Cover of MoneyWeek magazine issue no 717

Modernising India: The companies to buy now

13 November 2014 / Issue 717

There’s still work to do, but India’s new prime minister is paving the way for growth. Smart investors should buy in now, says Matthew Partridge. Read this week's cover story here.

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Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

What should the state do?

Do you pay income tax in the UK? That makes you one of 24 million people set to receive a letter with a pie chart showing you where your tax goes. From this you will learn, for example, that some 25% of what you pay is spent on what the government calls ‘welfare’. All this has caused some upset.

The welfare numbers, says the TUC, are “party-political propaganda masquerading as neutral information”. They take issue with the definition. The TUC doesn’t like public-sector pensions classified as ‘welfare’, and they aren’t sure that payments for long-term care for the elderly should be either, or even benefit payments to those in work. For them, welfare means just benefits paid to those of working age who are not in work.

Other organisations have a different take: they think welfare should be split on the pie chart to show how much is paid to older people (17% of your income tax); to the unemployed and those on low incomes (6%); to the sick and disabled (5%); and to families with children (5%).

This is interesting – the kind of definitional row I could happily spend hours on. But fretting over classifications in this way rather misses the really critical points.

The first is just how much tax we all pay. Make £50,000 and your income tax/National Insurance bill will come to around £13,800. But that’s just the start. Add in VAT, stamp duty, capital gains tax, inheritance tax, passenger duty and the like and the take from the working population is shockingly high.

The second is that the state does an awful lot of things. The pie chart you will get has 15 categories. Each can be broken down into many hundreds more.

That begs the question we just don’t ask often enough: what is government for? 

• Read the full editor’s letter here: What should the state do?