fiscal policy in uk

8/6/2019 Fiscal Policy in Uk

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FISCAL POLICY

INUNITED KINGDOM

FAZIL ABBAS


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POLICY AND FISCALPolicy is generally the principled guide to

action taken by the administrative or

executive branchesofthe state with regardto a classofissuesin a manner consistent

with law and institutionalcustom

Fiscalis taken from French word Fisc. It

means treasure ofgovernment.


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STANCES

There are three possible stancesof

fiscal policy.

Neutral

Reflationary

Deflationary


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FISCAL POLICY IN UK

o Chancellor George Osborne delivered his

Budget onWednesday 23 March.

o

Unlike George Osbornes 2010 Budgetand October 2010 Spending Review, the

2011 Budget was not a big fiscal event.

o The net impact on

the publicfinancesofall announcements

was minimal.


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The Chancellor presented the Governments

Spending Review on 20 October 2010.

It fixesspending budgetsfor eachGovernment department up to 2014-15.

The Spending Review came at a time when

the State isspending significantly more

money than it raisesin taxation, and ismeeting the gap called the deficit by

borrowing at record levels.


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GOVERNMENT SPENDING At the moment, the UK isspending 50 billion a

year on debt interest payments, nearly 140

million every day.

The Spending Review aims to eliminate the

structuralcurrent deficit (when spending is

more than the tax it takesin) over the next 5

years to get national debt falling as a

proportion ofnationalincome.

One ofthe main ways thisis being done is by

reducing publicspending. Departmental

budgets will be cut by an average of19 per cent

over four years.


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Health spending will rise at a rate above

inflation, with spending reaching 114

billion by 2015. The schools budget willincrease from

35 billion to 39 billion

A new pupil premium worth 2.5 billion ayear will be introduced.

All 3 and 4 year-olds willcontinue to be

entitled to 15 hours a week ofeducation.

Spending on international development

will rise to 11.5 billion, with a

commission created to assess the impact

ofUK government funds.


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1 billion for one ofthe worldsfirst

commercial-scale carbon captureand storage demonstration projects.

200 million to develop offshore

wind technology and manufacturingat port sites.

14 billion for railimprovements

10 billion for new roads and to

maintain existing roads.

Funding for London 2012 Olympics

and Paralympicssecured.


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REVENUE SOURCES


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Asseen in the diagram, taxescontribute

almost 458 billion ofgovernment

revenue. The total revenue is 589 bn.

Osborne budget rulesout the possibility

ofprinting money thisyear.

It means that ifthe expenditure exceedsthe revenue, the government will

borrow.


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EXPENDITURE


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o Asseen in figure, the total

expenditure is 711 bn.

o It exceeds the revenue by 122 bn.o The gap or deficit in expenditure

and revenue will be borrowed.

o Last year, the Governmentborrowed 1 in everyfour that it

spent.


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FISCAL POLICY - SIMPLIFIED

122 billion deficit in context means

334,246,000 a dayin extra

borrowing.

13,926,900 an hour in extra

borrowing.

232,110 a minute in extra

borrowing.

3,860 a second in extra

borrowing.


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The average person earns 30,293 a

year.(Approximate) Personal tax allowance of 7475.

Total taxable income is 22,818.

He will pay BASIC INCOME TAX RATE of20% and NATIONAL INSURANCE AT 12%.

So the total tax bill will amount to

7,301.

Which means the government is

borrowing MORE in a minute than the

sum totalof30 persons entire direct tax

billofa year.


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UK NATIONAL DEBT UK publicsector net debt is 909 billion or 58%

ofNational GDP.

If financialsector isincluded, the Net debt is

2,252.1 billion or 149.1 per cent. Thisisknown as the unadjusted measure ofpublic

sector net debt.

The independent Office ofBudget

Responsibilitysjudgement is that thegovernment ison track to eliminate the

structuralcurrent deficit and place debt on a

downwards path by the end ofthe Parliament

in 2015.


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BORROWING YEARWISE

Publicsector net borrowing was 146 billionlast year. It will be:

122 billion thisyear.

101 billion in 2012-13

70 billion in 2013-14 46 billion in 2014-15

29 billion in 2015-16

The UKs national debt, as a share ofnational

income,isforecast to be 60 per cent thisyear,before peaking at 71 per cent, and then

starting tofall reaching 69 per cent by the

end ofthe period.


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PUBLIC SECTOR NET BORROWING GRAPH


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SALIENT FEATURES Simplifying tax with the abolition of43 tax

reliefs

Increase the rate ofR&D tax creditsfor small

and medium-sized enterprisesfrom 175 percent to 225 per cent by April 2012

21 new Enterprise Zones, tofocus growth in

specific partsofthe UK.

Corporation tax

From April 2011, the rate will be reduced to 26

per cent with further yearly reductionsofone

per cent until 2014 when it will reach 23 per

cent


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CONCLUSION The creation ofthe independent OBR has

signicantly enhanced the credibilityofthe

UKsscal policy.

The IMF has welcomed the OBR as

addressing decienciesin the previousGovernmentsscalframework and

complementing the Governments

commitment toscal discipline

While the OECD concluded Thisisclearly animportant initiative in termsofstrengthening

government management ofpublicspending

and improving publiccondence in

governmentsfiscal policy.


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OSBORNES LAST FEWWORDS AFTER

PRESENTING THE BUDGET 2011.

We are only going to raise the livingstandardsoffamiliesifwe have an economy

that can compete in the modern age.

We want the words:

Made in Britain

Created in Britain

Designed in Britain

Invented in BritainTo drive our nation forward,

We have put fuel into the tank of the

British economy..


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www.google.com

www.investopedia.com

www.direct.gov.uk

www.ifs.org.uk

www.ukbudget.comwww.cdn.hm-treasury.gov.uk

www.tutor2u.net.

SOURCEWEBSITES


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