Clowns to the Left, Jokers to the Right

From the Guardian

Last week, as the Tory faithful cheered on George Osborne’s new cuts in benefits for the working-age poor, a little story appeared that blew a big hole in the welfare debate. Tucked away in the Guardian last Wednesday, an article revealed that the British government had since 2007 handed Disney almost £170m to make films here. Last year alone the Californian giant took £50m in tax credits. By way of comparison, in April the government will scrap a £347m crisis fund that provides emergency cash for families on the verge of homelessness or starvation.

If you follow that article, you find the following:-

The first analysis of accounts for the Disney movies made in the UK reveals that since the scheme was introduced in 2007 the company has benefited from HMRC to the tune of £167.6m. Last year the tax credits reached a high of £50.1m, believed to be the largest ever payment to a studio. A third of that was awarded to the blockbuster Thor: The Dark World, which was filmed at Pinewood Studios in Buckinghamshire.

To qualify for the tax relief, 70% of a film’s labour costs must be paid to European workers and at least 25% of the production costs spent in the UK.

So, Thor: The Dark World received £16m of tax credits. According to Box Office Mojo, that film cost $170m to make (or around £105m). Most of that cost goes on staff - the writers, actors, crew and CG artists. So, around £73.5m gets spent in Europe for £16m of tax credits (and in reality, if you're in Pinewood, most of that will be going to the UK). If you work out the taxes spent on that £73.5m, it's probably about break even, or even a money earner.

Jonathan Isaby, chief executive of the Taxpayers’ Alliance, said: “Fiddly little favours for special interests are why we have such a terribly complicated tax system and it’s why ordinary taxpayers no longer trust that everyone is paying their fair share. Exemptions and reliefs like this should be scrapped altogether, and we should then cut the rates for everyone to attract investment and boost growth. It’s not up to politicians to pick winners through the tax system, so radical reform is a must for the next government.”

This isn't "picking winners". The government knows what the budgets of these films are, what the subsidy costs and what extra taxes and jobs you'll bring here. That's pretty much known. And these exemptions and reliefs exist not because we have a complicated tax system, but because we have the wrong tax system, based on incomes rather than land (and the TPA are against council tax, so I think we can assume all land taxes).

Income tax takes no account of the flexibility of labour demands in a globalised world. It's a rather unbusinesslike and anti-free market way of taxing people. Any normal business understands that you have market segments.

Take moviegoing. People have different reasons for going. Some people go to have a pleasant evening with a date. Some people just go to see a movie. The first group aren't just going to see a movie in a better format. It's about an evening out. They can't really replace it with watching on Blu-Ray. The second group can. Plus, lots of people want the Saturday night tickets. Cinemas therefore price differently. They can charge up to the rate that fills an auditorium on Saturday, but on Tuesday, they don't fill auditoria, so charge people a bit more than a HD rental, the alternative they're competing with, and get some people in. Not a huge amount of people, but it's still money and better than empty seats.

The fixes governments do of handing out tax breaks are simply a crude attempt to deal with that flaw in income tax. It doesn't discriminate between a film company making films about jousting that can do it in a huge number of places, and therefore can pick the one that has the cheapest costs (and tax is a factor in costs), and a cafe owner outside Windsor Castle that can't.

But LVT deals with the problem without any further tweaks for particular industries. The sort of businesses that can put themselves in any country are also generally businesses that can put themselves anywhere within that country (e.g. Pinewood have opened a new facility in South Wales). By introducing it, you don't need exceptions for certain industries. Flexible industries will come here, use cheaper areas of the country and create jobs. OK, they won't pay as much tax as the Windsor Castle cafe owner per head, but it's better to get a job with someone paying some tax than a business going to China and having lots of people on the dole.

And if you want a moral perspective, who has got more from the state? If the state had left Windsor Castle as a wreck after it caught fire rather than spending £37m repairing it, how much money would a cafe outside of it earn? So, why shouldn't that cafe owner, who gets a large amount of the benefit from that huge amount of money pay a larger share of paying for it?