No taxation without explanation – tax summaries are welcome but flawed (libdemvoice.org)

Starting yesterday, and over the next month or so, ‘tax summaries’ will be delivered to 24 million taxpayers, detailing how much income tax and National Insurance they paid in 2013-14, and where that money went. You can see examples here.

As Nick Clegg said in 2012, this will deliver “greater transparency [and] accountability in government … empowering citizens” with information on what they pay in, and how their taxes are spent. It sounds rather like the ‘Annual Tax Contract’ policy from the party’s manifesto in 1997 and 2001:

No taxation without explanation: Central Government should inform taxpayers of the ways in which their money is raised and spent, just as local councils now do.

You can draw your own conclusions from the pie chart below, but it looks like these annual tax summaries will be important. For example, those who’ve seen the chart may be more sceptical of claims that spending less (or even zero) on the EU and foreign aid would free up vast sums for giveaways elsewhere.

budget-breakdown

Already, this breakdown has come under fire, in particular for its ‘welfare’ category, which here makes up about a quarter of all spending. I don’t think this should be broken down into every separate benefit, not least because Universal Credit will merge many of these together anyway. Simplicity is important here (and note that the original mock-up didn’t even break off the state pension). But there are deeper problems.

The ‘welfare’ figure is actually based on a spending category called ‘social protection’. A large part of this is, in fact, social work and social care, which most people would not consider ‘welfare’ (and are not in the ‘welfare cap’). Then there are things like winter fuel payments, which might be better grouped with the state pension.

Even less defensible is that public sector pensions are also included as ‘welfare’ – a categorisation that almost no-one would naturally make. As the IFS suggest, MoD pensions might best fall under defence spending, and so on, rather than ‘welfare’.

They offer a number of alternatives to what a Guardian editorial on Monday called “a divisive, highly partisan account of Whitehall’s spending … shameless electioneering”. They concluded:

There are different ways of reporting how our taxes are spent, and there is a balance to be struck between the amount of detail presented and clarity of message. Lumping a quarter of total spending into one bucket labelled “welfare” may not strike the most helpful balance, especially when it includes such diverse items as spending on social care, public service pensions, disability benefits, child benefit and unemployment benefits.

The rest of the tax summary is less problematic. Lib Dems may notice that the personal tax allowance is shown prominently, which may help the party’s messaging. And reminding people how much NICs they pay (though not in as much detail as for income tax) may increase pressure for reform there, and it’s very welcome that employer NICs were also included. Interestingly, people are told their effective (average) tax rate (including employee NICs), which will be much lower than their marginal rate.

Some may argue there’s too little information: that there should be more on what we get out of public spending, rather than just what we put in; or more on the many other taxes that fall hardest on lower income households. But there’s only so much these summaries can get across. One small addition I would suggest – in the spirit of correcting misconceptions – is to give people their position in the income distribution or, at least, state what the median income is.

Given the evident risk of political manipulation, however, and that the wording and content of the statement will change to back up each government’s politics – “essentially distributing election literature with the public’s money” as the Guardian puts it – there’s a case (dare I say it) for an independent panel – perhaps made of members of the public, statisticians, and a cross-party selection of MPs – to determine its contents in future.

These tax summaries are welcome and important, but the ‘welfare’ obfuscation lets them down. Next year’s must be better.

Leave a Reply

Your email address will not be published.