In this article for the Intergenerational Foundation, Carla Hoppe, Founder of Rethink Tax, explains why we need to talk to young people about tax, and how changes to our tax system could further the cause of intergenerational equality.
“… Even just 10 minutes, just 10 minutes!” Comedian Tom Allen made the crowd at Live at the Apollo laugh in agreement when he wished school had taught him what a pension scheme was or how to fill in a tax return, rather than Pythagoras Theorem.
10 minutes of financial education would be a better result for most young people for whom financial education is not a compulsory part of the National Curriculum. 10 minutes would at least allow teachers a few precious moments to respond to the demands of the 2021 Young Person’s Money Index where 83% want to learn more about money and finance in school and 64% of those agree with Tom – they want to know more about tax.
Why? Because understanding finances and tax are real life skills.
Tax is everywhere
If you need convincing that tax is this important ask yourself or a young person you know these questions:
- Got a new job: Do you know how to read a payslip, what your tax code is and what taxes you will pay?
- Got a side hustle: Do you know when you might have to start paying tax on what you earn and when to report and pay?
- Got some money saved up: Do you know what tax-free saving options are available?
- Planning a much needed holiday: Did you know that you can expect to pay anywhere between 2 – 6 different types of taxes depending on how you travel, where you stay and what you eat and drink?
These are just a few of the everyday experiences young people have where knowledge of tax can both inform and empower them in their choices. So why don’t we talk more about how tax works or why tax matters?
Is tax really just too complicated?
For too long knowledge about tax has been treated like an elite sport where the only people allowed into the club were accountants, lawyers, politicians or academics. Not a very diverse or inclusive club.
Tax policy is set by Parliament. Tax laws are made by MPs. Tax is collected by business and HMRC. The system is set up in a way where it’s hard to feel connected to the decisions made or the experience of paying tax. Tax can feel like something done to us, rather than something we actively take part in.
We have ended up in another tragically comic situation, reminiscent of Monty Python’s Life of Brian ‘what have the Romans ever done for us?’ sketch asking instead, “What has tax ever done for me?”
Young people have no frame of reference for what tax does; how it supports them as individuals or the UK economy more generally. We are a long way off from being able to have meaningful public debate where young people can have a say on the future of tax when they don’t know about how the current system works today.
Without knowledge there is no power
For young people the conclusion drawn in a 2019 cross-party House of Lords Committee Report (HOL Report) was that the UK tax system is creating a bigger, more damaging problem: systemic intergenerational unfairness:
“The tax and spending policies of successive governments have failed to pay sufficient regard to longer-term policy consequences. This is an endemic failure of policy making [emphasis added]. It has undermined intergenerational fairness, including for generations yet to be born.”
The HOL Report calls out this unfairness in age-related benefits, the way national insurance contributions works, the impact of income distribution and the consequences of how property taxation is levied in the UK.
The outlook for young people since 2019 has not improved much. The All Party Parliamentary Group Report on financial education for young people notes that “[the] COVID-19 pandemic has also multiplied the economic pressures on young people and led to a concerning increase in anxiety around money, with 6 in 10 young people saying COVID-19 has made them feel more anxious about money.”
Tax should be fairer for young people
It doesn’t have to be this way. Tax could be fairer to young people in lots of different ways:
- Equalising the rates of tax on different types of earnings: The Institute for Fiscal Studies recently made the case for why it makes sense to rethink the tax you pay if you earn £1 in employment or £1 via investment
- Tax as a tool to drive the green economy: There is so much the tax system could do from incentivising green living choices, supporting innovation in green tech, to penalising heavy pollutant activities.
- Tax transparency to drive behavioural change: at Rethink Tax we believe that in order to tackle a problem properly, it is essential to understand it. We support the findings of the HOL Report that: “[t]o foster a high quality public debate on this subject there should be data on the incomes and assets of each generation, estimates of the effects of current policy on each generation and models of the effects of policies across an individual’s lifecourse.”
It’s time for a change
Of course, none of this kind of change can happen while tax remains at best an unknown and at worst an avoided topic of conversation.
We need to change how we talk about tax. We need a wholescale rethink on how we give young people the tax information they want and that matters.
As the evidence shows, young people are not apathetic about tax, they want to learn. It is time we did right by them and made it happen.
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