Opinion: No taxation without explanation – tax summaries are welcome but flawed

budget breakdownStarting 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 on the right, 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.

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.

* Adam Corlett is an economic analyst and Lib Dem member

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  • A blatant party political act.What I can’t understand is how Osborne gets it in the neck for the pasty tax, yet produces this crass generality ‘welfare’ that, as is said, including Armed Forces pensions and various other things. These documents tend to be rather technical, as if produced by mandarins. Using welfare like this doesn’t smack of that at all. Why did the Lib Dems go along with it? Presumably as a bit of quid pro quo for getting the tax threshold increase in there. No shame.

  • A good, reasoned argument Adam, I agree with your observations about how the hiding of say pensions within some categories such as “Welfare” seem to be politically motivated rather than informative.

    Perhaps we need to press for the full implementation of the “no taxation without explanation” policy by demanding the government produces a similar pie chart giving the forecasted spend arising from budget proposals, so that people can see the changes before they occur and so compare like-with-like.

  • Great argument Adam

  • No taxation without explanation seems like a natty slogan but it strikes me that a little explanation – especially the kind of nakedly partisan, tax-payer funded electioneering that of this particular “attempt” – is often worse than proper explanation. The fact is that understanding how and why government money* is spent requires a lot of hard work and information; shallow breakdowns or picked out item lists are neither helpful to the debate or actually informative. That’s how we get charades like the “golden fleece” awards in the US targeting money spent on “fruit flies” (that would be Drosophila, our primary model organism for Eukaryotic genetics) or the regular tabloid stories on Council waste (£250k on printing, how dare they! Well, you know, there’s not a lot of point having services if no-one knows they’re there).

    * – yes, government money; the presentation of this as “how you money is spent” is also nakedly partisan.

  • It is because of this that my mind was made up that I will defiantly not vote for Liberal Democrats again in 2015.

    I am outraged at this propaganda which has been supported by Liberal Democrats and indeed has a Liberal Democrat Chief secretary to the Treasury working in the department and has allowed this to happen.

    Clearly the Government motive for this was to give the impression that most peoples taxes are going on welfare to the unemployed and disabled. We know that the government is planning Billions of pounds of more welfare cuts and they are using this propaganda to try and get the public support.

    It is outrageous that the welfare department includes
    Pension Credits,
    Carers Premiums
    Attendance Allowance
    Disability Living Allowance and Mobility Allowance (If the benefit was claimed before the age of 65)
    Housing Benefit
    Council Tax Benefit
    Winter Fuel Allowance
    Cold Weather Payments
    Bus Passes
    TV Licences

    (All of the Above are benefits that are paid to pensioners and yet have been lumped in the total welfare bill)

    Then to top it off we have Public sector pensions lumped in as well.

    This is totally indefensible, This is the worse propaganda that I have seen ANY government undertake in order to what is in my opinion to denigrate those people in receipt of Job Seekers Allowance and Disability Benefits and seeking public support in doing so.

    I really am outraged and am shocked that this could happen whilst Liberal Democrats are in Government,

    Hence the reason the party has defiantly lost my vote in 2015 in a constituency where the sitting Liberal Democrat only has a majority of 310 over Labour

  • Daniel Henry 5th Nov '14 - 12:29pm

    Agreed with Adam’s analysis and recommendations, particularly about the utilisation of a cross party committee to prevent political bias skewing how these statistics are presented.

    I’m also disappointed that we’ve allowed the Tories to get away with inflating the welfare figures, but hopefully it can be improved upon, and I think on balance that giving people a clearer idea on government spending will do more good than harm.

  • Jenny Barnes 5th Nov '14 - 12:30pm

    ” because Universal Credit will merge many of these together anyway”
    Well, it would, if it could ever be made to work. in reality, not so much.

  • Daniel Henry 5th Nov '14 - 12:36pm

    I’d add a suggestion that we specify the dates covered, i.e. 2013-14 means tax paid between 6th April 2013 and 5th April 2014

    Too much information?
    I think people would appreciate understanding what time period this statement covered.

  • I meant to add to my earlier comment that I like the clarity of the statement of taxed paid but thinking about it, that too is deeply misleading and adds to the double deception of the statement. Because it concentrates on only two forms of tax – income tax and NI – and ignores the multitude of other taxes paid – VAT, various duties, etc. – it gives a misleading impression of how much money people are paying out in taxes whilst doubling down on that mistaken impression by then associating the tax paid through taxes on income with the government money spent each on various things each year.

    Does this matter? I think it does. I remember during the London riots that one of the rioters said something like “we’re getting our taxes back”, to which the internet responded “what taxes? Bet she doesn’t even work!” but as we all know, even people who aren’t paying income tax face a considerable tax burden.

    I wonder whether the chancellor would be doing this if the coalition had lowered VAT instead of raising the personal tax allowance?

  • Matthew Huntbach 5th Nov '14 - 1:46pm

    These are useful figures. Sorry, but the general public needs to know where their money is going in order to have informed political debate, and most people have no idea that it splits up as it is presented here. That is why UKIP can get away with its ludicrous suggestions that pulling out of the EU (even under the unlikely assumption it has no negative impact on the economy) will raise enough money to pay for much better state services as well as the tax cuts for the rich that featured prominently in UKIP’s party conference.

    I appreciate the point made that “Welfare” covers many things, and easily misinterpreted as meaning just certain sorts of benefits when actually it covers much more. However, the misinterpretation is really down to biased use of the term elsewhere i.e. the right-wing press. Turn your anger onto them instead of agreeing with their mis-use of the term and then using that as an argument to deny a straight presentation of useful information.

  • The Tories got away with inflating the welfare bill because they are the biggest party and because no one appears to be leading the Lib Dems at all at the moment.

  • @Matthew Huntbach

    “However, the misinterpretation is really down to biased use of the term elsewhere i.e. the right-wing press. Turn your anger onto them instead of agreeing with their mis-use of the term and then using that as an argument to deny a straight presentation of useful information.”

    I do not think it is just down to the right wing press at all, The conservative party are constantly trotting out figures that misrepresent the facts and gives the impression that the welfare budget is bloated because of the unemployed and disabled and quite frankly we do not hear enough from Liberal Democrat MP’s and Ministers counteracting the tories.

    The British public is constantly being mislead by the dominant right wing media and members of government, If all they keep hearing is this misrepresentation of the fact is it any wonder that so many people fall for this propaganda.

    I thought this party believed at its very core transparency and there is nothing transparent in these tax statements.

  • matt (Bristol) 5th Nov '14 - 2:17pm

    I agree with Daniel Henry; also I am not terribly impressed that social care has not been differentiated from either health or welfare.

    But I also agree with Matthew Huyntbach that in principle there is nothing wrong with the idea.

  • Daniel Henry 5th Nov '14 - 3:19pm

    @ Matt (non Bristol one)

    Accepting your criticisms of how welfare has been portrayed, (criticisms I think most of us agree with) aside from that don’t you think that it’s an otherwise good thing to let people know what their tax money is being spent on?

    As Adam says in the OP, this will bust myths about foreign aid and EU spending.

  • Ray Cobbett 5th Nov '14 - 3:35pm

    Utterly pointless exercise intended no doubt to inflame the already massively over-hyped diatribe against welfare, except of course where Tory voting pensioners are involved.

  • Well done Adam Corlett for raising this.
    Discussion of taxation and government spending so often takes place in a vacuum.
    So the more discussion, information and real understanding of how much taxation is raised and what it is spent on, is a good thing in principle.

    Those in this thread and Adam Corlett himself are rightly sceptical of some of the presentation.

    The pie chart above shows what seems to be a very small segment for military expenditure. Perhaps partly because those who have come home suffering what the MoD call “life-changing” injuries do not appear under military expenditure they appear under Welfare, Health and State Pensions.

    In the poppy-wearing run up Remembrance Sunday some establishment types (but most especially Conservatives) glory in going on about the sacrifice of those killed and maimed in Iraq and Afghanistan and all those other wars which have taken place since 1945.
    They then go on, without making the connection, to demonise those “on welfare” and take every opportunity to cut back the income and support for those with disabilities.
    It apparently never even occurred to them that some of those “spare” bedrooms penalised by the bedroom tax were used to store wheelchairs and medical equipment for people that in November they refer to as “our brave boys”.

  • @Daniel Henry

    “aside from that don’t you think that it’s an otherwise good thing to let people know what their tax money is being spent on?”

    Yes I think it is a fantastic idea, I believe Governments should be 100% transparent and it’s good for tax payers to know where their money is going.
    The problem is, these tax statements in the format that has been designed by the government, is not transparent.

    To have a separate department for Welfare and (basic state)Pensions but hiding the fact that the welfare department also consists of (pension credits) and all the other pensioner related benefits that I listed earlier, on top of this is the public state pensions.
    A majority of the people who receive one of these tax statements will have no idea that the welfare bill includes this and they will be given the false impression that this welfare spend is mainly for the unemployed and disabled people.
    Of course this is the governments intention all along, it is disgraceful propaganda and I would have expected Liberal Democrats to block something like that.

  • “Next year’s must be better”. No doubt it will, because it wont be being used as election material.

  • stuart moran 5th Nov '14 - 7:35pm

    pie charts are a terrible way to present data


  • @stuart moran: also a good point. Pie charts – just say no.

    @JohnTilley: You’re correct that information on tax spending is a good thing. Is a mass-mail like this a sensible way to be doing it? Let’s assume that it was done in a less nakedly partisan way and issues about direct and indirect taxation dealt with. Would it be a good way to do it? Will the general public be noticeably more informed after looking at a chart breaking down government spending into crude chunks? I’m not so sure.

    I think we need better information on public-facing websites and better media – how the government can affect better media, I do not know.

  • “I take the point that the ‘Welfare’ segment is too broad brush, and may be misleading.
    Winter fuel payments and £10 Christmas bonus are clearly part of state pension.”

    So should Pension Credits, especially considering the amount that some pensioners receive. Pension Credits also contains premiums, Premiums for things like
    Disability Premium £61.10 (you must be receiving the care component of disability living allowance middle or highest rate, attendance allowance or the daily living component of personal independence payment )
    Carers Premium £ 34.20 (To be entitled to this addition, you or your partner must be entitled to carer’s allowance, even if you are not actually paid it because you receive another benefit. The addition is payable for each person who qualifies.)

    To be clear, I am not suggesting for one moment that Pensioners should not get this benefit THEY SHOULD

    What I do take issue with is the fact that there are a lot of pensioners who would be in receipt of these benefits, because naturally with age, medical complications start to occur.
    What the Government has done with this pie chart has distorted the information.
    Because they have given separate department for Welfare & Pensions, people will naturally assume that the welfare department purely consists of benefits being paid to the Unemployed, Disabled and low paid.
    This is deeply misleading, because it contains all the benefits paid to pensioners that I mentioned previously, public sector pensions.
    It’s Disgraceful that this has been allowed to happen

  • Richard Murphy has done an excellent re-draft of this pie chart (still a pie chart, sorry @Stuart Moran) which uses clearer headings and includes the cost of allowances, reliefs, etc. to give a more complete picture. You can view it, and read about it on his blog: http://www.taxresearch.org.uk/Blog/2014/11/04/the-personal-tax-statement-george-osborne-doesnt-want-you-to-see/#sthash.i2D5KfmU.gbpl

  • Julian Tisi 6th Nov '14 - 1:14pm

    As others have said, the lumping of all sorts of stuff into the “welfare” heading is clearly inappropriate and no doubt something the Tories really wanted. However, I agree with Matthew Hutnbach that overall this is a good idea. As he says “These are useful figures. ..the general public needs to know where their money is going in order to have informed political debate, and most people have no idea that it splits up as it is presented here…”

    No doubt next year will be better (and surely a better breakdown can be done quickly on the internet right now). The main thing is that most people are woefully ill-informed about public finances, which makes it easy for guys like UKIP to go around claiming that we would all have so much more money if only we left the EU – or stopped giving foreign aid.

  • Adam Corlett 6th Nov '14 - 2:16pm

    Thanks for all the comments and kind words.

    For more info, the BBC has a couple of nice charts showing what two of the IFS’s alternatives would look like (though I still think public sector pensions should be assigned to their relevant spending areas if possible). Declan Gaffney, who first spotted this, also has a good mock-up.

    And now YouGov have done a poll showing that the way ‘welfare’ is presented does affect attitudes to spending.

    I’ve also been reminded that the original proposal for these statements – which I linked to in February – did include a more detailed breakdown of ‘welfare’ (though not in the pie chart).

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