Avoiding tax and confronting Government IT

Top of the Charts

Afternoon all,

The only people having a more expensive week than Downing Street staff are crypto investors – commiserations if you’re in either camp. The crypto crash is at least a reminder that it’s best to avoid ponzi schemes largely unregulated high-risk products. On reflection, avoiding people selling high-risk products in politics isn’t a bad rule of thumb either – the creation and bursting of their bubbles aren’t exactly cost free.

Anyway, the real financial losses we should all be focused on are those facing poorer households as energy bills surge. As COTW shows, it’s time to get on with providing targeted support. The administrative constraints of doing that are real, but very far from insurmountable – we’ve got some practical suggestions below because now is not the time for government to admit defeat to its own IT systems.

Enjoy this week’s reads and have a great weekend.

Chief Executive
Resolution Foundation

Housing highs. You’ve all gone nuts buying houses at fast rising prices. In the US they’re up 24 per cent since 2019. Now you’ll remember lots of worthy columns telling us that remote work would be a panacea to high housing costs, because people wouldn’t need to compete for expensive housing near the office. But actually remote working is pushing up house prices, according to a new American study, which says it explains at least half the pandemic house price surge. Why? Because it has raised the total demand for housing (we want more of it if we never leave). The authors argue this means the recent price surge is less likely to be temporary. Maybe. House prices fall when incomes come down and interest rates rise… just saying.

Non Doms tax. Once every few years you get a flurry of stories about our non dom tax rules – which exempt some residents from the requirement to pay tax on overseas income. This prompts outrage from the public, followed by loud assertions from some that it’s crucial to keep the current rules so Britain can attract top talent from around the world. Snore. To liven up the debate, read Dan Neidle’s new blog  “How to avoid UK tax if you’re an oligarch”. It’s an impressively clear explanation of how easy it is for someone loaded to move to the UK and pay precisely zero tax here. The short version is 1) claim you don’t intend to stay in the UK forever 2) dump a load of money into an account before moving and 3) live a tax-free life of Riley.

Digitising democracy. Top nerd marks to the researcher who has developed a method for tracking the focus of British parliamentary debates since the 1810s – examining how often keywords appear in Hansard to understand how different topics ebb and flow. Somewhat surprisingly, the data shows that changes in government are NOT accompanied by a significant change in what parliament debates (the exception being the 1945 Labour government where workers’ issues rose in prominence). So, governments are more reactive than proactive in deciding which questions should be on the agenda. Before you decide this is anti-democratic, remember they have lots of agency in deciding the answers. Now back to that cost of living crisis…

Generous giving. The tragedy of the war in Ukraine has seen donations flood in. The scale of support (and willingness to take refugees) has led some to question whether this generosity reflects this crisis being closer to home, or those suffering looking more like our own White majority, than in some previous crisis. A new blog turns to the data from more than five decades of DEC appeals and finds little evidence of this. Total donations for European appeals have generally been lower than those elsewhere, with the £500m donated after 2004’s Asian tsunami the most on record (although note, the scale of media coverage does matter a lot for donations which may relate to cultural links, etc). Previous research around Hurricane Katrina also found that the race of victims didn’t affect how much donors gave. Instead the scale of a crisis seems key – controlling for disaster type, a 10 per cent increase in the number of people killed/affected increases donations by around 3-4 per cent. Unfortunately, the number of victims in Ukraine is going to keep rising, so get giving.

Declining disruption. We’re getting less good at producing big new disruptive ideas – we’ve got more researchers but get fewer breakthroughs. Part of the reason might be the trend towards research teams not being co-located together, suggests new research looking at 12 million research teams over the past 60 years. It finds teams not in the same area are 20 per cent less likely to produce disruptive research than a co-located team. Before this gets used in the dull working-from-home culture war, note this relationship has changed over time: the innovation penalty has declined and may even have reversed more recently. That’s because while lower transport and communication costs (i.e. email) encouraged remote collaboration they didn’t make it massively effective. More recent innovations (Teams apparently…) may do. Get Zooming everyone.

Chart of the Week

There’s only one domestic story in town – the Wagathachristie Trial cost of living crisis. Rising energy bills are bad for everyone, but a disaster for poorer households who are hit harder and don’t have the options of cutting back on luxuries/drawing down savings to cope. That’s why the job of 2022 is targeting support at them. We have a system for exactly that: benefits. Our normal approach is to uprate benefits each year so that they keep pace with prices (or earnings/2.5 per cent, if higher, for pensions). But in a world of very high inflation that means the real value of benefits being on the rollercoaster shown in COTW – falling in value in real terms significantly over this year before the normal uprating in line with inflation next April (based on the previous September’s inflation) undoes the damage. The best policy answer is to bring forward next April’s rise (and avoid the £15bn real terms cut in train). This is easier said than done – you’ve probably seen the headlines in recent days about computer systems making it impossible. But let’s get specific. It’s easy to change Universal Credit (see the rise/fall of the £20 a week uplift in the chart). It would take longer to raise payments for legacy benefits (JSA/ESA) – but we’re only talking two months or so. Increasing the state pension more than once a year is difficult – but if DWP really says it’s impossible rather than just hard then here’s a work around: just increase and bring forward the Winter Fuel Payment that goes to all pensioners in the Autumn to provide the same support. Sorted. Time to stick it to the doomsters and gloomsters in Government IT.