Thursday, 17 October 2013

Making the poor poorer

Chris Snowdon has received a number of honourable mentions on this blog, in particular for his role in marshalling the arguments against minimum alcohol pricing. He has now produced a paper for the Institute of Economic Affairs called Aggressively Regressive which sets out in stark terms how poor people pay a much higher proportion of their incomes in so-called “sin taxes” – i.e., alcohol, tobacco and fuel duties – than those who are better off.

The worst of all is tobacco duty, which not only is the highest in comparison with the base price of the product, but also where, unlike fuel and alcohol, the poorer sections of society tend to consume more. But he also has some pretty pointed things to say about alcohol duty:

...despite the rich consuming more alcohol than the poor, alcohol taxes remain regressive. Alcohol duty (and the VAT levied on the duty) accounts for two per cent of the disposable income of Britain’s bottom quintile, but only 0.6 per cent of the income of the top quintile. There is little argument in the academic literature about the regressivity of taxes on alcohol. Even if measured over the life-cycle, the poorest spend considerably more than the rich on alcohol taxes as a proportion of their income.
He also makes the often-overlooked point that average figures conceal a wide variation between individuals. Setting aside the proportion of non-drinkers, people in the bottom income quintile who actually do drink spend an average of £278 per year on alcohol duty plus the VAT on the duty. And, despite the beer duty cut,
Nearly all EU countries have much lower alcohol taxes than Britain. Most of them, including Spain, Italy and Germany do not charge any duty on wine at all (European Commission, 2013: 15) and the vast majority have beer duty that is less than half of the current British rate (Ireland, Sweden and Finland are the only exceptions). Indeed, most EU countries levy beer duty at less than twenty per cent of the current British rate.
Even VAT is regressive to some extent, as people tend to save more money the higher up the income scale they are, so poor people spend a higher proportion of their income on VAT than well-off ones.

It’s easy to say that if people on low incomes choose to drink and smoke that it’s their decision, and you have no sympathy. But that line comes across as patronising and sanctimonious. In the real world, people do drink and smoke, and it is generally recognised that the price elasticity of these products is relatively low. So, in reality, setting aside the moralising, the actual effect of these taxes is highly regressive, and any increases in them even more so. And who is to say people on low incomes shouldn’t be allowed a little pleasure in their lives once in a while?

It’s also interesting how those who bleat on about a “cost of living crisis” remain strangely quiet when it comes to the taxes that in practice take the biggest chunk out of poor people’s incomes.

6 comments:

  1. Oo, bit of politics, as Ben Elton used to say. Good strategy, anyway, establish the moral high ground of the welfare of the poor for a point about lower booze tax. Better than trying to argue for tax breaks for piss heads. Establish the terms of reference for the debate too. Quality.

    One thing missing, though, and that is the wider truth of tax. Beer tax is probably the smallest amount of tax I pay, and that’s saying summat, I’m a right pisshead. Probably is for you too, though maybe not for some of the pissheads that comment on this.

    I pay more in council tax every month than beer tax. 1p, 10p,£1 off a pint means buggar all, really, as some other tax I pay will have to go up.

    Though taxes do cause modification of behaviour, its human nature. I quickly figured out setting up your own ltd company was a no brainer 5 minutes after becoming a higher rate tax payer. No point in even being a basic rate tax payer when you think about it. Personal allowance, lowest possible NI contributions & dividend income. Result. I doubt all those poor scroungers on welfare are paying fag tax, they are buying baccy from the back of a ford transit that visits the council estate every few days with knock off gear. That and knocking out enough kids to get themselves in the Daily Mail.

    The wider point is that all your argument does is pick away at the edges of an unfair and unjust system that cannot be made fair. Not while people buy the lie that the government can spend more and hand the bill to someone else. If people decide they want smaller government, lower spending, then taxes will fall, so long as people want the government to do more they will rise.

    And what taxes will rise depends on what the government thinks it can squeeze without pissing off to many.

    Every so often they will figure out that 1p off a pint is popular and chuck out a bone, letting some people think they are winning whilst fleecing them in one of the myriad of other taxes they pay.

    You can’t win, all you can do is play the game. That and get an honest competent accountant.

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  2. Honest and competent accountants? Do such people exist?

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  3. So, Cookie, do you think it's OK that the poor pay a higher proportion of their income in tax than the well-off?

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  4. Ah but Mudge. I don't think for one minute you care about the welfare of the poor. You are using them as a convenient tool for wanting a reduction in a tax you don't like.

    If you cared about the welfare of the poor you would advocate something that actually helped them, and that's not cheaper fags or booze.

    Maybe more free adult education. Something for social mobility. Maybe even more welfare. Something, at least, that would give them a chance of being less poor.

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  5. It's always tempting to accuse people of unworthy and self-serving motives, Cookie.

    But I would have thought one of the best ways of making the poor less poor is ensuring that actual poor people (as opposed to non-existent idealised ones) pay less tax.

    And I'm sure your average poor person struggling to make ends meet would really jump at the chance of more adult education.

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  6. Always tempting, often accurate. I am simply equating a proposal you want regardless of its effect on the poor with your motivation for doing for the poor and seeing through it.

    Don't be offended, my friend. Just try harder to disguise it next time. My arguments sharpen your blade.

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