I paid my taxes, what do I get in return?


For the last year Eric Pickles has been talking about the citizen's inalienable right to have their domestic waste collected each and every week. I don't want to comment on the stories about whether or not there has been an increase in the rat population since many councils moved to fortnightly bin collection (although I cannot resist mentioning that this kind of increase in efficiency in any other local government service would be celebrated rather than chastened). What I do want to comment on is the following statement from the Telegraph:

Yet for many people, a bin collection is the only service they receive from the council – and one for which they have to pay on average £120 a month.
Statements like this annoy me. Of course there are some council taxpayers who do not have children of school age or elderly relatives receiving social care but even so they receive more services than refuse collection. They breathe clean air, drink clean water, perhaps buy food from restaurants and take-aways, walk or drive along illuminated roads at night, enjoy the view across greenbelt fields. All of these activities are provided, regulated or monitored by local councils. And they cost money. 

So, is paying £120 a month for council services too expensive? For some people, it is a terrific bargain. Their children (or grandchildren) are receiving an education for much less than a private school would cost. Not only that, the use of the average cost disguises the fact that people living in lower value houses (who one would expect are relatively poor) pay much less than the average. In fact, the poorest would pay no council tax at all because they are in receipt of welfare benefits. Of course, some people pay a lot more than £120 a month, and they might very well decide to opt out of the local council-run school and pay for private education. That's their choice. What all this illustrates is that the amount paid in tax has nothing to do with the services received.

This is because taxation is the classic example of a “non-exchange transaction”. In a free market the buyer and seller exchange goods and an amount of money that they regard as equivalent (or they exchange goods for goods in a barter system). If they did not regard the exchanged items as being equivalent they would not go through with the transaction. Taxes don't work like that. Government assesses the amount of tax due and collects it quite separately from the government's spending activity. In the UK, Her Majesty's Revenues and Customs brings the money in, lots of other departments spend it. 

One of the issues facing a government as a result of the disconnect between taxes paid and benefits received is to impose taxes that are regarded by taxpayers as fair. By way of example, I think the principle of an income tax regime where the wealthier pay more in tax than the poorer is accepted by most people as fair, albeit that they might have different views about the actual tax rates that apply. But if a government fails to maintain a tax system that is seen as fair then they risk non-payment, or worse. Look at what happened with the community charge in the early 1990s where public antipathy to what was effectively a poll tax led to civil disturbances and the end of Margaret Thatcher's prime ministership.

All of this means that on the whole local people have to feel that what they get from their local council is value for money. Because central government has reduced its funding of local government what we are seeing now is a reduction in the service received by local people but no corresponding reduction in the council tax they pay. That will surely mean that more and more people begin to feel that they are not receiving enough in return for their taxes. I think something similar will happen with other public services, such as healthcare.  People are paying more now in taxes because income tax rates and VAT went up and are getting less service. Sooner or later this will lead to a problem for central government and they'll be stuck. Do they cut taxes or increase spending on public services? Whichever way they go they would increase the budget deficit (in the short term at least).

I'll end with a quotation from Franklin D. Roosevelt that I think is a reminder of why taxation is important: 
taxes are the price we pay for the privilege of living in a civilized society.