By Lewis James Brown
The campaign for a more transparent tax system has long been an important one to the Centre for Policy Studies, so we very much welcome the smartphone app launched today by the Taxpayers’ Alliance designed to allow us all to see the amount of tax we pay on everyday purchases including food, alcohol and fuel.
As we have demonstrated in our publications ‘Abolish NICs’ and ‘How Much Tax Do You Really Pay’, the complexity of the tax and contributions systems make it difficult for even those with a decent knowledge of taxation to chart marginal effective tax rates (METRs). While politicians speak of rates of 20, 40 or 50 per cent, this refers to only income tax and creates a misleading impression. Ryan Bourne, in his statistical factsheet, demonstrated that in fact a basic rate income tax payer faces a METR of 40.2% - that is for each extra pound it costs to employ them, 40.2p goes to the Treasury. Likewise, higher earners face rates of 49% and 66.6%.
The CPS has joined several other organisations in calling for the merging of income tax and National Insurance Contributions to create a simpler tax system that allows the taxpayer to see their true rate of taxation. Aside from this noble reason, our Research Fellow David Martin has demonstrated that in the future only 6% of benefits will be paid on a contributory basis making the process quite redundant, as well as showing how the contributory basis has been corrupted with £13 billion being diverted to green policies between 1997/98 and 2005/06.
If the TPA’s excellent new app can help demonstrate the true levels of tax paid – 52.3% of your pay will go towards the Treasury on standard goods for instance – this can only draw attention to the complexity of the current system and subsequently the punishing amounts of tax paid by us all in the United Kingdom.
I can only add that I hope it is coming soon to Blackberry!