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Truth about your tax bill: Everyone to get statement revealing THIRD of tax goes on welfare

• Taxpayers earning £50,000 will have paid £14,183 in tax and National Insurance, with around a third, £4,727.67, going on welfare
• George Osborne hopes transparency will improve public view of spending
• Chancellor also considering merging income tax and National Insurance
• Ministers thrashing out final Budget details
• Wavering over whether to say top tax rate will come down to 40p in 2014

By James Chapman

PUBLISHED: 00:05, 20 March 2012 | UPDATED: 11:58, 20 March 2012

Exercise in transparency: Chancellor George Osborne out jogging yesterday

Every taxpayer is to get a personal annual statement revealing how each pound taken from them by the Revenue is spent.

George Osborne will announce the radical move in tomorrow’s Budget, saying every worker has the right to know how their taxes are spent once the money enters the public purse.

In some cases, the results are likely to prove startling. 

A higher-rate taxpayer earning £50,000 this year would be told they paid £14,183 in tax and National Insurance – of which around a third, £4,727.67, is spent on welfare.

At the same time, £2,469.68 is spent on health, £1,848.73 on education, £818.52 on defence and £705.62 on public order and safety. A further £141.12 is given to foreign aid and £70.56 is handed to the EU.

A Treasury source said: ‘It’s quite right that people know how much tax they pay and  what it’s spent on.’

The Chancellor believes that revealing exactly how the money from Britain’s 29million taxpayers is used will change for ever public attitudes to Government spending.

Tory ministers are also hopeful that if the public is more aware of how much they really contribute, they will be more inclined to vote for parties which favour lower taxes.

And they believe making more taxpayers aware that the basic rate is 31p, not 20p – once national insurance is included – would help transform voters’ relationship with the state.

The Chancellor is also considering even more radical reform, which would see income tax and National Insurance merged. As well as saving businesses billions in administration costs, Labour would not be able to use increased National Insurance contributions as a politically cost-free way of raising money to spend in areas such as the NHS.

Treasury Minister David Gauke said: ‘For a lot of people, the tax line on their pay slip is the only time they see just how much they’re paying in tax, but the Government doesn’t think that’s good enough. 

‘We want to make tax more transparent and we want people to be more engaged with their own tax affairs. We plan to lift the lid on tax so that people understand how much they are paying, what their overall tax rate is and what they should be paying.’ 

Conservative MP Ben Gummer, who has championed the idea of personal statements, said: ‘Few of us would part with more than a few pence without a record of how it was spent. From supermarket receipts to electricity bills, we expect an itemised breakdown of where our money goes.

‘Yet for our largest monthly payment, to the taxman, we get just two numbers printed on a pay slip. We are not told the overall value of our taxation obligation. 

‘We are not told what proportion of our income it represents. Crucially, we are not told how the Government spends the money we are made to give it. This must change.

Breakdown: A mocked-up form for a Mr J Smith and released by the Treasury shows how the new style of personal statements which every taxpayer is set to receive could look

‘Just as we are under an obligation to pay tax, the Government should be obliged to tell us how it spends our money.

‘It is a simple idea that could change the way we do politics. For the first time people will get a real feel for the relative distribution of their taxes.

‘By providing voters with this crucial  information, the Government will make  its spending comprehensible in simple and personal terms. These single sheets of paper have the potential to transform and enliven our democracy.

‘Tax statements could be implemented quickly and cheaply. They help the Government merge income tax and National Insurance and do more than anything else to help it achieve transparency in the tax system.’

In tomorrow’s Budget, the Chancellor will announce that from 2014/15, 20million taxpayers will receive an annual personal statement. They will be made up of the  eight million who fill out a self assessment form each year along with the 12million who receive a Treasury notice telling them of a change in their tax code.

The scheme will then be rolled out to the remaining nine million taxpayers at a later date. Labour is likely to protest that the statements reveal nothing about the benefits they get from public spending, such as  NHS treatment or child benefit.

Radical: Osborne will announce the move in tomorrow’s Budget, saying every worker has the right to know how their taxes are spent

Breakdown of spending: A higher-rate taxpayer earning £50,000 this year will learn they paid £14,183 in tax and National Insurance – of which around a third, £4,727.67, goes on welfare

However, the Treasury will argue making such a calculation would be so complicated that it would be impossible to produce.

Administering the new system is expected to cost around £800,000 a year.

Yesterday it emerged that former Tory chancellor Lord Lawson was back in 11 Downing Street a fortnight ago to celebrate his 80th birthday and advise the Chancellor on tax reform. 

In his famous 1988 budget, Lord Lawson slashed the top rate of income tax from 60p to 40p – a move that caused such an outcry that the House of Commons sitting had to be suspended.

The whole truth: The Chancellor, pictured visiting a branch of Barclays bank in London today, believes that revealing exactly how taxes are used will change public attitudes to Government spending

Your money: Mr Osborne, pictured talking to bank workers in South London, will announce that from 2014/15, 20million taxpayers will receive an annual personal statement

Money troubles: The Prime Minister, pictured at a Budget meeting with Treasury secretary Danny Alexander, is said to still be wavering over whether to indicate that top rate of tax will come down further to 40p in 2014

Mr Osborne is tomorrow expected to announce he is cutting Labour’s 50p top rate to 45p from April next year, as well as raising the income tax threshold for 23million basic rate taxpayers to around £9,000.

He is also expected to pledge a review of alternative wealth taxes to replace the 50p rate, which will hit the best off twice as  hard. The Lib Dems are pushing for a mansion tax on homes worth £2million or more, or a levy on ‘unearned wealth’.

The Prime Minister and Mr Osborne were said last night to be wavering over whether to indicate they will bring the top rate of  tax down further to 40p in 2014, or leave it until the next Budget, following a mixed reaction to leaks of the plan. 

Government sources said the pair were still thrashing out final details of tomorrow’s Budget with Nick Clegg and Treasury Chief Secretary Danny Alexander at a meeting yesterday.