Chancellor Proposes Tax on Tax, Calls It ''Fiscal Efficiency Contribution''

The Chancellor of the Exchequer has announced plans for what the Treasury is calling a “Fiscal Efficiency Contribution” — a 4% surcharge applied to all taxes paid by individuals and businesses, designed to cover the administrative cost of collecting those taxes in the first place.

The policy, which would make Britain the first country in the G7 to formally tax taxation itself, was presented to journalists in a briefing that lasted nine minutes, produced forty-seven questions, and answered none of them.

“Tax collection is a service,” the Chancellor said in a statement. “Like any service, it has costs. Staff. Systems. Stationery. Someone has to pay for the envelopes. We believe it is fair and proportionate that those costs are met by the people who use the service — that is, people who pay tax.”

When it was pointed out that people do not choose to use the tax collection service in the same way they might choose to use a gym, the Chancellor said: “Many people don”t use the gym either, but they still pay the direct debit.”

How It Works

Under the proposed scheme, every pound of tax paid — whether income tax, National Insurance, council tax, VAT, capital gains tax, inheritance tax, or stamp duty — would attract an additional 4% charge, collected automatically and itemised on annual tax statements as “FEC (Fiscal Efficiency Contribution).”

A worked example provided by HMRC illustrates the mechanism:

• Income tax paid: £8,400
• Fiscal Efficiency Contribution (4%): £336
• Sub-total: £8,736
• FEC on FEC (4% of £336): £13.44
• Total: £8,749.44

The document notes that the FEC would itself be subject to the FEC, creating what economists are calling “recursive taxation” and what everyone else is calling “a joke, surely.”

“I read the proposal three times. The first time I thought it was satire. The second time I thought it was a drafting error. The third time I realised it was government policy and I needed to sit down.” — Chartered accountant, Manchester

The Recursion Problem

Mathematicians were quick to identify that a tax on tax, if the tax on tax is also taxed, produces an infinite series. Specifically, for a base tax of £1, the total liability under a 4% FEC would be the sum of 1 + 0.04 + 0.0016 + 0.000064 + … which converges to £1.0417.

This means the effective surcharge is not 4% but approximately 4.17%, a figure the Treasury has described as “within rounding expectations” and the Institute for Fiscal Studies has described as “mathematically inevitable and politically farcical.”

The Treasury paper addresses the recursion in a section titled “Convergence Assurance,” which states: “The series is convergent and therefore does not produce infinite taxation. Taxpayers can be reassured that their liability, while theoretically composed of an infinite number of components, will resolve to a finite sum. This is how maths works.”

A professor of mathematics at Imperial College London responded: “That is technically correct. It is also the most depressing correct use of a geometric series I have ever seen.”

The Precedent

Treasury officials have pointed to what they call “established precedent” for taxing the cost of compliance. VAT, for instance, is charged on goods whose prices already include the cost of VAT compliance. Insurance premium tax is charged on insurance policies whose premiums already reflect the cost of regulation.

“This is not new in principle,” a Treasury source said. “It is merely new in honesty. We are simply being transparent about the fact that your taxes cost us money.”

Critics have noted that the government already funds HMRC from general taxation — meaning that the administrative cost of tax collection is, by definition, already paid for by taxpayers. The Treasury”s response to this point, in full, was: “Yes, but not explicitly.”

“They are charging me for the privilege of being charged. This is like a restaurant adding a fee for reading the bill.” — Small business owner, Leeds

The Accountancy Sector

The proposal has been met with a mixture of horror and professional excitement by the UK”s accountancy sector, which recognises both the absurdity of the policy and the billable hours it will generate.

The Association of Chartered Certified Accountants issued a statement calling the FEC “conceptually troubling, practically complex, and likely to require significant advisory support for affected taxpayers” — a sentence that contains both criticism and a business plan.

Tax software providers have begun updating their systems to accommodate the surcharge, though several have reported difficulties with the recursive element. One developer told Pribber: “Our system keeps trying to calculate the final amount and it just doesn”t stop. We had to add a hard cap at the fifteenth iteration or the spreadsheet crashes.”

HMRC”s own internal guidance, leaked to Pribber, includes the following instruction to staff: “When taxpayers ask why they are being taxed on their tax, refer them to the FAQ. When they ask why the FAQ does not answer the question, refer them to the helpline. When the helpline is closed, as it usually is, refer them to the FAQ.”

Political Reaction

The Conservatives called the proposal “the logical conclusion of a government that has run out of things to tax and has now turned on taxation itself.” Reform UK said it was “the most honest thing this government has done, because it finally admits the whole system is a scam.” The Liberal Democrats produced a graph.

Labour backbenchers have been notably quiet, though one was overheard in the Commons tea room saying: “If we tax the tax, and then tax that, at what point do we become a parody of ourselves?” A colleague reportedly answered: “February.”

The Chancellor, asked directly whether she considered it reasonable to charge people for the act of paying, said: “Collection is not free. Processing is not free. The letter we send you confirming how much tax you”ve paid is not free. That letter costs 87p. Somebody has to pay for that letter. We think it should be you.”

She added: “Also, the envelope.”

What Happens Next

The FEC is expected to be included in the Spring Statement in March, where it will be presented alongside other revenue measures that sources say include a “compliance awareness levy” on anyone who hires an accountant, and a “tax simplification surcharge” applied to anyone who requests that the tax system be simplified.

A public consultation is not planned. A public reaction is expected regardless.

Your correspondent calculated his own FEC liability, then calculated the FEC on that liability, then calculated the FEC on that, then closed the laptop and looked out of the window. The window which, under separate proposals, may also soon be taxed.