Fiscal policy involves changing tax rates and government spending to control the economy.
Main types of tax in the UK:
- Income tax – This a tax on people’s income. The basic rate of income tax is 20%, paid on income over the income tax threshold of £11,000.
- National insurance contributions. Another type of income tax is national insurance contributions, which are based on a similar principle of taking a certain percentage of income.
- Consumption tax – VAT – 20%
- Excise duties on alcohol, tobacco
- Corporation tax – tax on company profit
- Stamp duty – tax on buying houses / shares
- Capital gains tax
- Inheritance tax
- Council tax
- Business rates
Government spending:
This would mean the government not spending all of its income and paying back some historic debt.
Cuts in government expenditure has put a great strain on the provision of public services and the pay of public sector workers.
The effect on businesses of changes in taxation:
Consumer spending may rise or fall.
Changes in VAT will alter prices.
Corporation tax is a cost on business profits.
Changes in employment taxes might influence hiring decisions.
Increasing tax avoidance (legal) and tax evasion (illegal)
The UK Finance Minister (The Chancellor of the Exchequer) announces changes to fiscal policy in the annual budget speech.
