James Frayne: Voters are largely supportive of the BBC licence fee being frozen – but don’t care so much about accusations of bias

18 Jan

James Frayne is Director of Public First and author of Meet the People, a guide to moving public opinion.

Nadine Dorries’ announcement of a two-year freeze in the licence fee – while hinting the Government will force a subscription model on the BBC in the longer-term – suggests the Government believes serious reform of the BBC could be electorally popular. Is the Government right about this?

Let’s look at the licence fee to begin with. I last researched the licence fee in an autumn poll on living standards for the TPA. It revealed the following:

(a) The TV licence was named the second least fair tax from a range of options, marginally below inheritance tax. It was seen as the least fair tax amongst 18-24 year olds, women, working class voters and Leave voters (not your classic mix).

(b) On the flip side, just eight per cent thought the licence fee was one of the fairest taxes, compared to, say, 26 per cent who named alcohol and tobacco duties as fair.

(c) Given a list of taxes the Government could raise to pay off Covid debts, the TV licence was joint-bottom, along with council tax.

(d) Given a list of taxes the Government could cut after Covid debt had been reduced, the TV licence was mid-table: below income tax, council tax, NICs and VAT; but above several others.

(e) Incidentally, just seven per cent thought the TV Licence brought in a lot of revenue for Government.

This is just a handful of datapoints from one poll, but others have shown the same results over the last few years. Despite the limited scope of the change – a temporary freeze, not a cut – this should be a popular move.

It’s strange that senior BBC execs have expressed surprise at the freeze. The polling – coupled with fractious relations between the Government and BBC – meant this was on the cards for two years. The BBC has always been confident that support for a licence fee cut would erode as people considered the content that might be lost. We’ll see; maybe the polls will shift a little.

However, a big shift is unlikely: while a minority of people will change their minds as they consider things properly, most won’t give this a second’s thought – and vast numbers will be far more focused on their disposable income. Irrational or not, the licence fee is disproportionately hated because, like council tax (and to some extent, inheritance tax), people effectively write a cheque for the money – which drives them crazy.

Another reason why support for the freeze is unlikely to flip is the recent coverage about what BBC stars – from both entertainment and news – are paid. In a time of falling living standards, it won’t be credible to plead poverty while paying vast sums to so many people.

It isn’t yet clear if the Government will open a broader front and force a debate on the entire model of BBC funding in the short-term. Despite the build up at the weekend, when it came to it in Parliament yesterday Dorries only vaguely hinted at it.

The popularity of such a fundamental reform is far from assured, but nor is it inconceivable. However, if the Government is serious about genuinely changing the BBC’s funding model, the one way to lose the debate is to focus on apparent “BBC bias”. It was a mistake for Dorries to have made this point so high up in her statement. Almost no one truly believes the BBC is riddled with bias and it makes politicians sound weird when they assert it.

The Government will be on much surer ground if it justifies change on the basis of changing social habits. Dorries did prepare the ground for this yesterday and this was the most persuasive part of her statement. As I wrote here almost exactly two years ago, apathy towards the BBC is increasing. Very large numbers of people just don’t see the point in the BBC because they rely on other platforms like YouTube, Netflix, Prime, Apple TV and all the rest. This is certainly true of entertainment, but it’s also true of news; huge numbers of people pick up news in snippets, from a range of sources, all accessed via social media. Fewer and fewer people seek out news on dedicated platforms.

Despite this, it is here, in this more fundamental debate, where the BBC’s defence is more powerful. Far more people will be persuaded about their warnings of the impact of other methods of funding – which will make people ask whether the country would be better with the BBC (or BBC News, at least) in roughly the same form than it would be without it. Large numbers of people still rely on the BBC News website and on the main bulletins. Broadcast news is dwindling, but it surely has a medium-term future.

Coming back to the original question: is the Government right to assume that clipping the BBC’s wings is popular. In terms of freezing the licence fee? Yes, definitely, unless they completely mess up the communications. In terms of more fundamental change? It’s hard to see what the Government would gain from forcing the debate now; better to just wait to see where things are in a few years. They should certainly avoid boring everyone to death about what lefties the BBC are. No one cares.

Ryan Bourne: Don’t write off the Budget. It showed that the Treasury is taking incentives and tax coherence seriously again

3 Nov

Ryan Bourne is Chair in Public Understanding of Economics at the Cato Institute.

Before George Osborne’s 2013 Budget, his biographer, Janan Ganesh, wrote a revealing column for The Financial Times. “The Treasury regards Labour’s call for a fiscal loosening as dangerously wrong but at least coherent,” Ganesh explained. “It is some of the Tory right’s proposals for growth – such as tax cuts financed by deeper spending cuts, so that there is no actual overall stimulus – that really mystify.”

That raised alarm bells among those of us who think lower tax rates enhance a country’s growth potential. Osborne’s Treasury saw tax cuts as mere “demand stimulus,” on par with additional borrowing for government spending. It apparently did not think or did not understand that tax rates had important incentive effects for the economy’s supply-side: that people’s marginal rates (the proportion of additional income given up in higher taxes or lost benefits) influences their willingness to work, earn more, or invest in human capital, all affecting potential GDP.

That shone through into policy too. Osborne worried little about 1.5 million more people getting dragged into the higher income tax bands, or about the incentive effects of his new child benefit withdrawal reform, or about extremely high effective marginal rates within the novel Universal Credit system. The combined tax and benefit code got shot to bits with perverse incentives right across the income spectrum.

Rishi Sunak’s Budget last week is no classical liberal document. In tone and substance, it really could have been delivered by Gordon Brown. And yet, there were signs his Treasury is taking incentives and tax coherence seriously again. Though the overall tax burden is projected to rise to its highest level since 1949, Sunak extolled principles that point to the possibility of meaningful pro-growth reform of how revenues are raised.

The first indicator was the decision to lower the Universal Credit (UC) taper rate from 63p per £ to 55p. Sunak sold it, rightly, as an effective marginal tax rate (MTR) cut for those on low incomes, improving their incentive to work or earn more.

When you add in income tax and the new higher employees’ NICs rate, the effective MTR faced by UC recipients earning above £12,750 will fall from just over 75 per cent to 70 per cent in 2022. The MTR cuts the policy delivers for people moving into work or on lower income levels will be higher still.

For families with two children and no rental costs, in fact, marginal rates will fall for all earning around £6,000 per year to just over £30,000 per year (although the lower taper naturally raises the numbers of people on UC’s higher MTRs further up the income scale).

As the Office for Budget Responsibility concluded, these changes “can be expected to increase the labour supply of those affected – with evidence suggesting the most significant effects are likely to be in bringing non-working mothers into the labour market.” And if Sunak is convinced of the distortionary impacts of high marginal rates, there is plenty of low hanging fruit to attack in future Budgets.

There’s Osborne’s “high income child benefit tax charge” that, due to child benefit’s withdrawal, will raise effective MTRs for individuals earning between £50,000 and £60,000 with three children to as high as 68.25 per cent in 2022.

There’s the tapering of the income tax personal allowance, which will create an effective 63.25 percent marginal tax rate for those earning between £100,000 and £125,140.  There’s the marriage allowance penalty for those moving into the higher income tax bracket, which can result in a cliff-edge marginal rate of over 2,800 percent.

And, of course, there’s more people being dragged into higher income tax bands. The number of higher rate and additional rate taxpayers has increased by around 1.2 million since 2010. From 2022, the base combined MTR (income tax plus employees’ NICs) will be 43.25 percent and 48.25 percent for 40p and 45p income tax ratepayers.

Smoothing all these high rates out would have less support than the UC changes, as they are “non-progressive” reforms. But Sunak’s argument makes the intellectual case for action. What’s more, his Budget reform of rationalising alcohol duties, a domain usually of interest to just a few tax experts and academics, shows he is not afraid to improve the code in politically non-salient areas.

The old alcohol tax system was a complete mess, with the tax rate per unit of alcohol completely unmoored from “pricing in” the worst social costs of drinking. Under Sunak’s reforms, the number of duty rates is reduced from 15 to 6, with rates progressively increasing in steps with alcohol content. Yes, there are anomalies: cider is more lightly taxed than wine, spirits, or beer. But overall the system is more coherent, with less distortions, and the highest tax charges well-targeted at genuine high-strength “problem” drinks.

It’s the rationale behind prioritising this which is perhaps most intriguing. Nobody was spoiling for alcohol taxation reform as a Budget demand. I doubt it’ll affect how many people vote in the next election. This was good, old-fashioned policy change – making economic improvements to the world without any large direct political rewards. And if Sunak is willing to reform a whole area of taxation in this Budget, might it signify his intention to live up to the portrait he has of Nigel Lawson by reforming another at each future Budget?

Some free-market friends will regard this as a glass half-full take. Though Sunak talked about how he aims to deliver actual tax cuts in future, for now that is rhetoric against the reality of a historically high tax burden and the ever-growing demands of an aging population.

The interesting thing about both the Universal Credit and alcohol changes though are that they actually added to the deficit – the former eventually costing £3 billion per year and the latter being greased with a one year freeze in alcohol duties.  As with the sensible reform of business rates to more frequent revaluations, this highlights a truth I’ve outlined here before: any tax reform worth doing usually requires at least a temporary tax cut to ensure there aren’t too many losers who kick up a stink.

Given the Chancellor is hemmed in by spending demands and needs a more efficient economy to ease the pressure, pro-growth tax reforms that broaden bases and reduce marginal rates become even more important. If Sunak really does intend to ease the tax burden in the coming years, I’d say this Budget suggested that he will prioritise targeted cuts towards greasing the wheels for meaningful, lasting reforms. That would be a welcome change given the legacy of recent Chancellors.

Miles Beale: The UK wine industry can be a post-Brexit success story for Global Britain

26 Feb

With over a decade campaigning for fairer alcohol taxation, Miles Beale is CEO of the Wine and Spirit Trade Association – and spokesman for Wine Drinkers UK. This is a sponsored post by Wine Drinkers UK.

Stop somebody in the street (social distancing guidelines permitting) and ask them to name one of the UK’s top exports, and they might say cars, the British music industry or pharmaceuticals.

You may have to wait a while until you find somebody who says wine, despite the fact that total UK wine exports were worth almost £650 million a year prior to Covid-19.

Combine this fact with the knowledge that Britain is the second-largest importer of wine by both volume (after Germany) and value (after USA) , and you begin to understand the UK’s place at the centre of the international wine industry.

Wine trading with the EU has become more bureaucratic and costly since 1 January, but with the UK now fully outside the EU, the Government has an opportunity – some might say an obligation – to roll back protectionism inherited from EU membership. The Government’s appetite for swift action will determine the future success of the sector and could unlock the opportunities for growth that exist around the world, making the Government’s vision of ‘Global Britain’ a reality.

Today, the UK is already a global centre of wine trading (including in fine wines), wine knowledge (hosting the biggest global provider of wine education), and home to one of the most diverse and democratised wine markets. It’s little wonder that wine is the nation’s favourite alcoholic drink and provides 130,000 jobs.

And there’s a huge opportunity for future growth. As the Department for International Trade acknowledged in marking English Wine Week in 2019, by 2040 the industry is predicted to be producing 40 million bottles a year, equating to a retail value of £1 billion. Exports of English wine could reach £350 million over the same time frame.

The Trade and Co-operation Agreement reached on Christmas Eve – including the annex on wine trading – was welcome. It ensured wine tariffs were not introduced and new red tape delayed until 1 July. However, with more than 50 per cent of wines on the UK market coming from the EU, the new arrangements for wine trading are more complex and becoming increasingly expensive. If left unaddressed the initial hit to the UK’s thriving, SME-packed wine industry, its global hub status, and its domestic market will never be recouped.

So what is the solution? In short, it lies in harnessing the UK’s post-Brexit trade policy – including striking deals with wine producing nations such as Australia, New Zealand and the United States – to maintain and enhance our global wine status. These free trade deals provide a golden opportunity to remove wine tariffs and, in parallel, to scrap protectionist EU non-tariff barriers such as the costly VI-1 certification requirement.

Arguably, given the relative weight of NTBs and their disproportionate and adverse impact on SMEs, a wine certification requirement should be dropped immediately – they are protectionist and serve no purpose.

Alongside bi-lateral trade agreements and in addition to the UK’s excellent decision to re-join the global wine standards body (the OIV), the UK should also act to boost its role in the global wine trade by signing-up to the World Wine Trade Group. The group already includes some of the world’s largest wine producers, such as Argentina, Australia, Chile, and the United States and provides the best route to achieving mutual recognition of wine making practices – which would support the global wine trading and in turn the UK’s ambitions.

And where some of these actions may take time, it doesn’t mean the Government can’t take supportive action domestically in the meantime. An ideal first step is using the forthcoming Budget to deliver a cut in wine duty for the first time since Nigel Lawson (whose picture hangs on the wall of Rishi Sunak’s Treasury office) was Chancellor in 1984.

With British drinkers paying fully 68 per cent of all wine duties collected across the EU27 and the UK prior to the pandemic, wine the most popular alcoholic drink in the UK, and wine sales essential to the recovery of the hospitality industry, cutting wine duty would be a ‘win-win-win’ for businesses and consumers – and also the taxpayer, with cuts and freezes proven to increase revenue to the Exchequer. As the UK looks to recover from Covid-19, a duty cut would offer a welcome down-payment on securing the UK’s global wine hub status and potential, not least through helping our wine exports bounce back after having more than halved during the pandemic.

The opportunity for future growth in the British wine sector is there for the taking. With swift action on tax and trade, the Government can first secure and then build on the UK’s global hub status that the industry currently enjoys. But it’s a time-limited opportunity to realise Global Britain’s ambitions in our sector. It’s now up to the Government to seize it.