4.5.2 - Taxation application

Question 1

What are hypothecated taxes

Answer 1

A hypothecated tax is a tax that is earmarked for a specific purpose. The money raised from the tax must be used for that purpose, and cannot be used for any other purpose.

Question 2

Arguments for hypothecated taxes

Answer 2

• Increased transparency: clear where the money raised from the tax is going. This can increase transparency and accountability in government spending.

Increased public support/trust: Hypothecated taxes can increase public support for government spending on the specific purpose that the tax is earmarked for. This is because people are more likely to support spending on a particular program if they know that their taxes are going directly to that programme.

Improved efficiency: Hypothecated taxes can improve the efficiency of government spending. This is because the money raised from the tax is guaranteed to be used for the specific purpose that it is earmarked for. This can help to ensure that the money is spent wisely and effectively.

Question 3

Cons of hypothecated taxes

Answer 3

• Lack of flexibility: Hypothecated taxes can make it difficult for the government to respond to changing needs. This is because the money raised from the tax is locked into a specific purpose. If the government needs to spend money on a different purpose, it will have to find another source of funding.

Unfairness: Hypothecated taxes can be unfair, as they can lead to higher taxes for some people. This is because the money raised from the tax is used to fund a specific programme that may not benefit everyone equally.

Reduced accountability: Hypothecated taxes can reduce accountability in government spending. This is because the money raised from the tax is earmarked for a specific purpose. This can make it difficult for the public to hold the government accountable for how the money is spent.

Question 4

Changes to public spending

Answer 4

• Hunt says government spending on public services will take a “responsible approach” and focus on “tackling waste”.
• The OBR says the measures will result in a £19bn reduction in spending on public services, after accounting for inflation.

Question 5

Inflation predictions from autumn statement

Answer 5

The OBR expects inflation to average 2.2% over 2024, then slow to 1.5% in 2025, before rising to the target rate of 2% in 2028.

inflation 4% rn and interest 5.25%

Question 6

Changes to benefits in autumn statement

Answer 6

• Hunt says he is making the biggest set of welfare reforms in a decade and will get a further 200,000 people into work.
• People claiming benefits will face mandatory work experience if they do not find a job within 18 months.
• As pre-announced, the “national living wage” will increase by more than a pound an hour from April to £11.44. It will also be extended to 21-year-olds.
• Benefits will be increased by 6.7%, and there will be tougher requirements for those who claim them to look for work.

Question 7

Business tax changes in autumn statement

Answer 7

• Hunt will make so-called full expensing permanent. This allows businesses to offset investment in items such as new IT equipment and factory machinery against tax
• Hunt says he wants to reform taxes paid by self-employed people, and will abolish their “class 2” national insurance contributions, which count towards their state pension entitlements. This will cut taxes for 2 million people, he says. “Class 4” contributions will be cut by one percentage point. Together these will be worth £350 a year.
• The 75% business rates discount for retail, hospitality and leisure firms in England extended for another year

Question 8

Other business investment plans in autumn statement

Answer 8

• Funding of £4.5bn to attract investment to strategic manufacturing sectors, including green energy, aerospace, life sciences and zero-emission vehicles
• Financial incentives for investment zones and tax reliefs for freeports extended from five years to 10 years, with new investment zones announced for the West Midlands, East Midlands and Greater Manchester, as well as Wrexham and Flintshire
• Some £500m over the next two years to fund artificial intelligence innovation centres
• New premium planning services across England, with faster decision dates for major business applications and fee refunds when these are not met

Question 9

Changes to taxes otherwise in autumn statement

Answer 9

• post war tax high
• All alcohol duty frozen until 1 August next year
  Duty rate on tobacco products increases by 2% above RPI inflation; hand-rolling tobacco rises 12% above RPI
• Fuel duty wasn’t mentioned so remains 52.95p per litre for petrol and diesel, after the chancellor announced a 5p per litre cut for 12 months in March