Budget 2012: It’s the way you communicate it

Gladstone's Red Box

Gladstone's Red Box (Photo credit: Wikipedia)

This week’s Budget announced by the UK Government included proposals for an annual personal tax statement. Each year, taxpayers will receive details of the tax they have paid and how their tax contributes to public spending. It’s all under the banner of increasing transparency. And transparency of course is, must be, a very good thing.

This measure has been brewing under the surface for a while. Earlier this year, the Government’s Behavioural Insights Team released a report on ways of reducing fraud and late payment of taxes. According to the report:

“…individuals tend to think beyond the impact of dishonesty. One study demonstrated that people are much less likely to lie to someone else for personal financial gain if the impact on other participants is high. Because individuals committing fraud against public bodies are unlikely to understand the impact that these actions might have on others, HMRC [the UK’s tax collection agency] is investigating whether framing tax debts as a loss to particular public services might increase compliance. At a local level this might be done by highlighting the impact of unpaid council tax bills on street cleaning services, for example.”

The annual personal tax statement could be a way of guilting people into paying their taxes by showing them what public services their taxes are used to fund.

So what might the annual tax statements show? The Treasury’s statistics on public expenditure show that in 2010/11, 35% of public spending was on social protection. 18% was on health. In other words, if you paid, say £5,000 in taxes in a year, £1,750 would go towards social protection – such as welfare benefits, and £900 would go towards health services. These are the two largest areas of spending – the rest of the money would go towards a variety of other things such as education, culture, debt payments, transport, and so on.

The interesting thing is what people will make of these, and whether it will change their views on Government policy. Seeing £900 of your money going on health might convince you that health reforms to make health services more efficient are needed after all – something that the Government has had trouble convincing the public is really necessary. But it depends on how high you thought spending on health was in the first place – and therefore whether your statement comes as a pleasant or horrific surprise.

Does spending 35% of your taxes on welfare sound like rather a lot? What if it’s broken down further so that it’s clear that quite a lot of that is on old age pensions and social services, rather than work-shy layabouts? Clearly, the level of detail provided and the way the figures are presented could influence people one way or another.

In fact, people’s views on how much tax they should pay and how the taxes they pay should be used to help others depends on how the question is asked. If you ask people how much tax different people should pay, they tend to say that people should contribute an equal amount. But if you instead focus on people’s after-tax income, they will tend to be in favour of a more progressive tax system that leaves after-tax income more equal.

Perhaps we shouldn’t be too worried about Government’s ability to spin information in specific ways to drum up support. This week, the UK’s Chancellor George Osborne tried to placate angry pensioners by saying they would be just as well off in cash terms after measures in the Budget to change the way pensions are taxed. Given that everyone over the age of 60 has a story of how they were once able to buy milk for a tuppence and a detached home for under £10,000, I somehow doubt that this group of people is unaware of the existence of inflation.

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