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Tax
Chart that tells a story – tax summaries
From the Financial Times of Thu, 06 Nov 2014 14:50:28 GMT

What does this show?

This chart illustrates a simplified breakdown of the main areas of UK government spending – £686bn – in 2013-14.

This week, HM Revenue & Customs posted the first “annual tax summaries” to taxpayers, outlining how much income tax and national insurance they personally paid in the 2013-14 tax year and how their contributions were allocated.

Do the summaries look like this?

Not quite. As well as being more colourful, the government’s pie charts were – in one respect at least – more simplified.

According to the official statements, “welfare” accounted for one quarter of public spending in the last tax year, by far the largest destination for taxpayers’ money.

While the statements do not clarify what constitutes welfare, an expansive definition has clearly been applied. According to the independent Institute for Fiscal Studies, the figures incorporate all “social protection” spending minus state pensions, which are shown separately.

So welfare isn’t all unemployment benefit?

No, far from it. In fact, a large share of the £168bn welfare spend in 2013-14 went to pensioners.

In addition to the £83bn allocated to state pensions, public sector worker pensions cost a further £20bn and pensioner benefits, such as pension credit and winter fuel payments, added up to £15bn. A further £13bn was spent on housing benefit and disability living allowance for the elderly.

An additional £28.5bn of the welfare allocation is attributable to “personal social services”, which includes the provision of long-term care for the elderly, sick and disabled, and for children looked after by the state. The IFS notes that many analyses “would want to report [this] separately from other welfare spending”.

Removing these areas leaves £94bn that was spent on working-age benefits – equivalent to 14 per cent of government spending.

And how was that allocated?

Treasury figures show that the two largest components of this spending last tax year were incapacity and disability benefits (£38bn) and “social exclusion” costs (£29bn), comprising family benefits, income support and tax credits.

Unemployment benefits amounted to just under £5bn in 2013-14 – slightly less than the value of subsidies granted to private sector companies.

Why do the tax summaries not break this down?

For clarity it makes sense to aggregate spending by area, but many experts have questioned the merits of creating a definition of “welfare” that Nicola Smith, head of economics and social affairs at the Trades Union Congress, notes is not used in any government accounting framework.

The smallest constituent of spending included on the tax statements is the UK’s net contribution to the European Union budget – which amounted to roughly £10bn in 2013-14. The IFS diplomatically said that if it is worth reporting this, “there might be a case” for providing a more detailed breakdown of welfare spending.

What else do they omit?

While the summaries offer a breakdown of how much income tax and national insurance contributions have been paid by an individual and where they have been allocated, they do not paint a complete picture of tax and spend.

Indirect taxes, ranging from fuel duties to stamp duty, are left out. Value added tax, which is payable at 20 per cent on most purchases, contributed £105bn or 21 per cent of all HMRC receipts in 2013-14.

For examples of tax summaries that are being sent out by government, go to tinyurl.com/qjv8fur.



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