Thoughts on the Budget
9 Apr 2003
Listening to one of the least eventful Budgets in living memory, I reflected on how the tax system was now being used for a totally different purpose from that for which it was invented, and wondered whether it was up to it. Historically, the object of raising taxes was simply to pay for Government expenditure. With so many people on subsistence levels or below, the tax system focussed on the wealthy few. While it has always had this "progressive" feature, it did not historically have any greater pretensions. Even in post-war Britain, paying income tax was an experience for the minority.
Nowadays, the tax system is no longer just a means of raising income for the government; it is a major tool of social policy. And by rebadging many social security benefits as tax credits, the tax system now touches just about everyone in work. Over 29 million people now pay tax. To further social policy or bring aid to a disadvantaged group - worthwhile objectives which I broadly approve of - each Budget brings a new accessory that is bolted on to an already complicated and overloaded system.
I wonder whether we have not reached the point where we now need to re-engineer the whole system. When I was first elected as an MP, I could give advice to constituents on low incomes. I knew enough about the social security system to navigate around it and point them in the right direction. I confess I can no longer do this. Press me on the details of the Working Family Tax Credits, and I have to ring up the Andover Citizens Advice Bureau who will put the right disc into the PC and find out the answer. Constituents come to see me with forms that are pages long, which they and I find it difficult to comprehend. They discover that by claiming one benefit, they lose entitlement to another. Between a quarter and a third of entitled pensioners do not claim Minimum Income Guarantee; one third don't claim Council Tax Benefit. The average amount of MIG unclaimed is £22 per week - a lot of money for someone on a low income. In all, there are 23 potential entitlements for pensioners, with 36 different linkages between 16 of them. Some of those on Working Family Tax Credits have stopped working because their employers found it difficult to cope with the regime. If people don't understand the system and don't use it, it loses its purpose and risks becoming discredited.
I think there is a powerful argument for having a tax system that raises taxes in as fair a way as possible. One that touches fewer people, rather than more. I would like to see thresholds raised with the specific objective of taking millions of people out of tax entirely. 40% of people who pay tax are also getting benefit. Nearly three quarters of employees earning less than a third of average earnings pay tax. That can't be right. 53% of this country's Gross Domestic Product is collected in tax, but 14% is then claqimed back by citizens who navigate a system that hasd 250 allowances, reliefs, tapers, exemptions, credits disregrads and so on.I would like to see the system simplified so more were dealt with through PAYE, and fewer had to complete an increasingly bewildering return. Nine million self-assessment forms are sent out every year. Three quarters of MP's are unable to fill in these forms without help! I would like to see the employer disengaged from having to operate a myriad of benefits for the Government, diverting the small business from its core job of providing goods and services in a competitive market place, and giving secure and well-paid jobs to my constituents. A business with between one and five employees faces payroll costs of £288 per employee.
I would like to see a separate benefits system, with more benefits paid universally and automatically, operated by a Government department whose business it was to operate a benefits sytem. Is it right that two thirds of pensioners are going to be subjected to some form of mean-testing?

I genuinely believe the present system is unsustainable and that we need to move to a new architecture. But there was no sign of this in the Budget.
 
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Copyright Sir George Young Bt. 2015