Tax Policy, Financial Literacy and Education

Comment regarding the guiding principle of ‘simplicity’ on page 20, Tax Consultation Paper 114

It is important to clearly describe the difference between:
‘simplicity for the benefits administrators’ (i.e. implementability) and
‘simplicity for tax payers’ (i.e. transparency).

Implementability must  be considered as a limiting factor.  However transparency is a complex and very important principle for many reasons.  It is not about the numbers being simple.  It is about individuals properly understanding the numbers.  The numbers can actually be quite complicated if they make sense graphically.

An individual wants to know three things about their own income:
1. How much tax will I pay if I earn/receive different amounts of money?
(This can be shown with a graph.  There should also be a graph for the amount of money which they will get for different income levels given effects of national insurance and benefits.  There also needs to be a clear logical statement which would allow people to reconstruct the graph if they didn’t have it)
2. What is the %tax I pay as I earn different amounts of money?
(I.e. if my income goes up by £2k a year what proportion of that will I see?)
3. What are the implications of proposed tax changes for my income?

Here are two examples of graph 2 – overlaid to compare policy:

Here is an example of graph 3:

Health warning.  I am not confident these graphs are correct even though I have a degree in maths and management and have tried hard to research this topic.  Hence the need for this policy focus!

(Sincere apologies to readers for the current malfunctioning of the graphs. Please don't hesitate to contact me if you'd like the originals through a different route.  I'll try to fix this problem when I get time.).

Beyond understanding their own income people want to know how their graphs differ from other people and why those differences exist.  It should be possible to rapidly overlay the graphs of people in different 

circumstances and to clearly see and comment on the different.  At present it isn’t. 

When tax is considered in this way things like earnings from investments, income from inheritance tax and so on are considered as part of the income of the individual receiving them.  It may be that only a proportion or an amount after a threshold of these should be considered.  If so this should be openly and transparently discussed.

This policy principle should be clearly linked to the introduction of the teaching of financial literacy into schools.

One of the drawbacks of the £10k threshold is that it means that many young people will not pay tax and will therefore not learn to cope confidently with the tax system.  One thing we could do to address this would be to say that from the ages of 16-25 you pay 10% tax on your income if you are still living at home (expense on education could be deductable?).  The purpose of this would be to actively link the teaching of financial literacy training all our young people to engage with the tax system and their state.  If they engage actively at this age they will not forget that experience.

We should not forget the Jimmy Carr case.  Lots of honest tax-payers pointed the finger.  We pay our fair share and so should you.  Most people want to be honest tax-payers who pay their fair share.   The kind of thinking I’m describing would make it very clear to all what everyone’s fair share was and therefore it would be blindingly obvious to the individuals concerned and those scrutinising them whether they were tax avoiding or not.  There will always be some people who seek to tax avoid at all costs but they are actually few and far between.  There are a heck of a lot of people who will tax avoid if they think it’s the done thing and are unaware of what they should be doing.  We should not neglect to capitalise on the things which peer pressure can achieve that complex legislation never has.

About the contributor:

Rebecca Hanson is a lecturer in mathematics education.  She became a mathematics teacher not because she loves maths but because she loves people and is inspired by the positive changes in them when they become confident mathematicians.  She is on the committee of the LDEA and will be standing for election to Cumbria County Council in May.

She became involved in this consultation by taking part in the session run by Lisa Smart at NW conference and then in the session run by Jeremy Hargreaves in Brighton.