The hypothecation of a tax (also known as the ring fencing or ear marking of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose.
For those of us old enough to recall the Road Tax and the associated tax disc, it is natural to assume that because we’re paying a road tax, that we’d be getting better roads for our money. In fact, one of the most common grumbles of any motorist is how appalling English roads are considering how heavily we are taxed on our cars, and how little of our Road Tax is spent on roads.
But this is merely an example of the legerdemain of government when it comes to tax.
The Road Tax was originally intended to provide money to keep roads in good shape based on the use thereof. Unfortunately, the government started to find that it wasn’t spending anything like the amount raised on roads, and needed to swipe the “profits” for other things. So it retained the visible trappings of road tax (the tax disc) but changed the Road Tax to a Vehicle Excise Duty, which could then go into the general tax pile.
Hence, motorists continue to feel like they’re paying a tax to keep the roads in good nick, but actually they’re funding wars in Iraq or dole-bludging White Lightning swiggers.
Tax hypothecation is often derided by people who feel that it is an inefficient way of taxing people: it’s very difficult to get the right level of tax for something on a per-area basis. And this is very true.
But at the same time government tells us that they are taxing specific things for specific reasons. Cigarettes and alcohol are taxed because of the massive burden they place on the wonderful NHS. Green taxes are levied because we’re killing the planet. Given that this is how the taxes are sold to us, is it unreasonable for us to expect that the government will actually spend those taxes on those specific problems?
How would Green voters feel if the government was brutally honest and said: “We’re taxing those nasty ‘not green enough’ energy suppliers so that we can bomb Iraq”? Would that make green taxes seem quite so noble?
How do motorists feel about the fact that their “road tax” and 60%-plus petrol duty is actually partly used to subsidise rail fares?
How do you feel that the massive duty on your favourite tipple is used to keep Shaz and her multiple boyfriends in free White Lightning?
Isn’t it time the government came clean to us about tax?