Bedrooms, football and the top rate of tax

This is a tale of two cities. Of one city and two different planets. And of one City and one United.

On Monday a wave of welfare reforms began to hit claimants and tenants across the country. Today the top rate of tax is cut from 50p to 45p on earnings above £150,000. For the connection between the two, in the immortal words of Carlos Tevez:

welcome_to_manchester

The city is home to the richest football team in the English Premier League, Manchester City, and the most successful, Manchester United (give or take the location of Old Trafford). It is also the bedroom tax capital of the UK with more than 14,000 tenants facing an average loss of £624 a year. They have lost a total of £168,000 this week – less than many of the footballers earn in a week on their own – and will lose a total of £8,736,000 this year.

This list of the 15 parliamentary constituencies in the UK with the most bedroom tax victims makes the point in a different way. Along with nearby Salford and Eccles, the five constituencies that are partly or completely within Manchester dominate the table in much the same way as City and United do the Premier League:

  1. Manchester Central (4,160 tenants affected by bedroom tax)
  2. Salford and Eccles (3,200)
  3. Blackley and Broughton (3,113)
  4. Liverpool Riverside (2,920)
  5. Manchester Gorton (2,848)
  6. Knowsley (2,847)
  7. Gateshead (2,779)
  8. South Shields (2,776)
  9. West Dunbartonshire (2,714)
  10. Sunderland Central (2,713)
  11. Leeds Central (2,687)
  12. Manchester Withington (2,678)
  13. Worsley and Eccles South (2,657)
  14. Wythenshawe & Sale East (2,631)
  15. Jarrow (2,624)

Source: Estimates by National Housing Federation based on DWP impact assessment.

Back with the football, it’s difficult to find a completely reliable guide to salaries in an industry where so much is rumour and back-page fantasy. However, the most rigorous survey I can find is the 2012 Global Sports Salaries Survey produced by the website sportingintelligence.com. This sets out to list the average salaries of first-team players in teams of all the major sports teams in the world. It features baseball, Amercian football and Indian Premier League cricket but is dominated by football, with the Spanish giants Barcelona and Real Madrid in first and second place.

Manchester City is in third place with an average salary of £4,486,580 a year or £86,280 a week. That suggests that the total wage bill for the 25 members of the first-team squad is just over £112 million. That broadly agrees with this list of individual salaries that has Carlos Tevez and Yaya Toure as the highest-paid players but no less than 11 earning £100,000 a week or more.

Manchester United is 11th with an average of £3,345,911 a year or £64,344 a week. So the total first-team squad wage bill is almost £84 million. Again that is broadly in line with this list of the highest earners at the club, led by Wayne Rooney, Robin Van Persie and Rio Ferdinand.

These are almost certainly conservative estimates and it’s worth noting the following points:

  • The survey is from May 2012 and wage inflation in football tends to be in double figures
  • It includes basic salary and bonuses from football but not earnings from business interests outside the game. Top players can earn millions more from commercial sponsorship and other sources and there may well be other sums on top, such as the £10 million loyalty bonus that Van Persie will supposedly earn if he sees out his four-year contract.
  • It does not include highly-paid non-players such as Roberto Mancini (the City manager believed to be on £7.5 million a year) and Sir Alex Ferguson (United, £4 million a year) or their backroom staff or top administrators.
  • Recent accounts show that the total wage bill (including employers’ national insurance) was more than £200 million at City in the year ending May 2012.

However, taking the conservative estimate so as not to exaggerate my case, I was interested to see what the effect of today’s cut in the top tax rate would be on the highly-paid stars of the two Manchester clubs. The cut from 50p to 45p applies to all earnings over £150,000 a year. Here are my calculations:

Manchester City

  • Average salary: £4,486,580 a year
  • Total player salaries: £112,164,500
  • Total earnings above £150,000 a year: £108,414,500
  • Total tax saving from April 6: £5,420,725

Manchester United

  • Average salary £3,345,911 a year
  • Total player salaries £83,647,775
  • Total earnings above £150,000: £79,897,775
  • Total tax saving from April 6: £3,994,889.

From today then, the 50 first-team first-team players of Manchester City and Manchester United will save a total of £9,415,614.

I began this exercise assuming that there was no way the tax savings made my a few dozen footballers would bear any relation to the bedroom tax losses suffered by thousands of tenants. In fact, the bedroom tax cut of £8,736,000 is very close to what the footballers gain.

The four players earning the top salary of £180,000 a week (Tevez, Toure, Van Persie and Rooney) will save a total of £460,500 a year each in tax from today. Assuming they even notice what to them will probably seem like loose change, they might want to reflect on the fact that each of them is gaining the equivalent of the bedroom tax on 738 tenants.

Beyond the issues of fairness and inequality, the deeper point here is political and economic. It may be that the footballers, just like many bankers, paid for sufficiently expensive accountants to avoid the 50p rate of tax. However, these figures show that the sums involved are far more significant than the government likes to make out.

George Osborne told workers at Morrisons in his speech this week:

‘You pay your taxes out of your earnings. I want every penny of that money to be spent on the things that matter to you and your family: a better NHS, good schools and policing, strong defence, and decent pensions. Not on paying the interest bills on the national debt.’

Strangely he did not mention handing out millions of pounds to obscenely overpaid footballers. Equally, he did not mention the economic impact of transferring £9 million from poor tenants who have no choice but to spend it to the super-rich who will spend some and save the rest.

On the bedroom tax he said:

‘We’re saying that if you continue to live in a council house that’s bigger than you need, you’ll need to make a contribution towards the extra bedroom. We’ve got 1.8 million families waiting for social housing, and yet there are a million spare rooms across the sector. If you live in private rented accommodation and receive Housing Benefit – these rules already apply – and have done for nearly 20 years. You don’t get money for a spare room.
Treating both groups of people the same, regardless of which landlord owns their house is only fair.’

Obviously he did not mention the impossibility of downsizing within the social sector, the rooms that are not really spare or the disabled people who could be forced to more from homes expensively adapted to their needs and all the other well-founded arguments against.

And he did not mention the real ‘spare room subsidy’ – the single persons council tax discount – that he specifically exempted from this year’s cuts. It continues to be paid to almost eight million households in England. Some of them will be pensioners living on their own, some will be single parents with children, but some will be single adults able to benefit from the subsidy regardless of their income. Some may even be footballers with Manchester City and Manchester United living in luxury city centre homes or Cheshire mansions. As @GeneralBoles has just reminded me on twitter, they could be paying stamp duty of up to 7 per cent if they buy. However, a 25 per cent single person discount on Manchester’s Band H council tax of £2,758.48 would be worth £689.62 – more than the average bedroom tax in the city.

On the cut in the top rate of tax. Osborne told the Morrison’s workers:

‘I know this is controversial – but if we’re serious about Britain succeeding in the world, it’s an economic essential.
In a modern global economy, where people can move anywhere in the world, we cannot have a top rate of tax that discourages people from living here, setting up businesses here, investing here, creating jobs here.
If you don’t believe me, ask France.
They’re planning to whack up their top rate of tax – and you know what’s happening? 

Job creation is down as people are leaving the country.
 The opposite is happening here because we are welcoming entrepreneurs and wealth creators – and the jobs they bring with them.’

Yaya Toure, Carlos Tevez, Wayne Rooney, Robin Van Persie and the rest may be able to do many things with a ball. Some of what they spend may create jobs in the clubs and high-end shops of Manchester. Perhaps they are even creating jobs for lawyers and publicists and agents. But these are not entrepreneurs and wealth creators, they are footballers and wealth takers.

As for Britain succeeding in the world, City flopped in the group stages of the Champions League and United exited the competition in the second round. Presumably this was all due to the 50p tax rate.

As for the French, Gerard Depardieu may have fled to Belgium but the opposite seems to be happening in their football. Elite players are enjoying even bigger salaries at Paris St Germain than at City and they are still in the Champions League to boot. PSG have even been able to import former United player David Beckham, who earns so much from his off-field interests that he can afford the publicity stunt of dispensing with the millions he could make from kicking a ball.

Monday will see the millionaires of City and United line up against each other in a Manchester derby that will be as feisty and competitive as usual but will now presumably be even more entrepreneurial too thanks to the tax cuts lining their pockets. The tenants of Manchester starting their second week of the bedroom tax can console themselves with the thought that it is all an ‘economic essential’.

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3 Comments on “Bedrooms, football and the top rate of tax”

  1. Jules, as usual, you hit the nail on the head. I wish somebody would hit our policy makers in tax law on the head.

  2. Carla says:

    Another fascinating look at housing. Thanks for conducting all this research.


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