Tag Archives: regressive tax

Income Forgone

There is a reason for governments getting involved in controlling food prices. Hungry people riot and overthrow governments. The Arab ‘Spring’ is perhaps the most recent example of the chaos caused because the wheat price rose and various states no longer had the income to subsidise the price of food. Unfortunately food prices are regressive. There is a lot of discussion about regressive taxation, (“If the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, the tax may be considered regressive.”) but in in reality food prices are regressive.

If food prices go up with a bang, the prosperous family might well have to cut back on the skinny vegan decaf cappuccino but needn’t think twice about having a holiday home in Cornwall as well as the Dordogne. The poor family will not be able to afford new shoes.

So I have no problem with government stepping in to subsidise food prices. Indeed, governments have been stepping in to control the market since the days of ancient Athens, if not earlier. Because hungry people riot and overthrow governments.

Now the UK government is coming up with a whole new system. It’s ELMS, the Environmental Land Management System. Now back in 2012, Andersons Farm Business Consultants did a piece of work for government. Back then we were still in the EU, but ELMS (or N (for new) ELMS) was on the stocks. It’s not a uniquely UK scheme, it’s just that our version has parted company with the EU parent.

The purpose of their work? To quote from the summary, “An essential precursor to setting payments is the calculation of income foregone. This contract forms and integral part of that process – the production of cost data for the items that are fundamental to the calculation of income foregone.”

http://sciencesearch.defra.gov.uk/Default.aspx?Menu=Menu&Module=More&Location=None&Completed=0&ProjectID=18542

And now, nine years later, they’re starting to trial the precursors of ELMS. But income forgone is still in there.

To quote the Oxford Dictionary of Agriculture and Land Management, income forgone is, “A frequently used term within the payment calculations of agri-environment and other land management schemes. Within this specific context it is usually the agricultural income that has been foregone in adapting to required management prescriptions to comply with the scheme conditions. Payments might also include costs of additional management operations and incentivization…. …”

The definition continues but behind a paywall. Between ourselves, it strikes me that we’ve taken a wrong turning if we need a specific dictionary of agriculture and land management! Especially a 464 page paperback!


Still, the principle of ‘income forgone’ is easier to show by example than explain in theory. Assume that you have a field that grows barley and leaves you an annual income of £1000. If you put it into an environmental scheme, if might cost you £2000 to do the capital works necessary. So on an income forgone payment system you’ll be given the £2000 and you’ll be paid a £1000 a year. That way, you’re no worse off at the end of it.

The treasury likes this system. It convinces them that they’re keeping costs down and private citizens are not growing rich on public money. As a tax payer I can sympathise with this.

There is unfortunately an underlying structural problem. As I pointed out earlier, government works to keep food prices down. This has been a long term policy, followed by the EU when we were part of it. If you want to read more on this topic I put together a few figures here.

So on one hand government is keeping prices down, thus keeping agricultural incomes down. On the other hand they are then paying farmers on an ‘income forgone’ basis having made damned sure the income the farmers are forgoing is as low as possible.

There are two ways to look at this. One is to point out that it is, at the very least, inequitable.

But the other is to regard it as the way forward. Why is government only using income forgone with agriculture? Why isn’t the principle being employed more widely?
After all, let us take the treasury. An employee there would be assessed and it would be pointed out that given the jobs available where they live, if she wasn’t a deputy undersecretary, she’s be on the minimum wage working in a call centre. So on the income forgone principle, they’ll pay her the minimum wage but also an allowance to cover second class travel to work. After all, the last thing we want is for private citizens to grow rich on public money!

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There again, what do I know? Speak to the expert.

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