Introduction

Taxation is an important feature of a modern democracy. It serves two key objectives that enable countries to operate effectively. First, it provides a key source of revenue to support government expenditure plans. Secondly, it is used as a ‘lever’ to deliver government policy as a tool to correct what may otherwise occur if left unchecked. It achieves this primarily by changing the prices of goods and services to motivate changes in the behaviour of taxpayers.

This chapter provides an overview of the UK's tax system, with a particular reference to its relationship with social policy. It reviews the tax system in its current form and provides some historical perspective to help understand the current system. It seeks to outline what a tax is, why tax is an important feature of a modern democracy and how it is administered for social benefit. It discusses what are known as the three ‘tax bases’ – the broad classifications under which taxes are created and operated. It will also discuss how tax policy is set and how taxes are administered in the UK – in general terms but also in terms of some of the key features of the policy-setting process and administration that have evolved over the 40 years since the book was published upon which this title looks to build (Sandford et al, 1980).

The UK is primarily used as the context for this chapter, but selected other international comparators are included with similar large, developed democracies to illustrate areas of commonality and key differences.

What is a tax?

All taxes have common features, namely they are ‘a compulsory levy, imposed by a government or other tax raising body, on income, consumption, wealth or people, for which nothing directly is received in return’ (Lymer and Oats, 2022, p 3). It is a required payment (a ‘compulsory levy’) of those captured by a tax jurisdiction (usually individual or corporate citizens of a country for which tax paying is one of the responsibilities of citizenship – but it can include non-citizens of a tax jurisdiction too for some taxes and in some circumstances) to pay sums to their government (or ‘other tax-raising bodies’ given this power to raise taxes is usually held by national, regional, local or sometimes supranational, government bodies, but can be given to other entities to manage on the behalf of one of these).