An economic system is a system which attempts to work out the basic economic job which is that homo ‘s demands are infinite whilst the economic resources are scare. Taxation, which influences the alterations and growing in the degree of aggregative demand ( AD ) , and aggregate supply ( AS ) , of any state, has a vitally of import function in Fiscal Policy. Thus, the purpose of this essay is to look into whether the UK revenue enhancement system is progressive, relative or regressive. In this essay, you will be provided an apprehension with the progressivity and regressive severally of the UK revenue enhancements, brief analysis of the revenue enhancement system, and eventually, some restrictions of revenue enhancement in general.
In order to place the features of the UK revenue enhancement system, we need foremost understand the basic information of revenue enhancements. As Sawyer ( 2001:75 ) provinces that, a revenue enhancement, which is chief beginning of gross for the populace sector, means a fee levied by a authorities on a merchandise, income, or activity. And from the Free Dictionary web site ( 2007 ) , we can cognize that, the revenue enhancement system is a system protected by statute law for measuring and colleting revenue enhancements. Anderton ( 2006:525 ) points out that, revenue enhancements are used in assorted ways by the authorities. First, authorities uses the revenue enhancements levied on the taxpayers to pay for authorities outgo, like the cost of edifice substructure installations, national security programmes and what is more, in avoiding rising prices, finance must be derived from revenue enhancement. Second, high revenue enhancements can cut down efficaciously the demand of some extremely contaminated goods, like Sport Utility Vehicles ( SUVs ) so as to rectify market failure and outwardnesss. Additionally, revenue enhancement can be used to act upon the macro-economy as a whole in regard cheapness such revenue enhancements can increase societal public assistance and so on. Last but non the least, authorities may utilize revenue enhancements to redistribute income, as a effect, the wealth of a society can be increased.
In fact, revenue enhancements are classified into two types based on the manner a revenue enhancement is levied: direct revenue enhancements and indirect revenue enhancements. A direct revenue enhancement is a revenue enhancement that charged straight on the taxpayers, like income revenue enhancement, national insurance, etc. And an indirect revenue enhancement is a revenue enhancement upon a good or service which indirectly levied upon the taxpayers. ( Anderton, 2006:525 ) On the other manus, revenue enhancements can besides be classified into another three classs based on the features: progressive revenue enhancements, which mean the higher the income is, the higher revenue enhancement rate at which people pay ; relative revenue enhancements, which literally mean everyone pays the revenue enhancements at the same rate ; and regressive revenue enhancements that higher income people pay the revenue enhancements at lower rates.
Furthermore, there are three most representative revenue enhancements in the UK, they are Income revenue enhancement, National Insurance Contribution ( NIC ) and Value added revenue enhancement ( VAT ) . Around 29.5 million people in the UK pay the Income revenue enhancement, but non all income is capable to revenue enhancement. Mentioning Table 3 in the Appendix, after the personal allowance of & A ; lb ; 2,150, which is called the staring set, people start to pay revenue enhancements at a rate of 10 % . And there are two sets, which are the basic set of which the fringy revenue enhancement rate is 22 % and the higher set whose fringy revenue enhancement rate is 40 % . At each degree, people pay revenue enhancements at different rates ( Adam, et Al, 2006 ) . We can see that, Income revenue enhancement matches the definition of a progressive revenue enhancement absolutely, so that Income revenue enhancement is a progressive revenue enhancement. Additionally harmonizing to Adam et Al ( 2006 ) , if a individual ‘s hebdomadal income is between & A ; lb ; 97 and & A ; lb ; 645, he will be able to pay at a highest NIC rate. Whereas, if the income is below & A ; lb ; 97 or higher than & A ; lb ; 645, people will pay NIC at comparatively lower rates. Therefore, NIC is argued to be progressive. By utilizing the same agencies of appraisal, we can clearly happen out the features of VAT, which is regressive, and so make the other revenue enhancements.
In regard to the UK authorities gross, the sums of part of both progressive revenue enhancements and regressive revenue enhancements are about tantamount. Figure 79.1 in the Appendix portion indicates the information of authorities gross from 2005 to the twelvemonth of 2006. we can see from the chart that revenue enhancements like Income revenue enhancement which are progressive have a entire overall per centum of 47 % amongst authorities gross of that twelvemonth and the per centum somewhat outweighs that of the regressive revenue enhancements which are VAT, Excise responsibilities, Business rates and Council revenue enhancement, which amount to 31 % . Even though there is a spread of 16 % between the two classs of revenue enhancements, we can still state that, being considered as a whole, the UK revenue enhancement system is somewhat relative ( Anderton, 2006:531 ) .
In order to judge the features of a system as a whole, we need non merely look at the present position but besides the possible future tendency of the revenue enhancement system. The UK authorities has made many ordinances to cut down Income revenue enhancements and increase VAT. Table 13 in the Appendix provides us with the information of the chief reforms of different revenue enhancements in the UK. From Table 13, we can see that, progressive revenue enhancements, like Income revenue enhancement and Corporation revenue enhancement are cut down whilst regressive revenue enhancements, such as VAT and some other indirect revenue enhancements, are being increased. Therefore, in conformance to Postpone 1 in the Appendix, we can hold a general position of the predicted UK authorities grosss of the twelvemonth of 2006 to 2007. The difference between the entire per centum of part to the authorities gross of progressive revenue enhancements and that of regressive revenue enhancements will be unusually reduced to 6 % . Therefore, we can state that, the UK revenue enhancement system is and will go on to be relative.
However, there are some jobs of revenue enhancement despite the benefits that revenue enhancements bring to the society. First, high revenue enhancements like VAT and Excise responsibilities on goods will do a downward displacement of the supply curve and a series of jobs. For case, if a maker is less willing to bring forth more because of the high revenue enhancements, unemployment will be in regard that some occupations will be no longer needed. Second, in some markets where are absolutely competitory, such as the crude oil sector, an debut of revenue enhancement will do the fringy cost of the merchandise to be less equal than anyplace else. Finally, people who have higher income wage revenue enhancements at a higher rate, accordingly, more and more people will experience unequal and they will be disincentive at work.
In decision, revenue enhancements in the UK can be classified into different classs based on the ways of imposing and the features of revenue enhancements. The UK revenue enhancement system seems to be loosely relative because of the present position of the UK revenue enhancement system and the hereafter trends it tends to near. Furthermore, the proportion of authorities gross from both progressive and regressive revenue enhancements is going more balanced. And comparing to the revenue enhancement systems of the other states, the UK revenue enhancement system seems to be really typical. For illustration, even though the statute laws and ordinances between the UK and the US are somewhat different, the revenue enhancement system in the US looks much like that of the UK, which is besides in the way of less progressivity on the manner of being more relative.