Be thankful for tax

Do you like paying tax? Do you know anyone who does? Do you think you get value for money for the tax that you pay? Not surprisingly, I have never met anyone who answered ‘yes’ to any of these questions.

However, I believe the issue is not about the amount of tax we pay, it’s that we have no idea at all of the ‘value’ we receive in exchange.

With commissions for financial advice now outlawed, advisers have to charge their clients a direct fee in exchange for the service they provide. So, all of a sudden, clients are empowered to ask what ‘value’ they are receiving and any adviser who cannot demonstrate this will soon be out of business.

I look after high net worth clients. The fee is often 1 per cent of the assets we influence and is always well into five figures. We have a ‘promise’ that if we cannot demonstrate every year the value we have added, clients are welcome to ask for a fee refund.

I wonder what would happen if HMRC had to do the same. What if every year HMRC had to supply a statement of the ‘value’ you have received, detailing the tax and National Insurance (NI) you have paid, enclosing a form for you to indicate whether you were happy for them to keep the tax or wanted a full refund.

You probably think I am barking mad at this point, but bear with me.

The average wage in the UK is about £26,000, therefore the average income tax and NI is £5,500. When the average person was asked what they thought they got back from the government, they said about £2,000. In fact, the figure is closer to £20,000 – that’s four times more than they pay.

It’s been estimated that you need to earn £100,000 before the tax you pay exceeds the benefits you get back.

I think if people realised this, they would be willing and proud to pay tax. Rather than bemoaning the success and high salaries of others, they would become more American-minded and congratulate it.

Crazy concept

So, here is my crazy concept. What if every year, each adult received their own personalised ‘benefit statement’ showing what they had paid in tax and benefits received? It would show the position for the year and the running total.

Your statement would start when you were born and it is highly likely that for the first 18 years you will be significantly ‘overdrawn’ as the position for an 18-year-old may look like this:

Pre-school years

Maternity care, midwife and health worker	£1,700
12 visits to GP	£480
Prescriptions	£150
Vaccinations	£250
Child benefit for 60 months	£4,704
Total	£7,284

Primary school years

Six years education at £4,000 per annum	£24,000
Two visits to A&E	£350
Prescription	£275
Six visits to GP	£240
Child benefit for 72 months	£5,644
Total	£30,509

 

The pre-high school total is £37,793. I haven’t even started secondary school yet and I have already cost the state in excess of £30,000.

Assuming secondary education is more expensive at £6,000 per annum, there’s another £30,000 after five years.

When I leave high school at 16, my ‘bill’ to date is close to £70,000. Adjusted for inflation, it’s probably more like £90,000.

Once I start work, I then need to factor in costs for other things like the state pension which costs about £178,000 to provide for a 67-year-old male entitled to a benefit of £7,500 per annum, increasing by 3 per cent. It’s clear to see the average person will always be overdrawn and usually by a huge amount.

Be grateful

I have only looked at the basics of health, benefits and education, but there is so much more that we should be grateful for. Perhaps if people understood the value and were happy to pay tax, the government wouldn’t have to keep tinkering with the tax system in an effort to hide from us the total tax we pay. That, in itself, would save enough to pay for mu suggested benefit statement.

There is never an ideal solution. However, I do know that if the government was a business, it would likely fail. If it was a regulated industry, it would be overhauled just like the financial services market is to ensure its clients are treated fairly and transparently.

Colin Lawson is founder and managing partner of Equilibrium Asset Management

Is Colin onto something? Leave your comments below.