In 14 days John Swinney, the DFM and acting Finance Secretary, will announce his Scottish Budget for next year. His is not a task many would envy; he has already ‘re-purposed’ some budget heads earlier in the year; he now has to stretch increasingly strained sources of income to meet ever growing demands, including various pay claims across a wide range of public services.
Finding ways to cover that must be tough for him, but just how well do many of us understand the process of balancing tax income with public spending and the implications for us and our own household?
Well, for most of us the answer is very simple – not very well at all. Various studies show that the level of understanding, our ‘financial literacy’, is weak amongst most people in most developed economies.
So – where do we fit in?
The casual way in which most of us ignore weekly or monthly information about our income and the tax we pay, information that is literally placed in our hands each month, is worrying.
Just carry out an easy self- check on your own behaviour. When you open a wage /salary notice what figure do you look at first? For more than 90% of us it’s the bottom right-hand corner, the amount that drops regularly into the bank account, and we have a pretty good idea of what that figure is.
How much tax was deducted this month? No idea. How much National Insurance did we pay? No idea. How much was deducted for pension contributions? No idea.
If we don’t pay attention to the basic information given us every time we get paid, how can we hope to get a handle on the choices John Swinney has to make before December 15th?
A good starting point for all of us would be the excellent and easy to use site on personal taxation provided by the Institute of Fiscal Studies that in a couple of minutes will provide an answer to the question: ” Where do you fit in?”
More than just a budget – explaining to citizens?
In amongst all the figures Mr Swinney announces for this budget head and that, there will be the claimed record increases in one line item or another, and statements about how independence would enable him to have more “levers”. Underpinning that important detail we might hope Mr Swinney will launch an effort to explain the ‘price of civilisation’ proposition, the socially essential reason why we pay taxes.
CSPP21 believes that taxes – both business and personal – are an essential element of our social fabric and the only means by which we can support the public services we all rely upon. If you also accept that, then we all need to be better educated about our own incomes and the part we each play in that overall, picture.
Both government and civic society have a clear interest in developing this argument. We should not leave the field to an organisation such as ‘The Taxpayers Alliance’ whose main purpose is to shrink the state and the public services that are provided.
That could be a hard slog when the stream of media that we consume is often very poor at explaining the reality of comparative financial circumstances and we can see examples every week of how that ignorance plays out.
Financial Literacy
There are three recent examples that will illustrate this constant diet of misinformation.
Alison Pearson, a conservative columnist for the Daily Telegraph, claimed last week that after the autumn statement people would be paying more than 40% of all their income in tax. Wrong.
Brian Cox, raised in very poor circumstances in Dundee has recently presented two Channel 5 programmes about the lives of very well to do and struggling households in the UK and the USA. They were good programmes that would have hit home to any reasonable viewer. Cox describes himself as living in ‘comfortable circumstances ‘; he has a home in London, a home in New York, and a home in Massachusetts. Comfortable? No, wrong.
The most unforgivable example was coverage in The Times [19th November] of the autumn statement; authored by the Economics & Political Editors and the Assistant Money Editor, so a star team. In two columns of text, they claim:
- 10 million people will be paying 40% on every pound they earn – wrong.
- The personalised example they cite is of a’ typical working family ‘with salaries of £50,000 & £40,000. Actually, they are far from typical, as they fall into the top 30% of household incomes. Wrong again.
It is hardly surprising that the Money and Pensions Service puts the UK in the bottom half of OECD countries for ‘financial capability’ with fewer than 30% of adults showing a reasonable understanding of finance if this is typical of what media coverage we get every week.
Mr Swinney could address that in his budget speech and suggest ways that we begin to tackle that particular gap in our knowledge. It could also be interesting to see if the now regular – and fascinating – report ‘Understanding Scotland – the Economy’ by the Diffley Partnership might also ask their respondents how they understand such issues since they are central to some of the questi0ns they are polled on.
