I expressed my view on advertising on Saturday. Much of that post came from my book, The Courageous State. So too does the following, which addresses the issue of tax and advertising. I saw tax as the main corrective mechanism here, except for advertising aimed at children. That I would like to ban.
Advertising is, as has been noted, designed to deliberately create feelings of dissatisfaction. Adverts are intended to undermine the prospect of a person achieving their purpose by encouraging a sense of inadequacy among their target audience because they do not have the promoted products or services, whether or not they have a real need for them. This is immensely harmful to society, not least by denying hope to those who have no prospect of acquiring the products advertised, and by breeding discontent even among those who can afford them, because so soon after they acquire such products they are informed that they must now acquire another in a continual process of artificially manufactured dissatisfaction fuelled by advertising.
Advertising is pervasive in the modern economy, but pernicious. A Courageous State will have to tackle this issue and there is no doubt that one way to do this would be through the tax system. There is, of course, advertising that is of benefit, including small advertisements in local media, job advertisements and such other announcements. Most of these could be exempted from any tax penalty on advertising simply by setting a monetary limit per advertisement below which such penalty would not apply. Above that limit, where the advertising in question would be designed to fuel demand for products and services whether or not they were a benefit to the consumer in society, there must be a radical overhaul of our tax system as it relates to advertising.
First, no tax relief on such advertising should be available within the tax system, so that the cost of advertising cannot be offset against the profits generated from trade to reduce a taxpayer's profit on which they owe tax.
Second, any value-added tax charged on the supply of advertising services to a business should be disallowed as an input in the VAT reclaims it makes from H M Revenue & Customs. In other words, that VAT then becomes a business cost of advertising.
The impact of these two moves is obvious: it is to increase the cost of advertising, and that would be deliberate. Tax has to be used to counter the harmful externalities created by the market, and the feelings of inadequacy, indifference, and alienation promoted by advertising in very many sections of society are almost universally harmful.
There would, however, be a cost to such arrangements: the media would of course suffer from a loss of income. The media has, however, itself been under scrutiny of late, and has not always emerged with its reputation intact. While media independence is vital, so is its objectivity and in that case there appears to be strong merit in using some, or all, of the additional tax revenue raised by government as a result of these proposed taxation changes on advertising to fund the media, both nationally and as important locally, but only if it agrees to act with political impartiality in the way that the BBC is obliged to do. If it did that then I think funding to compensate the media for some of the loss of revenue it will suffer as a result the loss of advertising revenue would be appropriate.
But also note that what is being suggested here is hardly without precedent: when it became obvious that business entertaining was giving rise to abuse, tax and VAT relief on it was stopped in much the same way as I now suggest for advertising. Many said that the restaurant and other trades would collapse as a result. They did not, of course, do so. Nor will other businesses now, but they will have to adapt. That is the goal.
I am aware that some will take issue, not least on BBC impartiality. I think debate is, however, worthwhile.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Which current newspapers do you think would be regarded as impartial?
None
The Guardian comes closest
Does the fact you mention the Guardian, and not The Times, show your own political bias? Isn’t that why this kind of proposal should be a non-starter – that it creates political control of the news?
The Times has an owner who has shown strong political bias
The Guardian is more centrist
But I did not say it was without bias
That somewhat undermines your case, I think
Thank you for, once again, a very interesting piece Professor Murphy.
I think you are right that some (actually many) would take issue with the assertion that the BBC is impartial. That’s certainly not the way it looks to those of us who support Scottish independence. And it seems we’re not alone! https://www.theguardian.com/commentisfree/2018/apr/01/bbc-abdicates-responsibility-on-brexit?CMP=share_btn_fb
David Howdle says:
“Thank you for, once again, a very interesting piece Professor Murphy.” (Hear Hear. And reminds me I must hunt down a copy of The Courageous State.)
“I think you are right that some (actually many) would take issue with the assertion that the BBC is impartial. That’s certainly not the way it looks to those of us who support Scottish independence. ”
You’ll be familiar with the ‘London Calling’ documentary, I presume, David ?
https://www.youtube.com/watch?v=TXQYuLUAbyw&feature=youtu.be
Eminently sensible suggestions Mr Murphy. I have no issue with anything you say here.
Yes, agreed. There is a problem with the BBC as David points out – in delivery and in the independent assessment of their statutory obligation to be politically impartial – and even more so with newspapers who not only don’t have that obligation but are, mainly, owned or controlled by very rich men and act to further the agenda of their owners.
It seems to me the standard of journalism has, in many cases, plummeted and approaches nothing more than propaganda. There was a recent case in which much of the media regurgitated releases from the Labour Party in Scotland: http://derekbateman.scot/2018/01/25/the-media-we-deserve/
Most newspapers at present do not enquire, educate, analyse, discuss or in any way further the aims of democratic debate. Tax them until they do.
Advertising can also provide information for consumers to make more informed decisions and have more choice. Your idea of the courageous state is really just more State and less liberty. And your belief to tax is on on your whim. You really believe you sit in a position of arch superiority which gives you the authority to dictate how people live their lives. The arrogance is impressive.
Please show me these ads that are not of the type that I have noted
“You really believe you sit in a position of arch superiority….”
Now the obvious irony there Jason is that you yourself have just come out with a load of high-handed, judgemental criticism and conjecture.
BTW advertising doesn’t provide consumers with more “choice” competition and diversity do that. Advertising provides an advantage for the producers that do more advertising
jason says:
“Advertising can also provide information for consumers to make more informed decisions and have more choice.”
The theory is sound. In practice advertising is selling one particular …brand, product, service and rarely if ever offers useful and balanced comparisons (that is not its role).
‘More choice’ is a mixed blessing and something I’m personally sceptical about the advantages of. My ideal supermarket, for example, would not stock a bewildering array of washing powder, it would have the one I want at a price I’m reasonably confident is ‘reasonable’. (and it would be packaged the same way it was last time I bought it so I could recognise it)
But then I don’t suppose I’m a typical ‘consumer’.
You may be
Most of us are creatures of habit, like you
And don’t like people trying it in with us, as supermarkets and brands do
The constant repetition of inane messages and “jingles” is now so pervasive it is almost inescapable; this, combined with the power of the media to select and prioritise “news” events, means that we are under relentless pressure to think and behave in predetermined ways.
The ultimate parody is that of talk show presenters discussing issues such as poverty, inequality, suicide, the NHS, Syria, Yemen, Palestine, anti-semitism, et al, in ten minute segments sandwiched between silly voices selling all manner of tat. Both the commercial messages and the presenters set out to manipulate our emotions, specifically anger, in order to achieve – what?
This is where we are; the possibility of a rational dialectic has been closed down by vested interests.
We have to address this somehow.
KeithP says:
“The constant repetition of inane messages and “jingles” is now so pervasive it is almost inescapable; … ”
Ditch the telly. I did. I’ve never regretted it.
40 years not a slave to tv schedules.
Doesn’t this end up as a subsidy to foreign business? Clearly only UK companies will incur the cost of lost corporation tax relief and VAT. Foreign businesses therefore will be able to advertise in the UK for less than UK businesses.
Are you sure you’ve thought this through?
We are taking steps to make it rather hard to trade in the UK without being taxable here
Are you also aware of VAT reverse charging, for example?
Um, you have the reverse charge the wrong way round. Advertising is supplies where received, hence in this case the foreign business is outside the scope of UK VAT.
But if the supply is to a UK operation it is not
I have it the right way round
I’m afraid you don’t. The guy said foreign advertisers wouldn’t be taxed. You said they would, because of the reverse charge.
But it is the advertiser receiving the supply of advertising (eg from a newspaper). The supply is made where the advertiser belongs. So outside the UK.
You cannot impose UK VAT on foreign advertisers – at least not without becoming incompatible with the EU VAT system.
If the foreign advertiser is actually selling in the UK – and has a UK operation that is undertaking that activity – and there few Googles – then this can have the reverse charge applied to the UK PE / entity
That is exactly what the reverse charge was created for
Then recovery is disallowed
And that is wholly EU compatible
I am not sure you understand VAT, Richard. It is unusual for foreign businesses to a UK VAT fixed establishment. That is certainly not what the reverse charge was created for.
Why not just admit you made a small mistake?
I do very fully understand VAT
Almost no foreign businesses (barring artificially structured tech companies) sell into the U.K. without at least a PE
But it was commonplace before the reverse charge to avoid partial exemption costs by buying adverts outside the U.K. if a finance company, for example
The reverse charge beat that by requiring a deemed import to be accounted for in the U.K., with VAT disallowed but output payable
As it would beat evasion of the charge I suggest
I full pay understand what I am proposing
No mistake at all
Maybe an apology is due though
I totally agree that advertising is corrosive and that taxation is a good tool for tempering that corrosion. However, I suggest that we need to think long and hard about how we target that taxation.
My strongest personal beef is with probably the most socially destructive advertisers of all – the Gibraltar-based, on-line bookies that totally monopolise every televised sporting event. Sadly, these parasites tend to suffer neither corporation tax nor input VAT so the measures proposed above will not cost them a penny. Might it be possible to come up with some sort of damage-based tax on advertising? I can’t think how but that’s true of a lot of things. Hopefully sharper minds than mine can come up with something.
As regards the aforementioned parasites, my suggestion would simply be to prohibit them from advertising – to put them on a par with tobacco, but that’s not a tax measure.
You mean things like a ban on advertising betting?
I think bans do play a part
Gambling is a very strange phenomenon.
It demonstrates the triumph of hope over experience. Experiments laboratory rats tell us interesting things apparently about the compulsion to do things with uncertain payoffs. And the eternal optimism of the gambler tells us a lot about the unrealistic nature of some of our expectations which leads on to….
…..my mathematics hobby horse of the moment. Gambling is a demonstration of the power of mathematics to predict outcomes. As long as the house holds enough in the kitty to pay out to the occasional lucky punter the house never loses.
The gambling industry represents the pinnacle of privatised ‘tax’ gathering. A tax on stupidity, or possibly ignorance – the most lucrative market in the world.
https://m.youtube.com/watch?v=IxDjt3XIVOA
Advert for AJ Bell .. a savings platform making investment in funds, equities, bonds, investment trusts easy and cheap.. I agree a lot of adverts are annoying and wasteful, but consumers need to access propositions like this otherwise savers would be still be investing in expensive life assurance based products or high margin stockbrokers
This is an example of improved choice for consumers.. without advertising the likes of AJ Bell would never break into the market
I have not suggested that they should not be able to advertise
I have said the overwhelmingly negative impact of advertising means they should pay more for it
I have not watched the video. Tell me why investing in these ways is useful for society, might you? There’ scant evidence to suggest it is….
Nifty bit of product placement Jason slipped in there, Richard.
Hope you are charging 🙂
And Jason, if you’re reading this, I’ve nothing against AJ Bell. As with all companies in this or any other line of business I caution ‘caveat emptor’. It’s not a public service broadcast.
Interesting. A tax on advertising could dovetail nicely with taxing internet giants…
Yes…
I like the idea, but I think it is too late. Advertising is a 20th century phenomenon that is being overtaken by even more pernicious forms of social manipulation which are much more difficult to define, let alone tax. How would you define “advertising”? Think of the US election – “advertising” is old thinking.
I think a definition within the realms of possibility
And it would not be perfect
Nothing is
True. But as your previous correspondents appear to support, it would be tricky. It would be disruptive, distortionary, and eventually discretionary. And it is still old thinking. We need to aim at where they are going, not where they have been. As business models and methods are rapidly evolving organically to become more and more sociopathic, there is less and less value in trying to tax anything so negotiable. You can’t negotiate for the greater good with a sociopath. It would probably make more work for lawyers and accountants and public servants than it would be worth in dollar terms or social good. Better to tax what they can’t argue about. I think we should simply tax transactions. All transactions. Debits and credits. When you pay a bill, you would automatically pay your GST, and the payee would automatically pay their income tax. When you receive your salary, your employer would automatically pay their payroll tax and you would automatically pay your income tax. When multinationals and criminals move their cash around like peas under thimbles, don’t argue about their morality, just take a cut every time it moves – think of it as a complexity tax for big players. If every transaction on every account was taxed equally, the tax would only need to be very small and no-one would need to think about it too much, making compliance both much easier and much less painful.
You assume flat rate taxes based on the consequences of single transactions
We do not live in that world
We live in a world where we tax the net consequence of transactions in many cases
Your system cannot allow for that and would result in gross injustices in many cases