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Why are our taxes so high?

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Philip Fisher has been looking at how our taxes are spent and isn't happy

24th Feb 2022
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Recently, a grateful government sent out an email offering the opportunity to discover not only how much tax an individual has paid but also the ways in which it was spent.

Like most accountants, I am very much aware of my tax obligation. The surprise came in reviewing the breakdown, which will make many of us wonder whether we are getting good value for money.

Strangely, the only figure that immediately rang a bell was our contribution to overseas aid, since this has been a political football after our hard-nosed Chancellor of the Exchequer cut the percentage for 2020-21 by almost 25%.

2020-21 was always going to be unrepresentative due to the pandemic, so here is the information from the HMRC area of the government website covering the last two years, with the numbers in pounds deleted to cover your dedicated columnist’s embarrassment at the paucity of his income.

This shows a breakdown of how your taxes have been, or will be spent by government.

           

19/20

 

20/21

                 

Health

       

20.5%

 

21.9%

Welfare

       

22.1%

 

19.6%

Business and industry

     

3.8%

 

14.4%

State pensions

     

12.4%

 

10.1%

Education

       

11.6%

 

9.6%

Defence

       

5.3%

 

4.5%

Transport

       

4.3%

 

4.5%

National debt interest

     

6.9%

 

4.1%

Public order and safety

   

4.3%

 

3.9%

Government administration

   

2.1%

 

2.0%

Housing and utilities, like street lighting

 

1.8%

 

1.4%

Environment

     

1.5%

 

1.3%

Culture, like sports, libraries, museums

 

1.5%

 

1.2%

Overseas aid

     

1.1%

 

0.9%

UK Contribution to the EU Budget

   

0.8%

 

0.6%

           

100.0%

 

100.0%

 

Purpose

One can only imagine that the purpose of sharing this information was to persuade grateful taxpayers that they are getting wonderful bang for their buck.

I would love to know what others think but my personal view is that, if this was the intention, it has backfired badly. That is especially the case as this article is being written in the week when Rishi Sunak has ended a great deal of health funding that many of us believe is still necessary.

Value for money

Everyone will have their own pet loves and hates from this list. Probably few would resent expenditure on health, welfare or education, unless it is wasted.

Things like pensions, transport and policing all seem like good investments as well, while defence might lead to a political divide, perhaps counterbalanced by the environment.

Discovering that government administration beats housing and utilities, the environment and culture looks like a figure that should be a scandal but perhaps it hides something more valuable than the cost of office parties.

Finally, after all of the fuss over the UK contribution to the European Union, is surprised to learn that this barely registers on the scale, at only two thirds of the overseas aid contribution and only 30% of government administration.

Covid fraud

It doesn’t have a specific line but the latest data from the public accounts committee suggests that we are all paying royally for fraud and error.

According to a report in the Guardian “Data from government departments’ annual reports suggested fraud and error losses of between £12.4bn and £20.1bn, with a central estimate of £15.7bn, the report said.

The furlough scheme is estimated to have suffered the largest fraud and error losses of £5.3bn, followed by the BBLS where £4.9bn is thought to have been lost. The government has funded a “taxpayer protection taskforce” to chase fraud in the schemes including furlough run by HM Revenue and Customs, but anti-corruption experts are concerned that funding is inadequate to fight fraud in bounce back loans.

The government will also have to write off £21bn in loans to people or businesses who will be unable to pay them back.”

Surprises

For those of us who are not ardent economists, the overall expenditure breakdown will contain many surprises and a few shocks.

One might have expected health and welfare to shoot up between the heady days before the pandemic and its worst ravages. In fact, welfare has gone down in percentage terms, while health has only increased by a modest amount.

The big winner, if that’s the right way of expressing it, is business and industry. At first glance, this looks completely mad. On reflection, all of that money that the Chancellor of the Exchequer flung into the pot, furlough, loans (including those that were paid out fraudulently and others which will never be recovered) business rates relief and the like are going to be hanging like a millstone around our collective neck for generations.

The future

One must imagine, or at least hope, that even if 2021-22 still looks like a pandemic year, everything should settle back into a much greater degree of normality thereafter.

However, the figure that we should all focus on, since it could prove deeply harmful, is that line for national debt interest. Even with interest rates that were practically non-existent, 4.1% of my taxes were expended on something that suggests a degree of profligacy to those of us who are naturally prudent.

With inflation predicted to shoot up to 7% later this year and a fair chance that it could even be higher, the money that is no longer dedicated to business and industry could largely be paid in interest going forward.

Replies (8)

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By Paul Crowley
24th Feb 2022 23:05

The UK has reasonable tax rates
Anyone seen an Irish tax return lately?
I have and I was a bit surpised. No personal allowance for those citizens who choose to live in a foreign country, but get interest (41% on the lot) and let some land
Anyone tried to get Switzerland to comply with the tax ageement with UK?
Lots of EU countries (and Switzerland) have 2 taxes to pay. Makes our CT look a stonking bargain.
Tax withheld on dividends after CT has has been paid

Thanks (2)
Replying to Paul Crowley:
LL
By RickyRoark
25th Feb 2022 09:19

We have different definitions of reasonable.

Tax should be at 0%.

Thanks (0)
Replying to RickyRoark:
Head of woman
By Rebecca Cave
25th Feb 2022 10:13

If tax is set at 0% this would mean:
zero free education
zero free health care
zero rubbish collection
zero defence
zero road mending
zero public housing
etc

Thanks (5)
Replying to Rebecca Cave:
LL
By RickyRoark
25th Feb 2022 11:03

But it's not free at the moment. I am paying taxes of which I have no control over where my money goes.

Those services you listed could easily be provided for better quality and more cheaply by a free market over a government monopoly.

Thanks (0)
Replying to RickyRoark:
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By Krusty
25th Feb 2022 16:44

Let's just leave pensioners, ill and disabled people to starve and freeze to death then, genius!

Thanks (1)
Replying to RickyRoark:
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By NotAnAccountant2
25th Feb 2022 19:03

RickyRoark wrote:

But it's not free at the moment. I am paying taxes of which I have no control over where my money goes.

Those services you listed could easily be provided for better quality and more cheaply by a free market over a government monopoly.

Except that this isn't true.

In the UK, one of the problems of the original 'private fire service' is that they kept finding themselves putting out fires in uninsured properties in order to protect the neighbouring insured property.

And the US spends *far* more per person on health care for vastly inferior coverage.

Just because the NHS, fire brigade, police etc have failings and imperfections doesn't mean that they should be scrapped completely. One of the things I've noticed working in successful companies is that there is ridiculous amounts of waste - but the costs of suppressing it usually end up exceeding any savings. You can see the early signs of a company in trouble when 'efficiency measures' end up harming productivity. When companies are doing well, the low hanging fruit isn't worth it. When they're in difficulty, it isn't enough.

Thanks (1)
Replying to RickyRoark:
avatar
By Paul Crowley
01st Mar 2022 13:26

This is daft
The Army would never get paid by you

Thanks (0)
By Nebs
25th Feb 2022 11:05

Business and industry jumped due to covid. A better comparison would be to substitute 14.4% for 3.8%, and spread the balance proportionately among the other areas.

Thanks (0)