Tax and Spend

Article by Chris Waller
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As the major political parties round the last bend and head down the straight towards that great water-jump called the General Election, one accuses the other of being 'the party of tax and spend' while the latter accuses the former of 'attacking public services'. Bored by the croaking of politicians, I decided to find out exactly how much the government raises in taxes - and from what sources - and how it spends those taxes. I gleaned these figures from the Treasury, projected for the year 2009-10.

Government Receipts 
Income Tax141billion
National Insurance98 billion
Excise Duties44 billion
Corporation Tax35 billion
VAT64 billion
Business Rates24 billion
Council Tax25 billion
Other76 billion
Total496 billion

Further enquiries revealed that the category of 'excise duties' includes two major components: Vehicle Excise Duty (5.4 billion) and Fuel Duty (24.9 billion). I imagine that the difference is accounted for by duties on the 'demon alcohol' and tobacco.

And where does it all go? It is disbursed as follows:

 

Total Managed Expenditure 
Social Protection189 billd>189 billion
Personal Social Services31 billion
Health119 billion
Transport23 billion
Education88 billion
Defence38 billion
Industry, Agriculture, Employment & Training20 billion
Housing and Environment29 billion
Public Order and Safety35 billion
Debt Interest28 billion
Other72 billion
Total671billion

What is this as a percentage of GDP? Well, the most recent figure I have for GDP is 1,290 billion, as at 31st December 2006. Increasing this by 5 percent - approximately two year's average growth - this brings us to a figure of about 1,350 billion as at the end of 2008. Since the economy has been shrinking over the last twelve months I am e months I am discounting any growth for this year, 2009. So, roughly speaking, the chancellor takes a total of about 36 percent of GDP in taxes of one sort or another.

The more eagle-eyed among you will have noticed that there is a discrepancy of some 175 billion between receipts and expenditure. That is the money which you, as taxpayers, have generously given to the banks to clear up the mess they made and is equivalent to about 7,400 per working person.

Roughly speaking, one penny on the rate of income tax raises 2 billion pounds, so even if income tax were to be raised by 4p in the pound - once upon a time an action tantamount to political suicide - it would take a generation or more to pay off the loans made by government to bail out the banks. But if the debt is to be cleared within a reasonable timescale then that is what we are looking at - a tax rise equivalent to at least 4p in the pound. That assumes a static economy, but if the world economy can achieve significant ratrates of growth then the tax revenues will increase and the debt could be cleared more quickly. Perversely, however, increased economic activity could give rise to a fresh outbreak of inflation, which will necessitate an increase in interest rates, thus increasing the time taken to clear the debt. Furthermore, increased economic activity will force up the prices of essential commodities such as energy and food, further burdening the economy. Whatever happens, we are in for a few years of relative austerity, years which will change the balance of global power. Regardless of which party wins the next election, they are going to have a rough old time of it trying to sell this one to the electorate.

Chris Waller - Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

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