Driven by data; ridden with liberty.
For a political discussion to begin, both sides must agree on what the facts are. As the tagline to the Guardian’s commentary section says, comment is free but facts are sacred. To be informed on the spending flow in different government departments, and the taxes that the government levies on us, we should investigate the two online articles on the Guardian’s website: UK government spending and taxation in 2011/12. These figures will be drawn wholly from these two articles, but will broadly agree with other sources.
In total, the UK government spent £694.9bn in 2011-12.
The largest department, in terms of expenditure, is the Department of Work and Pensions (DWP), which spends £167bn annually. In this department, the state pension costs £74.2bn a year, with Housing Benefit reaching £16.9bn this year, a post-inflation increase of 5.12%. Disability Living Allowance has an annual charge of £12.6bn, whilst Job-Seeker’s Allowance is £4.9bn a year. However, the Department of Work and Pension does not completely contain government spending that may be termed ‘welfare’. The HMRC (Her Majesty’s Revenue & Customs) is responsible for the distribution of tax credits, and the department spent £46.6bn this year. Personal tax credits totalled £29.9bn, an increase, controlling for inflation, of 1.19% over last year, with the child tax credit forming £12.2bn. The child trust fund still costs £110m. Adding the DWP and the HMRC expenditures together, direct transfers represent £213.6bn: 30.7% of total UK government spending.
The next chief function of the UK government is health, with the Department of Health having a budget of £106.7bn, with £96bn going directly to the National Health Service. Thus, Health is 15.35% of government expenditure.
As a consequence of our centralised system of taxation, devolved spending is the third largest function of the UK government. This is money that flows from Whitehall to the local council guildhalls, London, Holyrood, Cardiff and Stormont, with the different allocations of spending made by the legislative bodies housed in those cities. The Department of Communities and Local Government (DCLG) has an annual budget of £32.7bn, with £26.6bn going straight to local governments, £2.6bn on ‘neighbourhoods’, £1.1bn on ‘localism’ and £60m assisting the assembly in London. This year, the Scottish government received £33.5bn, with the Welsh assembly allocated £15bn and Northern Ireland assembly having £10.3bn. In total, devolved spending represents £91.6bn – 13% of UK government spending.
Education is the fourth largest function of the UK government, with these functions being split between the Department of Education and the Department for Business, Investment and Skills (BIS). Mandatory education, the education for those under the ages of 16, is the purpose of the Department of Education, which has an annual budget of £56.3bn. BIS oversees the colleges of further education and higher education universities, which have annual budgets of £4.7bn and £14.3bn respectively. Thus, education at all tiers is responsible for £75.3bn, or 10.8% of spending this year.
The core functions of government, which is the defence of the realm, and the establishment and enforcement of law – are represented by the Ministry of Defence, the Home Office and the Ministry of Justice. This year, the military budget was £37.3bn, a post-inflation reduction of 4.55%, with the Home Office having a budget of £10.1bn, a fall of 5.42%. The Ministry of Justice spent £8.6bn, which is an inflation-adjusted descent of 10.68% on last year’s spending. These core functions total £56bn annually, that is, 8% of UK government spending.
This year’s debt interest payments reached £48.2bn; a large increase of 8.73% on last year, meaning that debt interest is 6.9% of the total spending by the UK government.
There are numerous other departments, such as the Department for International Development (DFID), which allocates foreign aid, spending £7.9bn, with the Foreign Office spending £2.2bn this year. The expenditure on the European Union, which presumably means just the membership fee, is £7bn annually. The Department of Transport oversees of a yearly budget of £12.7bn, and the pensions of government workers now cost £8.4bn each year.
In the year covering 2011 and 2012, the current receipts totalled £570.4bn. Thus, there is a fiscal deficit of £124.5bn. This is congruent to other calculations of these figures, such as the £121.4bn deficit calculated by the Office for Budget Responsibility. According to the Guardian’s data collection, current receipts represent about 36% of the UK’s Gross Domestic Product (GDP), and tax revenues as a percentage of GDP have never exceeded 38.3% in the last four decades.
Income taxes capture £152.6bn, which is comprised of £131.7bn through Pay-As-You-Earn (PAYE), and a further £20.1bn through self-assessment. Strangely, £4.7bn worth of tax credits is also directly deducted in the Guardian’s data. National Insurance raised £102bn this year.
Value-Added Taxation captured £98bn this year, whilst VAT refunds cost £14.3bn. Council taxation levies a total of £26bn. The taxation of capital gains and inheritances, which are often ferocious political battlegrounds, raise only £4.2bn and £2.9bn respectively. These two taxes combined represent a mere 1.2% of total tax receipts. There are other small taxes on individuals, such as stamp duty tax on land apprehending £6.1bn, with share taxes netting £2.8bn, and the tax on insurance premiums getting £3bn.
There are several taxes directly on businesses: corporation taxes levy £43.4bn, composed of £34bn on on-shore corporations and £9.4bn on off-shore corporations, with a further £24.5bn raised in business rates.
Next, there is a class of ‘Pigou’ taxes, which are levied on goods in order to increase their price and re-allocate consumption away from these products. The main tax in this class is fuel duty (£26.9bn), but there are others: air passenger duty (£2.7bn), climate change levy (£0.7bn), vehicle excise (£5.8bn) and environmental levies (£1.7bn).
Now to ‘sin’ taxation: tobacco (£9.5bn), spirits (£2.8bn), wine (£3.4bn), beer and cider (£3.8bn). In total, sin taxes raise £19.5bn.
There are numerous other taxes, such as the petroleum revenue tax, which raised £1.8bn.
Despite the rhetoric flying across the House of Commons dispatch boxes, newspaper columns and conversations, the government is still spending a substantial amount of money, nearing £700bn a year. No single individual can spend on the level that governments can. Direct payments can be characterised as the greatest component of ‘welfare’. These direct payments, and the bureaucratic system that must exist to distribute them, cost £213.6bn, which is 30.7% of UK government spending. The other major components of the modern state, the provision of healthcare and education, costs £106.7bn and £75.3bn respectively – alternately, 15.35% and 10.8% of total UK government spending.
The centralised nature of the UK government is revealed through its taxation and spending practices. 13% of the central government’s expenditure goes to delivering this money to other legislatures and assemblies, such as local councils and the Scottish Parliament in Holyrood. The devolved assemblies do not set or collect their own taxes; they merely receive money from their citizens via the central government. This arrangement changes the political culture in these assemblies. The devolved administrations only have proper controls over one lever, spending, whilst the other lever of taxation remains under the control of the central government. Hence, devolved assemblies can hector and blame the central government for a dearth of expenditure, whereas they rejoice in identified positive results of their own spending decisions. Even council tax has parameters placed upon it by the central UK government.
The UK government takes about 36% of the nation’s GDP in taxation, whilst the historic maximum has been about 38.3%. Achieving this historic maximum in tax receipts would not close the fiscal deficit, and would leave the fiscal deficit at around £88bn. There are two taxes on incomes in the UK: income tax and national insurance. Combined, these two taxes raise £254.6bn, which is about 44.6% of the total tax revenue. Despite the media and political focus on capital gains and inheritance taxes, these two taxes only represent 1.2% of UK tax receipts. A new emphasis has been placed on the tax arrangements of corporations, but the UK government receives only £43.4bn directly from corporations, which is 7.6% of the government’s tax receipts. A corporation cannot pay a tax; some real person’s wallet must get lighter thanks to tax. It is questionable whether using corporations as unofficial tax collectors is truly the most efficient way to run a tax system.
Political debates about the limitations and use of government power can only occur when both sides have agreed on what the facts are, and consequently, what the status quo is. Once the current political reality is recognised, the way forward can be charted.