Friday 20 February 2009

taxation in the UK

There are three main types of government spending. Government purchases of goods and services for current use are classed as government consumption. This includes spending on areas such as education, defense, health service. Another type is government purchases of goods and services in order to get future benefits which is called government investement. This area includes building a new factory, or buying new equipment or cost of putting child to school. And the third type of government spending is transfer payments. This covers spending that is not a purchase; for example, Jobseekers Allowance payments or the State Pension.
There are number of ways which cover government spending and one of the most important is taxation. There are many different types of taxes in the UK. And they were established many times ago and it will be not an easy task to change taxes because government can not know the way individual and firms respond to a change in taxation.  
There are different taxes which are charged from the UK citizens. One of the most spread is income tax as everyone who employed pay this tax. Income tax is progressive which means that individuals who are earning larger sums of money will pay more tax until they reach the upper band, at which point the percentage of their income remain the same. Progressive tax is considered to be the fairest as it gives possibilities for poor have bigger proportion of their income to spend on their necessities, while rich will have to give larger proportions and this might reduce differences between classes according to their income.
Also there is an excise tax which is an indirect tax imposed on a specific goods such as tobacco, alcohol which considered to be demerit goods as there are many negative externalities arise from them. Indirect taxes are mostly regressive because if government would not count approximate sum of money which will be needed to internalize the external effect arising from consuming these types of goods it will have to spend much more in taking measures with consequences. Corporation Tax means that organisations assume certain related responsibilities.
Now a big proportion of taxes is spent on project to counter the contraction of the economy. According to the statistics now a current budget deficit of £5.9 billion;

net borrowing of £8.1 billion in the UK, which means that government spending is much bigger than taxation revenue. Some could argue that there is a need of fundamental change in taxation and create new types of taxes, others say that there is a need of simplifying taxation system. "A radical simplification of the tax system, together with measures to remove many of the lower-paid from direct tax altogether, would benefit almost everyone." - Mark Wilson

But anyway both these reforms will affect different social classes and if common UK citizens would be happy in reductions of UK’s taxes, it will be only its their first view, because borrowing will increase and unemployment would rise and more time will be needed to maintain economic stability. 

1 comment:

Unknown said...

Nice post ! Over all income tax is lower in the UK than several other countries including Australia and New Zealand. Consumption taxes tend to even things up, except obviously you save it!

Regards..
Corporate Taxation