People to receive personal tax statements

Chancellor George Osborne is expected to say in his budget on Wednesday that the statements will be ready from 2014-15.

Although people will find out how much they are paying in direct taxes – income tax and national insurance – the statement will not include deductions for VAT, council tax, fuel duty and taxes on alcohol and tobacco.

John Whiting, tax policy adviser at the Chartered Institute of Taxation, told Channel 4 News that although he was in favour of “tax transparency statements”, what the government was planning was incomplete.

I think it should be done with a footnote saying the average taxpayer also contributes x thousands of pounds in indirect taxes. John Whiting, Chartered Institute of Taxation

He said: “The income tax and national insurance statement only goes so far, but I think it should be done with a footnote saying the average taxpayer also contributes x thousands of pounds in indirect taxes.”

How much people pay in indirect taxes varies, depending on whether they own a car, smoke and drink alcohol. But research by the Office of National Statistics found that in 2009-10, the average household contributed £3,538 in indirect taxes, including VAT of £1,843.

Take-home pay

The Treasury says someone earning £15,000 a year takes home £12,562 and pays £2,438 in direct taxes (16.25 per cent of inome). This taxpayer contributes £812 to the welfare budget, £424 to health, £318 to education, £141 to defence and £65 to the police.

A person on £25,000 a year pays £5,702 in direct taxes (22.6 per cent of earnings) and takes home £19,498.

Of this £5,702, £1,900 is spent on welfare, £993 on the NHS and £743 on education. Interest payments on government debt account for £363, while £329.08 goes on defence and £153 to the police.

A £50,000 a year earner takes home £35,817 and pays £14,183 in taxes (28.4 per cent of income). Of this £14,183, £4,728 is spent on welfare, £2,470 on health, £1,849 on education, £818 on defence and £381 on the police.

A Treasury source said: “It is quite right that people know how much tax they pay and what it is spent on.”

When people receive their statements in 2014, they will need to recognise that if they earn an above-average wage of £25,000 a year, as well as contributing £5,702 in direct taxes, they could also be paying many hundreds of pounds in indirect taxes (as the figures above show).

Conservative MP Ben Gummer, whose 10-minute rule bill on tax transparency in January was the inspiration for the chancellor’s tax statements, told Channel 4 News he was impressed “with the speed with which they’ve responded”, adding: “I couldn’t have asked for more.”

Mr Gummer said transparency on indirect taxes was an “obvious next step”. Tax ready reckoners were already available online and it was just a matter of time before the Treasury followed suit.

With the first statements due to arrive a year before the expected date of the next general election, the Conservatives are hoping to increase pressure on Labour over public spending – particularly on benefits.

A government source told the Daily Telegraph: “When people see how much they pay towards welfare, the argument about whether to cap benefits will be brought into sharp relief.”

Welfare

Treasury illustrations show that of the £1,900 that a £25,000 a year earner contributes to the welfare budget, £800 supports pensioners, £346 is spent on sickness and disability, £238 on families and children, £198 on housing and £57 on unemployment.

Channel 4 News asked the Treasury for more detail on this welfare spending. The department told us that the money for pensioners includes contributory retirement pensions, the minimum income guarantee and winter fuel payments.

Sickness and disability covers disability living allowance, attendance allowance and statutory sick pay. Support for families and children includes child benefit, income support and maternity allowance.

Housing includes housing benefit, while unemployment covers jobseeker’s allowance.