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Thursday, 12 September 2013

IS 'BEDROOM TAX' A TAX?

UPDATED 25 SEPTEMBER 2013

You all know what I mean by the phrase 'bedroom tax'. It is the reduction in the help with rent given to council and housing association tenants who have more bedrooms than the rules say they should have. The phrase has been used tens of thousands of times since it was first used in early December 2011. One question that seems to worry many people is whether it is an accurate description of the rules.

In one sense of course it's not. It's a two word phrase and the policy itself runs to many paragraphs. Some people including Government Ministers prefer the five word phrase ‘ending the spare room subsidy’. One even gave it the status of initial capital letters recently as ‘ending the Spare Room Subsidy’! More of that phrase later. And now - 23 September 2013 - the DWP has also added the capital letters to the policy which is now referred to in an Urgent Circular to local authorities as 'Removal of the Spare Room Subsidy (RSRS)'. See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/244604/u6-2013.pdf

In fact the policy can be accurately and objectively described in five words taken from the Regulations that introduced it - housing benefit excess bedroom reduction. 

But is ‘bedroom tax’ accurate so far as it goes?

No-one disputes the policy is about bedrooms. The number of those is at the heart of it. A single person in a two bedroom flat has one more bedroom than the regulations specify and their housing benefit will be reduced by 14% as a result.

The argument is whether that 14% reduction is correctly described by the word 'tax'.

The definitive guide to the meaning of English words is of course the Oxford English Dictionary, the OED.

tax, n.
1.a. A compulsory contribution to the support of government, levied on persons, property, income, commodities, transactions, etc., now at fixed rates, mostly proportional to the amount on which the contribution is levied.

That doesn't seem too far off describing the housing benefit excess bedroom reduction. It is compulsory for those to whom it applies as it is laid down in Regulations. It does support government because it is part of attempts to cut the £24bn annual cost of housing benefit and itself is estimated to save government about £500mn of that. The rate is fixed and at 14% of the rent (or 25% for two excess bedrooms) so it is certainly proportional to the amount on which it is levied.

So on the face of it the reduction is a 1.a. tax.

Hang on hang on, critics say. A tax has to be levied on one's own money. This is not levied on money these people have earned but is just a reduction in the money society gives them. Taking less off the government is not the same as giving it money! So it is not a tax. That initially plausible argument is completely undermined by the fact that removing child benefit from high earners is a tax. Details below.

And in any case 1.a. is just the start.

1.b. The rate at which anything is charged.

Even though it has not been used since 1455 (that's the OED for you!) that certainly could describe the rates of 14% and 25% which are after all the reduction itself. But there is more.
 
2. fig. Something compared to a tax in its incidence, obligation, or burdensomeness; an oppressive or burdensome charge, obligation, or duty; a burden, strain, heavy demand.

So if anyone commonly compares the housing benefit excess bedroom reduction to a tax in those ways then it is, well, a tax. That's how language works. And many of those whose benefit is reduced say that it is oppressive, burdensome, a strain and a heavy demand. You may not agree with them. But under this definition it is a tax, both ways.

Now, how does the OED define 'subsidy'. Oh!

subsidy, n.
2.a. A tax...

I think I'll leave it there! But no you say tell us more. OK. The more common modern usage of ‘subsidy’ is

3.a. A donation of money or other property, usually made to provide assistance.

So. If housing benefit is a subsidy then it's a donation. And taking part of it away after it has been given (and that is how the regulations work) seems to get us back to the 1.a. tax.

OED? More like QED!

Child Benefit analogy
Housing Benefit is not the only benefit which is taken away from people. Child Benefit is taken back if the income of either partner in a household exceeds about £50,000 (full details of this in my blogpost here http://goo.gl/dU850w

The reduction of child benefit, which can be between 1% of the benefit and 100% of it, is done through income tax. The rules are set out in the Finance Act 2012 Schedule 1. It inserts a new section in the Income Tax (Earnings and Pensions) Act 2003 which reads 

              681B                 High income child benefit charge
(1) A person (“P”) is liable to a charge to income tax for a tax year if—
(a) P’s adjusted net income for the year exceeds £50,000, and
(b) one or both of conditions A and B are met.

(2) The charge is to be known as a “high income child benefit charge”.

More conditions follow. But this law clearly says that taking away child benefit is done through income tax - and collected through self-assessment. If taking away child benefit is a tax than by analogy so is the housing benefit excess bedroom reduction. 

Or perhaps Ministers will start referring to the child benefit charge as 'ending the high income progeny subsidy'! We shall see.