Kate Andrews is Communications Manager and Research Associate at the Adam Smith Institute.
This year’s Tax Freedom Day – the day when Britons stop working for the taxman and start working for themselves – falls on 28 May, according to calculations from the Adam Smith Institute.
This falls three days earlier than it did in 2013, and there’s more ‘good news’, too. The cost of government has also been cut, falling six days earlier – they’ll only be spending your future income until June 26th this year.
So, is this a triumph for the average earner?
The Treasury will act like it is, and treat it as a chance to boast about fiscal and civil responsibility.
Never underestimate their ability to turn a celebratory occasion into a political one – their announcement this morning that their calculations estimate that an independent Scotland wouldn’t achieve tax freedom until mid-June is a welcome endorsement of Tax Freedom Day. If not a terribly compelling argument if their best offer is the end of May.
I suppose we should congratulate the Treasury for taking minuscule steps in the right direction. In reality though, these ‘bragging numbers’ make virtually no significant difference if you track Tax Freedom Day over the last fifty years. The level of taxation Britons have tolerated since 1963 has remained more or less stagnant, as Tax Freedom Day has generally always fallen between mid-May and mid-June. The last time Britons were freed from tax in the month of April was in 1965.
Regardless of whether it was a Thatcher or a Brown that held the reigns of government, UK residents have put up with abysmally high levels of tax for the last half-a-century. One has to wonder why.
The answer seems two-fold. First, the government does everything in its power to hide just how high the burden of tax on the average earner really is. The UK’s tax code is one of the longest and most complex tax systems in the world.
As a result, no one has much of an honest idea about what they’re really paying to the government. The income tax deducted from salary is relatively straight forward, but many earners don’t realize that the majority of National Insurance contributions and Corporation taxes come from worker’s wages.
What’s worse, after their salaries are eaten away by income tax and National Insurance – and then slashed again by corporation tax and council tax – what’s left of earner’s money, whether it’s used to buy an after-work pint or fuel for the car ride home, will also be subject to indirect taxes like VAT, fuel duty and excise duties.
But this is not simply an issue of transparency; the argument for high taxes in Britain has in most part stemmed from the need to pay for our generous welfare state. For many Britons, benefits like free healthcare at the point of use and subsidised housing have necessitated higher taxes that just aren’t needed in countries like the United States, where free services are limited and tax freedom arrives over a month earlier than it does in the UK.
The growing question is whether Britons continue to see the benefits of these public services as being equal or worth more than their hard-earned income. As finance scandals continue to plague government-run services and people invest more personal income in private services like elective surgeries and health assessments, it seems unlikely over time that taxpayers will remain comfortable with such a significant portion of their income going to the taxman with such a poor rate of return. (No wonder HMRC is plotting to claw its way into people’s bank accounts!)
The balance between “free” services and economic freedom has a tipping point; Showing that UK residents are forced to work 148 days into 2014 to pay off their tax bill is surely a way of finding out fast where that tipping point lies.
The ASI calculates Tax Freedom Day by measuring local taxes, direct and indirect national taxes, and national insurance contributions as a proportion of the UK’s national income (41.09 per cent in 2014), mapping that proportion onto the days of the year.