Avoid the word subsidy if you wish, call it an entitlement if you must, but the poor will definitely pay.

A rant on all your taxes

Universal benefits, what are they good for? I’d have said “absolutely nothing” but such benefits have become a mutated refund from a labyrinthine tax system, one that leaves us unable to calculate our actual tax burden or even an estimated average that you can trust. I like Paul Waugh’s description of child benefit as a token rebate for those where the benefit is their only ‘take’ from the state.

Judging any tax in isolation is completely pointless but it won’t stop childless people complaining that they subsidise the rest, or George Osborne on a similar tack telling us that it’s ‘unfair’ for the poor to subsidise the rich; I admire his chutzpah but he's talking complete bollocks. The chancellor is doing the right thing but for the wrong reasons and his real reason of course is to make any subsequent cuts more palatable. Such nonsense reminds me of the good old days of another kind of cut, a tax cut, and the obligatory interview with your average family who would lament “it’s not fair for others that we’re being given this money”. You’re not being given anything you idiots, they’re taking less away!

You can’t judge a tax by its name. No one believes that vehicle tax and petrol tax is spent on road maintenance or that it discourages us from driving. Despite this we’ve had numerous attempts at introducing another ‘green’ tax, a road tax; that would be three taxes that I’d have to pay to be able to do one thing - drive to work – all so I can pay more tax.

Contributing according to my means is a duty I gladly accept but I object to a deliberate obfuscation of how much I’m paying, whether it's through the creation of new taxes or additional taxes on something that is already taxed, and then throwing in populist ad-hoc universal rebates such as child benefit or even the winter fuel allowance. Removing the universality of child benefit is one tiny step in the right direction and a simplified universal credit system may prove to be another. Let me at least understand my liability rather than hide me from the truth.

Half way to being the new Robin Hood

There's a great moment in Blackadder the Third in which Baldrick describes his new hero, The Shadow:

What a man! They say he's half way to being the new Robin Hood... he steals from the rich, but he hasn't gone round to giving it to the poor yet.

This was my first thought on hearing of the new Robin Hood tax campaign; which it is suggested would be the first tax in history that wasn't somehow passed on to the consumer. Such a thing isn't possible, the market will always adjust, but the trouble is that in this country the consumer is also a sucker; probably believing there really is a big stack of unused cash ready to be spent on good causes. This is to say nothing of his gullibility as to the causes that any revenue will support – in reality existing expenditure would get cut to zero as soon as this new source of funding was secured.

Whilst we may not be the customers of the proposed targets, the market has an astonishing ability to pass on the cost, from institution to institution, all the way down a chain of which we're at the bottom. It would be more efficient to prop up the banks with less of our money and tax us directly rather than indulge in all this smoke and mirrors; but then even the suckers would know what was going on.