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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