Bitter? Who? Me?

David Miliband's tax non-avoidance

From the desk of Scott Wright:

Over at (unsurprisingly) The Telegraph & The Daily Mail, there has been a recent story relating to how David Milliband has set up a Limited Company in order to channel his various external income sources and pay less tax.

Whilst they are correct in that it will reduce his tax bill, the extent to which it will do so is being grossly over exaggerated in a feat of economic illiteracy normally only seen in the pages of The Guardian.

Now assuming Mr. Miliband is the sole shareholder and there is no channelling of income to somebody else to utilise a basic rate tax band, my calculations will be ignoring the fact that a company and an individual are separate entities and focus on the total taxes payable in order to get the net income into his pocket after HMRC have had all their relevant chunks.

A small company pays corporation tax at 20%. I'm assuming Miliband will fall into this bracket because lets face it if you could rake in £300k+ in profits per annum all on your own why would you even bother sitting as an MP, the over-generous expenses aren't THAT generous.

So let's say for example he makes £37,500 profit in a year in his limited company and he wants to take as much as he possibly can out legitimately. The company pays tax at 20% giving us £7,500 and leaving £30,000 to be distributed as dividends.

Now Mr. Miliband is a higher rate taxpayer because an MP's salary is about £65,000 a year. This means that if he takes out the full £30,000 as dividend he will have an actual taxable income of £33,333 with a £3,333 tax credit (like tax deducted at source) the net effect of this is that you actually pay a further 22.5% rather than the reported 32.5%, the tax payable on his dividend of £33,333 would therefore also be £7,500. Total taxes paid of £15,000 on £37,500 worth of profits = 40%.

As a higher rate taxpayer, all you actually save is the 2% National Insurance, which is largely offset by all the audit and accountancy fees anyway.

Passion killer

More lies and disinformation from yesterday's Evening Standard

Exhibit One:

Families on middle or low incomes could lose more than £2,000 a year under government plans to slash child tax credits, it emerged today... More than five million families get the credit (1), Labour's flagship benefit intended to help working people pay for childcare and other costs... Those on annual incomes of £25,000 get £2,850 a year for one child (2)...

Mr Balls... said the Government was preparing the ground for a “savage Budget raid on the tax credits of millions of families on middle and modest incomes. Families with children where both parents go out to work, but earn a modest income, will be among the biggest losers.(3)”

1) I somehow doubt that this is true (see below) but let's go with it. 'Families' implies 'households with children'. According to Table 2.2 of Social Trends 39 - 2009 edition there are 5.25 million couple households with dependent children and another 1.75 million lone parent households with dependent children. So why not say 'most of them'? (And if it is a nigh-universal benefit, why not make it universal, and save all the admin hassle and means testing? For higher earners, it would be like a small tax rebate, and I see no harm in that.)

2) The basic entitlement for a family with one child is £2,845 (Family element + one Child element from HMRC), but if your income is £25,000 you do not get £2,845. The amount is reduced by 39 pence for every £1 you earn above the First income threshold of £6,420, so if your income is over £13,728 you get precisely £nil (there may be other wrinkles to this, but you get the gist). If you had three children, your basic entitlement would be £7,445, which would be tapered to nil at a gross income of £25,509.

3) As it happens, the bulk of tax credits are paid out to lone parents who are not working, which makes a mockery of the claim that they are "intended to help working people". As to "childcare and other costs", see Exhibit Two. So not only are the Lib-Cons starting at the wrong end (there are very few savings to be made at the upper end), Ed Balls is lying through his teeth when he says it will affect low or middle earners.

Exhibit Two:

Labour leadership frontrunner David Miliband... also suggested... that private schools should lose their £100 million-a-year subsidy from the state, as part of a wider deficit reduction programme.

Actually I agree that the corporation tax exemption (it's not really a subsidy, is it?) for private schools is daft - it only applies to schools which manage to fit into the new definition of 'charity', which means that the Charities Commission can boss them around; it only applies to the tiny amount of a school's income that is not paid out as salaries or other expenses (which are taxable in full), and of course it discriminates against 'the circling sharks of international edubusiness' - but most importantly, that £100 million works out at a paltry £150 per private pupil per year on average (and the tax break is hugely regressive - the richer the school, the more the tax break is worth), which is a heck of lot less than the amount that the taxpayers saves by not having to fund a state school place for them.

In any event, in the print edition, the article was directly below one about Michael Gove's 'free schools', which is a modest step towards education vouchers; these would be worth about thirty or forty times as much as the laughable £150 corporation tax break. Vouchers is the way forward, and to hell with the £150 per pupil tax exemption.

Further, we do not need to pontificate on how and whether vouchers would work, as we already have them for nursery places for children aged 3 to 5. It is a fairly simple, non-means tested system (there's nothing that can't be made simpler, of course), so we can bin the Childcare element of tax credits (which is enormously fiddly) and bin the Employer nursery vouchers nonsense (why have three or four separate subsidies when one will do the job?) and just hike the nursery vouchers accordingly, which then dovetails nicely with education vouchers generally.

Exhibit Three is a fine example of muddled thinking (it would be a tad harsh to call this lies or disinformation as her heart seems to be in the right place):

[Child Benefit] is a benefit that from the start should have been means-tested and gone only to those parents who really needed it. Now the Government simply cannot afford to hand out £50 a week to people like me, who have benefited from both the housing market and the longest economic boom in modern history. For anyone over 40, even our higher education came free.

Quite clearly, Child Benefit (being the best kind of benefit, non-contributory, non-means tested and non-taxable, with tiny administrative costs and practically zero fraud and error) is, from the point of view of the better off, a straightforward tax refund, which is fine by me.

In other words, Child Benefit (which 'costs' around £10 billion a year) is more or less the opposite of Child tax credits (which 'cost' around £15 billion a year, but the exact figure are hard to track down). The redistributive impact of Child Benefit is probably minimal - what it does is smooth your income over your lifetime and it doesn't really influence people's behaviour. Child tax credits OTOH are not only redistributive, they redistribute in a very bad way as they encourage women with low earnings prospects to become an unemployed 'single' (officially at least) mother instead.

The knee-jerk hair-shirt idea put about by 'the middle classes' that they don't need Child benefit has some superficial appeal; but so does the idea that instead of giving our columnist £50 a week in Child benefit we were to give her and her husband extra personal allowances for their children which would save them about £50 a week in tax. The two ideas cancel each other out, and as Child benefit is administratively far simpler (we would end up with two parallel systems that achieve exactly the same thing, only there'd be loads of form filling when your income goes above or below whatever arbitrary cut-off point we choose), why not just stick with it?

David Miliband, attempt the manieth

Quick guide to Labour leadership election

UPDATE: For the benefit of JT:

Mili-Band Of Brothers

This is not a caricature ...

... proof here. If you want a proper caricature, see the one that Nick drew.

'Foreign Secretary talks sense' shock!

You get so inured to the fact that politicians are either lying or spouting meaningless drivel, or possibly both at the same time, that it is a pleasant surprise when one of them actually says something halfway sensible, for example The Millipede has said (or will say):

"We should expose [the Islamists'] claim to a compelling and overarching explanation and narrative as the lie that it is. Terrorism is a deadly tactic, not an institution or an ideology."

From an article headlined Miliband: War on terror was a mistake

In other news: "Ageing Nazi: We may have got a bit carried away"

Making caricaturists' life difficult

One of the arguments for/against replacing The Goblin King with The Millipede is this:

Millipede (2)

Will he be the next PM?

"Foreign Secretary is a non-entity" says Labour MP

I've heard of party-infighting, but this was a classic, I don't know why the MSM didn't make more of it:

Geraldine Smith said Mr Miliband was "trying to stir up trouble" and should get on with his job, adding that if he was sacked he would return to being a "nonentity" on the backbenches.

Rather than being a non-entity at the Foreign Office, presumably.

Via Neil Craig, here's a delightful summary of The Millipede's non-achievements so far (scroll about half way down).

Millipede

Batshit changes mind...?

Last Friday: Mr Miliband said the Irish result should be respected but there should also be a "British view" on the treaty. "I think it is right that we follow the view that each country must see the ratification process to a conclusion," he said, "I believe it is right that we continue with our process and take up the Irish offer of further discussions about the next steps forward."

Yesterday:The fate of the Lisbon Treaty is hanging by a thread and the Irish prime minister should decide whether to read it the last rites, David Miliband said yesterday. Although a 'no' vote at the referendum stopped the legislation in its tracks, prime minister Brian Cowen must move - if he chooses - to kill it off, the foreign secretary added. Mr Miliband, who called the treaty Europe's 'old agenda', stressed leaders might have to accept all was lost and continue under old rules.

"Milliband lies to protect EU (episode 94)"

Christina Speight summarises this whole charade thusly:

This is a classic example of how the EU works! Make all the preparations in detail and in secret, deny their importance and then at the earliest feasible moment spring the agreements on a gullible public as a fait accompli. Of course this means that when surprised in the act national ministers have to - er - LIE! Miliband has done just that!

Said is said.

"UK's concerns over Kenya poll"

David Millipede has expressed concerns over alleged vote rigging by Mwai Kibaki in Kenya.

Pots. Kettles. Black.