The tresure and economics Flashcards
who is the most senior minister in the treasury?
is the chancellor of the exchequer phillip hammond
what does the chancellor of exchequer do?
- He controls fiscal policy – that is tax and spending
- He also controls the national debt
- He is responsible for managing unemployment and inflation
where does goverment money come from?>
direct taxes
indirect taxes
what are direct 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.
what are 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.
what is the difference between debt and defict?
- These are frequently confused
- If a government spends more than it takes in revenue, the difference between the two figures is the annual deficit
- The debt is the accumulation of all the 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
what was the giverment spending in 2010 and now?
- The UK government spent £672bn in 2010 and will spend £842bn in 2019/20
- Overall UK government spending is increasing, despite austerity measures and some cuts to individual departmental budgets
what was the goverments revenue in 2019/20
£810bn mainly tax recipts
what is the difference in income and expenditure inn 19/20
£32bn
what is our total debt?
£1.9 trillion 88%GDP
How much do we pay a year in interest payments?
£43bn
what do rating agencies do?
give countries ratimgs based on their ability to pay the debt back.
what do lenders do?
• Lenders use these ratings to set interest rates to various countries (the UK currently has the top AAA rating so we can borrow money comparatively cheaply)
what happens in the budget speech
- Each autumn the Chancellor makes a Budget Speech to the House of Commons
- He reports on the performance of the economy over the previous 12 months
- He gives the outlook for the next 12 months
- He sets out plans for taxes and spending
- This is proceeded in the spring by the Spring Statement or Pre-Budget Review
- Every three years the Chancellor also publishes a Comprehensive Spending Review giving plans over a longer period
- The Budget Speech is accompanied by a Finance Act to implement the Chancellor’s plans
the office budget responsibility
- OBR was set up by George Osborne in 2010
- It is responsible for economic forecasts
- It is politically neutral and independent of government
- The Bank of England (made independent by Gordon Brown) is responsible for monetary policy – that is setting interest rates
- The Monetary Policy Committee of the Bank of England – a group of nine economists – sets interest rates,
- Quantitative Easing – Bank of England buys bonds from retail banks to increase liquidity (the amount of money available) and reduce lending costs to industry and individuals.
