I recently read Douglas Carswell’s book The End of Politics. I think Carswell had a lot of interesting things to say, particularly about people becoming more consumerist with government-provided services. However his main thrust is about how the state has become far too large overall and – crucially – has become too large because of progressive income taxation.
Carswell’s point about tax seems to be that because income tax is extremely progressive, most people feel comfortable voting for spending increases because they never expect to pay for it. I don’t fully buy this. I think reaction to the current “austerity” measures show that Carswell isn’t quite right: people are pretty pissed off about measures that don’t directly affect them.
I think the issue is more subtle than this. I think people are generally perfectly happy to pay their “fair share” for the public services and subsidies they believe they are entitled to receive. I think the issue is that they don’t realise what poor value their taxes offer for the services and subsidies they actually do receive. The way that levels of taxation are totally separated from the spending on services means that people cannot properly scrutinise whether they are getting good value or not and whether their tax money is being spent wisely or not.
An example from my current world: I keep getting Section 20′d by my landlord. Because I’m presented with an actual bill that I have to budget for I scrutinise the notices, I argue against estimates, I ask difficult questions about contractors, I ask questions about governance and the decision-making process. My tax bill, which is significantly larger, I just pay. I am under precisely the same obligation to pay both.
I wonder if we each received an itemised bill we might take a bit more interest in what our money is being spent on. For example if I had to pay for the police service by monthly direct debit might I take a bit more interest in whether the local Safer Neighbourhoods Team ever showed up on my estate? More importantly, might others take a bit more interest? If we knew precisely how much of our individual hard-earned was being distributed to subsidise our neighbours’ rent might we be able to form a more considered view on whether the welfare and benefit rules are fair? If prisons were costing me Z pounds a year and the war in Afghanistan was costing me Y pounds a year, might my view on the relative merits of such state spending be more informed?
I am not taking a view on whether the level of taxation we pay should be determined by our gross income or size of house or inside leg measurement, but once the appropriate fraction has been allocated to us, what if we were presented with an itemised bill and an annual repayment schedule? Might we not take a bit more interest and involvement in our society? Might that not be quite healthy for “democracy”?
Sounds good to get a statement BUT how much would it cost to produce and distribute? Would the details be accurate anyway? With a lot of internet work you can find how much is spent by each Department of Government and do the same at Council level,too.
income Tax was introduced by King George III to raise funds to fight the French…again. it was to be a temporary measure!! So why not advocate to rescind the Act ?
Detailed tax statements showing how the Government spends the money were proposed in a ten minute rule bill in January and announced in this year’s budget in March. HMRC is to start sending them out in 2014. See: Budget 2012. I think they’ll reinforce the mistaken notion that Government spending is linked to personal taxation, drawing attention away from other taxes and borrowing.
I think the point about the extreme progressive nature of our taxation is that, in effect, the vast majority of the population are in the “subsidised” category. Therefore, if presented with that kind of itemised statement, they would conclude that government (and more of it) was indeed good value – because the inefficiency of government spending is more than offset by the subsidy from the better-off. Imagine if one tenant in your block had to pay 27% of the repair bills, and your s20 notice was reduced accordingly? You might still look at the itemisation, but the prices you were being asked to pay would appear to be below the market rate and would therefore look like good value. You might even conclude that it was worth transferring more responsibilities to your landlord.
Of course, we all know what would happen in that scenario – that tenant would leave. Hence the campaign to vilify companies and high-net-worth individuals who try to minimise their tax liability – it is crucial to paint them as somehow evil and wrong so that they can be shouted down if they ask whether or not this is “fair”.
There is an easy way to work out this kind of itemised statement, though. Just work out your total annual tax bill and divide that into the annual government revenue of about £650bn (I think). You are left with a very small number which is the proportion of government spending that you provide. When a spending decision is announced, multiply the cost by your proportion to see your contribution to the project.
So, for example, the Olympics cost me about £2,000 and HS2 will cost me £6,500 or so (at current budgets, so let’s say £20k….). I’d say the Olympics were worth it (in hindsight) but HS2 isn’t.
Great comments all.
I have heard about the proposal to present a breakdown of expenditure but I was not sure if it was coming in.
Many of us have seen the charts with the relative size of the government departments. I am proposing something a bit more “in your face” – an actual bill and a monthly repayment schedule. The problem is as Rod points out there is a separation between what the government spends and how your own taxes are used.
Patently I can easily work out my “share” but my point is that most people just carry on without thinking about it. I don’t think people do the rational calculation – that is the problem!
Most of us work for the state in some way or another – even those of us in the private sector service people who pay us with their public sector wages. Manufacturing is 4th in scale in our economy. If we analyse too hard we might find ourselves cutting our own jobs.
There is also the taxation on everything we spend and our NI contributions are a tax too. How many state pensioners are really ‘pensioners’ ? Did they contribute the require NI to ‘retire’ or have they just been recategorised from being benefits recipients to make the figures look better ? Do those who spent their working lives servicing the benefits sector classify as pensioners too ? This is one of the time bombs about to hit us and one of the untruths in the tax system which will be impossible to quantify.
My guess is that the global markets will sort out our economy with time – inflating the statism away to nothingness.
That book of yours sounds a right rivetting read btw. You’ve finished it just in time to be able to watch the paint dry in your hallway !
If you aren’t interested in the topic, feel free to find something else to read.
Even if the government just stuck a breakdown of where the money went in the post to all of us each year (something like this http://bit.ly/Z2qAcY, but maybe including each individual’s total income tax bill, showing how much of that went on each item), I think it would have a very substantial effect on how people thought about their taxes.
Agree totally. I think many people would be surprised at their contribution to various expenditures..!