Tax Chaos

From: Sir Humphrey Appleby
To: Bernard Woolley
Subject: Tax Chaos

I am afraid that the spectacular blunders at the Inland Revenue are more serious than you seem to realise. If it merely involves tax payers having to shell out for underpaid taxes that is of no consequence. The danger is that it may call into question the method by which we connect the bulk of government revenue, PAYE.

The fact is that PAYE is the principal foundation stone of the government of Britain. Since it is removed from people’s wage packets and pay cheques before it reaches them, they are only vaguely aware that they are paying it. They see their pay as what ends up in their wallet or bank statement. In the same way, they are not really aware of how much of the price of VAT-rated goods or a pint of beer or a packet of cigarettes is taken by customs and excise. The whole art of taxation is to remove money from the citizen at the time of receipt or payment, so that he has minimal awareness of how much he is in fact contributing. You only have to look at the problems the Revenue has in getting tax out of the self-employed, who actually have to write a cheque, to see the advantages of PAYE and duty. The self-employed cause more trouble than all the rest of the tax payers put together. You will also be aware of the problems local councils have, and the resentment they cause, because householders actually have to pay over the money rather than have it painlessly and invisibly deducted at source. Indeed it is an agreeable consequence of the system that the natural hostility of people towards tax collectors is much more directed at councils, to whom they have to pay over their ‘own’ money, than to central government, who remove it before they see it.

As you know, we successfully foster the illusion that we work out what needs to be done and then set tax levels to pay for it, whereas in fact of course we calculate how much we can get away with taking and then decided what to spend it on. If taxpayers all had to write out cheques for their taxes, and realized that government expenditure amounted to an average of around £30,000 per household, we would never be able to sustain taxation revenues at anything like their present level. Abolishing PAYE would spell the end of government as we know it.


Humphrey Appleby
(Sir Humphrey Appleby KCB CVO)

© Sir Antony Jay and Jonathan Lynn, 28 September 2010