Tax hypothecation

By THIS IS MONEY
Updated: 06:12 EST, 24 March 2010

The Daily Mail City team explain what tax hypothecation is and why pop band Girls Aloud are on board.

Zzzzz....

Wake up, it's actually mildly interesting. Tax hypothecation is the somewhat convoluted name for a ring-fenced tax intended specifically to fund one project or government department.

Any examples?

The National Lottery for starters. Revenues from the lottery have been funnelled into the arts since it began in 1994.

The TV licence is the most obvious example, given that almost everybody pays it and it goes straight back into funding the BBC.

Several surveys commissioned in the past couple of years have also revealed that most people and businesses would like to see socalled green taxes, on fossil fuels for example, diverted directly into environmental problems.

Pop group Girls Aloud are on board with tax hypothecation. The girls recommended it during an interview with the New Statesman.

Why is it relevant?

Apparently there's some sort of Budget going on. Among the measures we can expect is a levy on banks and some have suggested that the tax should be used to create a bailout fund for the financial services industry.

However, the Treasury is against tax hypothecation and wants the proceeds to flow directly into the Exchequer.

Cynics might suggest that a desperate need for cash may be more the reason for this than a principled dislike of tax hypothecation.