Statements of Taxation

Ben Gummer Excerpts

Wednesday 25th January 2012 Commons Chamber

[Ben Gummer (Ipswich) (Con)]

I beg to move,

That leave be given to bring in a Bill to require the Chancellor of the Exchequer to issue annually to each payer of Income Tax and National Insurance a statement detailing the payments made in the most recent tax year, the estimated payments to be made in the following tax year and a breakdown of the areas of government spending on which the payments are to be spent; and for connected purposes.

What I propose is very simple: the Government should tell us how much we pay in tax and where it goes. They should do so as close as possible to the Chancellor’s Budget statement and at the end of the tax year. Her Majesty’s Revenue and Customs should provide to each person who pays income tax and national insurance a statement to that effect.

The statement would provide two sets of information. First, it would give an account of the direct taxes—income tax and national insurance—paid by the person in the tax year just gone, and an estimate of what will be taken from that taxpayer in the year ahead. In that way, each taxpayer may see how the Chancellor’s Budget and any previous financial statements have affected their net income. The second set of information provided by the statement would be a detailed description of how the person’s tax is spent in simple cash terms in pounds and pence.

If we take as an example somebody on average earnings of about £26,000 a year, the tax statement would explain that their total direct taxes come to about £6,000, of which a little over £2,000 goes on benefits and pensions, £1,000 on the NHS, about £830 on education and so on. Even in the space of one piece of paper, it is possible to give quite a precise level of detail to the taxpayer. In this instance, it would show that £69 goes on railways and £17 on immigration and border control.

I propose that the tax statements should carry two additional pieces of information. First, each person’s share of the national debt should be itemised, as should their share of any deficit or surplus in the tax year. With that, there would be an item for debt interest, which for our average earner would be £404 for last year. Secondly, a list of taxes not included on the statement should be given, such as value added tax, tobacco duties, council tax and capital gains tax. I propose that the Government provide a web-based ready reckoner that allows people to calculate an estimate of their contribution through such indirect taxes. Taken with their tax statement, that would furnish each taxpayer with a good account of how much money they surrender to Her Majesty’s Treasury and what Ministers do with that money on their behalf.

The operation of the new tax system would be straightforward. Almost all end-of-year tax information, whether in the form of P60s or tax returns, is now provided online. HMRC therefore already possesses the individual tax contributions for almost all taxpayers. I propose that the general ratio by which each individual figure is broken down be determined by the Office for Budget Responsibility, in collaboration with the Office for National Statistics. Both organisations should be charged with the independent task of generating the analysis on which each tax statement is based. Again, that need not be complicated. The data are already published by Government and I propose that local authorities should be required to submit to the OBR their annual budgets, so that it can make forecasts of total public spending on services with the same level of detail as it can with out-turn figures for the year past.

The generation and presentation of the tax statement would be no more complicated than for the individualised direct mail campaigns waged by our high street and supermarket stores. Private quotations supplied to me suggest a cost of about 25p per taxpayer should the statement be printed and posted. That would translate to a total cost of about £7.5 million. That figure could and should be substantially reduced by combining the tax statements with one of the many other letters that taxpayers receive from HMRC. I see no reason why the whole enterprise should not be sponsored and why advertising space should not be provided on the envelope to offset the cost. On the format of the tax statement, it is of paramount importance that it is written in clear, neutral and uncomplicated language so that it is comprehensible to all.

It is a measure of how confounded our democracy has become that this simple, easy and cheap idea may be seen as in any way radical. We would not for a moment think of paying a bill in a supermarket or of setting up a mobile phone direct debit if we did not receive an itemised receipt in exchange. Yet for tax, the largest outgoing for most people, we get nothing—no total account of how much we have paid and no detail of where it has gone.

The Government’s hard work to simplify the tax code and their plans for tax transparency are to be welcomed. We should be aware, however, of how far other countries have proceeded. In France, it has long been established that the Finance Minister writes to taxpayers to tell them the total figures on how their taxes are spent. The state of Iowa, in its Taxpayer Transparency Act, mandates the Government to permit taxpayers to receive an online receipt for their state contributions. In April last year, the Obama White House introduced a federal tax receipt, again online, which allows taxpayers to type in their various Medicare, federal income tax and social security contributions and to receive a personal receipt similar to that outlined in my Bill.

While I recognise the value of online calculators, there can be no substitute for something that lands on the doormat at the same time across the country and corresponds with our entire tax paid. It would, in a way, be a national water cooler moment. That we do not have that at the moment, and that we even find the concept surprising, tells us all we need to know about the growing distance that separates Government and people. We must be honest with ourselves. As Government spending has grown ever larger and more complicated, and when the balance of tax and borrowed pounds has moved from defence to the myriad arms of the welfare state, Government expenditure has become ever more opaque.

That has suited the political ends of many who have sat in this Chamber. Without intending it to be so, the political classes have perpetuated a subtle collective fraud on the people who pay the Government’s bills. We have taken taxpayers’ money and distributed it with no explanation of what that means to each individual taxpayer. We have talked in millions and billions, and now trillions—a language comprehensible only to economists and Treasury mandarins which very few taxpayers and, to be frank, very few of us can relate to, let alone understand. As a result, we have forced people to question not how their tax is actually spent but how they believe it has been spent. How many times have each of us been told on the doorstep that all our money goes to Europe, or Africa, or Trident? Armed with a tax statement, taxpayers would have a precise and accurate understanding of how their tax pounds are really spent.

By transparency we will achieve accountability. Let us imagine how voters could more easily engage in the important debates that we are having in this and in another place on welfare reform, on pensions and on reducing the deficit if they knew about the relative distribution of their taxes, and in a tangible form. Knowing that he pays something like £800, and rising, towards pensions, our average earner would have a firmer grasp of the arguments made in this place about how pension reform is so badly needed. This one piece of paper could make Parliament more responsive to voters’ demands while helping the Government better to explain the spending decisions they have chosen to make. Such an improvement in accountability could only strengthen our democracy because it would decrease the distance between taxpayers and their representatives, making real the results of a vote cast in a ballot box.

I therefore further suggest that the Office for Budget Responsibility be required to assess the major parties’ manifestos at election time, at the request of those parties, in order that it may produce dummy tax statements so that voters can see the difference that their vote might make. A similar role is performed by the Congressional Budget Office in the United States, and there is no reason why it cannot be so here. In so doing, we may throw a little light on what is, for most people, the most confusing and murky period in the electoral cycle.

My Bill makes the simple proposition that we should be told how our money is spent. It would cost very little but would have a radical effect on our democracy. It would help voters to hold us—their representatives—to account and, in so doing, would go some way towards repairing our fissured democracy at a time when we representatives of the people must make increasingly difficult decisions on the people’s behalf.