Chapter 1E - The Role of Government Flashcards
What are the main economic effects of high taxation?
- reduces the ability of consumers to spend and businesses to invest
- slows down growth in the private sector
What are the main economic effects of low taxation?
- more money available for private spending and commercial investment
- stimulates economic activity
What is are the primary and secondary aims of taxation?
- raise money for Government
- re-distribute wealth from rich to poor via welfare and NHS (depending on the party in power)
What products are currently encouraged with tax concessions?
- pension schemes
- ISAs
- certain life assurance policies
- friendly society saving plans
- gains on directly held gilts and corporate bonds
- certain NS&I products
True or False: Adding or removing tax concessions influences investment strategy.
True
During 2018, how many first time buyers purchased property in the UK?
175,500
What additional % of Stamp Duty Land Tax (SDLT) is applied to second homes?
3%
How does taxation affect an advisers’ recommendation to different clients?
Different products taxed in different ways to appeal to different classes of people
What is Economic Policy?
Government proposal for expenditure, borrowing and interest rates
designed to help the economy
What does Fiscal Policy cover?
taxation, borrowing and government spending
What does Monetary Policy cover?
interest rates and money supply
Whilst the Chancellor defines levels for government spending and borrowing, who controls interest rates?
Monetary Policy Committee (MPC)
How does government spending affect the economy different to tax cuts?
Tax cuts could be spent outside of UK, spending can be controlled within
How does government borrowing affect the wider economy?
government borrowing reduces money in circulation
when repaid, this injects liquidity and stimulates economic activity
What is quantitative easing?
government buys back gilts and bonds from the financial sector to increase liquidity and stabilise
What are the two examples of large Quantitative Easing in UK history?
The 2007/08 banking crisis and the 2020 COVID-19 pandemic
What does the Gilt Repo Market do?
influence short-term interest rates
How many members are on the Monetary Policy Committee (MPC)?
How many external members?
How many times per year do they meet?
- 9
- 4
- 8
Why does the Monetary Policy Committee (MPC) have external members?
To benefit from wider thinking and expertise than just BoE
Why do the Monetary Policy Committee (MPC) confirm the Interest Rates?
To ensure it is not used for political manipulation
What happened to interest rates during the COVID 19 pandemic?
lowest ever rate 0.1
help with economic shock
When was the Bank of England founded?
1694
Other than interest rates, what can be used to control the economy?
taxation, spending and borrowing
What does the UK welfare system cover?
- NHS
- sickness and disability
- unemployment
- tax credits
- State Pension
- pension credits
- NHS funded nursing
True or False: The State’s level of welfare provision has increased in recent years.
False, it has decreased
What is the DWP?
Department for Work and Pensions
True or False: There is a mounting body of evidence that points to a future pensions crisis?
True
When did the UK move to the ‘new State Pension’?
April 2016
How many years’ of NI contributions are the minimum and maximum considered under new State Pension?
Minimum 10 years, maximum 35 years
In what 3 ways did the government stimulate private pension uptake?
Pension Freedoms
Auto-Enrolment
National Employment Savings Trust (NEST)
Government actions like the removal of dividend credits and changes to accounting regulations have caused closures and changes to the benefits of what kind of pension?
Final Salary (Defined Benefit)
True or False: Tax relief on Social Care contributions makes it appealing for families to sell the family home in order to fund care?
False - There is a distinct lack of any favourable tax relief
What will be the main effect of the UK’s ageing population?
Less future taxpayers to support those retired or on benefits
What four further actions could be considered to relieve the aging population issue further?
- More compulsory pension laws
- Compulsory medical insurance
- Tax breaks for health insurance, medical insurance or long-term care
- More increases to State Pension Age
