Why is there so little discussion about radically re-designing our taxation and benefits system for the 21st Century? In the UK, Income tax was introduced in 1799 as a temporary measure to fight the Napoleonic war. National Insurance arrived in 1911, specifically designed to fund benefits for those who became too ill to work or suffered temporary unemployment. Council tax, though more recently introduced in 1993, still suffers from inconsistencies and is badly in need of reform. For example, the value of someone’s home does not reflect their current ability to pay an annually-increasing monthly bill, whilst no charges are levied against those who hold land, waiting for its value to increase and denying everyone else the chance to use a scarce, finite resource. Of course, there are also VAT, Stamp Duty, Business rates, Excise duties, Corporate tax, Capital gains tax and many more.
Our current systems are complex and confusing. We must seek to merge all taxes and benefits in one system, so each individual can see clearly what they are putting into the system and getting out. Child benefits, pensions, allowances, student loans/fees and such like should all be processed in one network, so tax is easier to work out and there is less chance of fraud. There should be one portal where you can see all the information.
People would know exactly where they stand and the government would have a much better idea of where they could make efficiencies. This would also enable better phasing out of benefits as someone’s wages increase, so as to incentivise work.
Yet why can we not use the taxation system to do much more. For example, there are hardly any recognised incentives to boost physical activity i.e. a tax rebate for everyone who can prove they do NOT drive into work, verified through each company’s HR department. There could also be a tapered rebate for those who at least car share. Of course, the monitoring and incentivising might need to reflect realities – like heavy rain and ice – that occasionally curtail even the enthusiastic cyclists but these are minor details when compared to the advantages. Just imagine, for a moment, the impact on citizens if this was implemented. We would jump at the chance, re-imagining our lives, motivated to become more active, and in the process reducing pollution, as well as achieving so many benefits for our society. Over time, the tax system would encourage people to live closer to their workplaces, helpfully increasing population density and stopping the flight to suburbia, denuding our town centres.
The urgency of action to tackle such social ills is clear. For example a fifth of Scottish people say they have not walked for more than 20 minutes even once over the past year. Meanwhile, in England and Wale, about 85,000 people (estimated) die early each year due to illnesses caused by sedentary living, mainly heart disease, type 2 diabetes and various cancers. Physical activity keeps people stronger and more supple as they age. Our exertions also improve balance, gives better bone density and make us less likely to become depressed or develop Alzheimer’s. These are all things associated with needing less social care.
One of the few exercise regimes proved to stick is active travel, more specifically making walking or cycling to work, school or the shops sufficiently safe and convenient that it becomes easier for people to do it than not. With political will, great success has proven possible: Denmark and the Netherlands have spent decades very deliberately re-shaping their road environments away from the car culture of the 1960s and 70s towards mass cycling.
The issue is that people need an immediate daily reminder, encouragement and motivation to look after their health, which obviously only unravels in the long-term – “a moment on the lips; a lifetime on the hips”. Consider Vitality Optimiser which provides Life Insurance but actively promotes a healthy lifestyle. In return for unobtrusive monitoring (i.e. recording the number of your steps in any week), the package gives you “rewards”, such as a free Starbucks or discount codes, giving subscribers a tangible, short-term benefit that equates to a highly desirable, yet difficult to quantify, long-term positive outcome. Why is the Government not seeking to investigate and potentially roll out these kinds of schemes to everyone?
Another key area where the taxation system should recognise the differing circumstances and contributions of individuals is childcare. The same pay packet must cover a much greater range of expenses for a parent with dependent children, as opposed to an individual who only has to look after themselves. Raising the next generation is vitally important for our long-term well-being – witness the frequent warnings about our falling birth rate and increasingly elderly, retired population. Thus, we could create a generous Child Tax Credit for every parent, so they can be taxed at a lower rate (i.e. 2% for each child 20% off the current basic rate Income tax).
Alternatively, Child Benefit could be re-examined and integrated much more closely into HMRC’s current arrangements to provide proper help to those footing the bills for nappies, food, clothing, clubs, excursions, even the odd family holiday. And that’s before things like driving lessons or University tuition fees. In fact, one study estimated the average cost of raising one child to age 21 was, in 2015, £229,251. Assuming you claim Child Benefit for the maximum time available, you will receive a mere £17,222 from the government (for a first child, £20.40 per week till age 16). That’s less than a 10th of the projected cost!
We need change. Our current system is iniquitous, failing to properly incentivise choices that benefit us all, whilst being so complex and murky no-one really knows how much tax they pay and for what purpose. We really could do so much better.