The Economy Flashcards
What is the Treasury?
- The most senior minister in the Treasury is the Chancellor of the Exchequer (currently Rachel Reeves)
- She controls fiscal policy – that is tax and spending
- She also controls the national debt
- She is responsible for managing unemployment and inflation
Where does government money come from?
- Direct taxes
- Indirect taxes
Direct taxes
- Taxes on income - includes taxes taken directly from salaries such as income tax and national insurance, plus company taxes such as corporation tax (a tax on company profits) and capital gains tax (a tax on certain items if there has been an increase in value).
- Direct taxes are said to be progressive, in that they are based on the ability to pay – the rich pay more than the poor.
Indirect taxes
Indirect taxes are based on consumption and include such things as sales tax (VAT), alcohol, fuel and tobacco duty, green taxes on energy bills.
These are said to be regressive, in that they are not based on the ability to pay and the poor pay the same as the rich.
Debt versus Deficit
- If a government spends more than it takes in revenue, the difference between the two figures is the annual deficit.
- If the government takes in revenue more than it spends, the difference between the two is the annual surplus.
- The debt is the accumulation of all the annual deficits
- Think of the deficit as a bit like an overdraft from your bank or spending on your credit card
- Think of the debt as a bit like a mortgage that includes all the money that you owe
UK government
UK government spending is increasing, despite austerity measures and some cuts to individual departmental budgets
The UK government has revenues (mainly tax receipts) of about £1.49 billion in 2024-25.
The difference between these two figures (that is income and expenditure) – around £127 billion a year in 2024-25 needs to be borrowed and is the annual deficit
This is added to the deficits we’ve run up in previous years to give us the total debt – around £3.4 trillion
This is about 98 %of GDP (a measure used by economists to compare the scale of debt in different countries)
Lenders use comparative GDPs to set interest rates to various countries (the UK currently has an AA rating so we can borrow money comparatively cheaply)
