The Tax System In The United Kingdom

1166 words - 5 pages

The government of the United Kingdom, likewise the government of many other countries, raises money to spend on public services towards the tax system. The taxes are raised by two different levels of government, the HMRC, Her Majesty’s Revenue and Customs, and the local governments, as Barnet, Islington, Camden, Haringey, among others twenty nine local authorities in London, for instance. While the HMRC deduces taxes through Income tax, National Insurance contributions, VAT, corporation tax and fuel duty, local governments are responsible for business rates, council tax and other fees, such as on-street parking. In turn, the money deducted for tax purposes are applied to improve the health, ...view middle of the document...

When the UK government tries to reach both vertical and horizontal equity, it automatically works through progressive tax. In brief, this method deduces more tax from those at higher income levels, increasing benefits, reducing the gap between different incomes and cutting regressive taxes, such as the price of goods. For example, the income tax is based on the percentage of earnings and categorised by bands of tax; therefore, if the income rises, so does the tax. In addition, the system also has a tax-free allowance, meaning that for those earning a very low income, no tax is deducted. However, this effective tool is not well seen by critics, who believe that progressive taxes disincentive individuals to work, as the fact that that higher deductions make the job offer unattractive. On the other hand, economists still believe that higher tax reduces incomes and in turn encourages people to work more. The Treasury said: “Our tax reforms have made the UK one of the most competitive countries in the world, attracting investment, jobs and business. We have changed the approach to tax policy making so that it is more predictable, stable and simple.” (Houlder, 2014). In sum, what is seen as beneficial for one, is seen as unfair by others; furthermore, the current income tax system leads people to commit tax evasion and businesses to adjust wages to compensate higher taxes.
The poverty can be also dealt through a reduction in unemployment, which may be reached through re-training schemes as a policy to increase employability, government sponsored job creations and monetary and fiscal aggregate demand. In 2011, the government of the United Kingdom put into action its work scheme called Help to Work. Long-term unemployed people will have their benefits cut unless they visit a Job Centre every day, work for free or undertake training, under new rules which have now come into effect. The government says the new scheme "absolutely not" intended to punish jobless people (BBC, 2014). Although the government has made a deal with over 70 organisations to provide work experience, the effectiveness of the program is still doubtful due to the lack of opportunities in certain areas of the United Kingdom; consequently, people left with no choice will be highly affected by the new unemployment rule. On the other hand, the unemployment figure has reached the lowest level in five years, 6.8%, the lowest since February 2009.
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