Personal Tax Summary: Redefining the words “Tax”, & “Welfare” while shaming the word “transparency”

In the story of the widow’s mite the authorities praise the rich man, while the widow, who gives proportionately much more of her money, is shunned. The Personal Tax Summaries due to be sent to 24 million people look like a modern day retelling of that story. By design the Personal Tax Summary ignores the taxes that the poorest pay while applauding the taxes the richest pay. Indeed the poorest families who pay the largest proportion of their total income in tax could receive a Summary crediting them with £0 contribution.^[1]The story of the Widow’s mite in Mark and Luke’s Gospels

Each Summary outlines the taxes that a person has paid over the year and how this money was spent. The numbers are accurate but the descriptions of what some of the numbers mean are extremely misleading and raise real questions about how we talk about public expenditure. Just one example:- the largest spending category is “Welfare” but who will realise that, whilst unemployment benefit is a tiny fragment of this category, a much larger component what is termed “Welfare” are occupational pensions paid out to groups of retired public sector workers?

Ignoring the contribution of the poor: Redefining the word “tax”

Under the heading “Your tax and NICs”, the summary contains a number which you would be forgiven for thinking was your tax and National Insurance Contributions. For the richest households the figure will represent most of their tax bill. For the average household, however, it will represent less than half their tax bill, and for the poorest households it will read £0.^[2]although I doubt they are going to send those ones out Ironically it is those very same poorest families who will pay the greatest proportion of their household income in tax.^[3]The ONS publication “The effect of Taxes and Benefits on houshold income”provides the indepth analysis of this – p6 shows the effects of direct verses indirect taxation, p8 gives overall effect … Continue reading

The Government has used the term “your tax” to mean only income tax. Those on low incomes pay little or no income tax. The taxes the poorest pay – VAT, fuel duty, excise duties, even local taxation – are ignored in this summary. Income tax is the one of the few taxes which takes proportionately more from the rich – the regressive taxes paid by the poorest are not included.

It is worth noting that Income Tax has been reduced which both shows up on these summaries and reduces the burden of taxes on the richest.^[4]by increasing the personal allowance which although initially looks like a measure focused on the poorest  – analysis is clear provides greatest benefit to the wealthier section of society … Continue reading The Government has also raised VAT which does not show up on these summaries and increases the tax burden on the poorest.^[5]http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf

It is disgraceful that the poorest pay a greater proportion of their income in tax than the richest – it is even worse that an exercise in tax transparency glosses over this uncomfortable reality.

Exaggerating the cost of the poor: Redefining the word “Welfare”

The Personal Tax Summary contains a breakdown of what taxes are spent on. The largest section on the pie chart is “Welfare”. This is a politically charged label with no agreed definition, and there is substantial evidence^[6]For example see this MORI Poll. The Lies we tell ourselves also contains more detail it is hugely misunderstood by the public. The Government gets round this by using the accountancy definition “PESA Social Protection”, subtracting the state pension and calling the remainder “Welfare”.

The evidence^[7]Evidence can be found in the “The lies we tell ourselves, and the best primary source is the British Social Attitudes survey  is that when the public see the word “welfare” they understand it to mean “unemployed” or worse “layabouts”. PESA Social Protection is around £250 billion, of which the State Pension is around £85 billion, leaving around £165 billion that has been christened as “Welfare”. As unemployment benefit is around £5 billion, that leaves £160 billion of “Welfare” which is spent elsewhere. What does a Personal Tax Summary’s “Welfare” spending really consist of?^[8]Numbers taken from PublicExpendature Statistical Analysis 2014

While the word “welfare” is immensely unpopular, the public services it represents include some of the most popular provided by the state– personal care for the young and the elderly, benefits to sick and disabled people, support for children and working families. All of these cost vastly more than unemployment benefits. Even excluding the state pension it is still likely that pensioners are the biggest recipients of “welfare”: pension credit, attendance allowances, housing benefits, personal social care – all of these are popular uses of taxes. None of this is mentioned in the Personal Tax Summary.

Redefining occupational pensions as “Welfare”

Delve deeper and you will find that PESA Social Protection also includes around £20 billion^[9]£20 Billion is a best estimate derived from the subtracting the the State Pension from the “PESA Social Protection” pensions spending line. The documents referred to do not allow for a more … Continue reading of occupation pensions paid out to retired public sector workers. How many of the 24 million people receiving these summaries will see the term “welfare” and think of top civil servants’ occupational pensions?

Encompassing all these things under the single category “welfare” is extraordinarily misleading. The website declaring Personal Tax Summaries to be a “revolution in transparency” point people looking for an explanation to PESA National Accounts (table 5.1) and the OBR Fiscal Outlook report which, while huge, technical and confusing, don’t actually contain the PESA definitions.

Redefining debt and debt interest?

The amount shown as being paid in debt interest is misleading in another way. Strange as it may sound we are paying a large chunk our debt interest straight back to ourselves. The quantitative easing programme started in 2009 and created money from thin air which was used in large part to buy government debt. This means that the Bank of England now holds around a third of the national debt. The interest paid on this debt (around £11 billion) goes from the Treasury to the Bank of England who then pay the money back to the Treasury. This sounds like madness but to lend an air of respectability it is called the “Asset Purchase Facility funding”.

The question remains: are your taxes really being used when you are paying debt interest to yourself?

The cost of services to the poor or the value of services to the wealthy?

The price of services to the poorest people is often discussed. The value of state provided services to the wealthy is more of a secret. The state provides a great deal of services which do not cost a lot of money to provide but are of enormous value to those – mainly better-off members of society – who benefit from them.
A good example is quantitative easing where money was created out of thin air and used to add £600 billion to the value of assets held almost exclusively by the wealthy.^[10]Bank of England (2012) “The distributional effects of asset purchases”  Even more important over the long term are the protections and legal frameworks which allow currency, assets – especially financial assets – to be held and traded safely and securely.  These are enormously valuable to those who own them. The value of these services to the wealthier parts of society goes entirely unremarked upon. They certainly don’t appear on these personal tax summaries – but the “costs” of services to the poorest do.

Numbers constructed to support an economic narrative

The summary divides up spending in a manner that accentuates the government’s preferred economic narrative – that welfare spending and debt interest are high. It also is silent on the benefits of state spending for the richest in society.
If you were trying to make an argument to encourage people to demand lower taxes for the wealthy there is no better way to present the numbers. If you were trying to explain the relationship between taxes and public spending, however, then the Personal Tax Summary is a socio-economically distorted way to present the numbers.

Learning the lessons of the widow’s mite

A Personal Tax Summary which ignores the majority of the taxes paid by the poorest half of the population is a nonsense. This is doubly so when you realise the poorest pay the largest proportion of their income in tax. What adds to the offence is that the Summary goes on to represent public spending in a partial and misleading way – one which hides popular and well understood spending on disadvantaged groups behind misleading and unpopular names.

In a political environment where “taxpayers” are lauded, excluding the poorest taxpayers in this way sends a real and worrying political message. This is a message we find countered time and time again in Christian teaching – the widow was ignored by all around as she was unable to give as much money as the rich man, yet we are told definitively that it is the widow we should be lauding and listening to. The debates on taxation and spending are at the heart of politics and we must ensure that the voice of the widow, and not only that of the rich man, is heard.