The United Kingdom of Great Britain

Fiscal Policy

  Fiscal Policy deals with what the government's legislation decides to do in order to fix an economy. This is often a slower than monetary policy. Because of all of the different kinds of lags it can take several months to get out one policy. Fiscal policy deals with government spending and tax cuts among other things. The specific example below deals with tax cuts for people in the United Kingdom. The article was published on the 13th of May of this year so it is still pretty recent for fiscal policy.

Tax cuts in the United Kingdom have been set up to start in April of 2011. The plan that was passed in May of 2010 helps those under £34,400 a year. Anyone over that £34,400 a year mark will have to actually pay more than before. This is called a progressive taxation. Those who have less pay less and those who have more pay more, percentage wise. This is often confused with a flat tax where everyone pays an equal percentage because those with more still pay more than those with less. Essentially the more money someone has in the United Kingdom now the higher a percentage they will be taxed. The article talks about the tax cuts for a while and then gives this example of how they will look. "Taking the income tax cut and National Insurance rise together, someone earning £10,000 will be £254 better off while someone earning £20,000 will save £154 in tax. But someone earning £50,000 will pay £286 more in tax from next year and someone on £100,000 will pay an extra £786."As this shows it is clearly a percentage change the further one is from the £34,400 mark on their side. This move will cost the government 17 billion a year for the next few years. As one would expect there are mixed emotions.

All in all, with the new tax cuts in place the United Kingdom is anticipating a larger amount of spending to come in the next year. After April of 2011 people with lower incomes will have a little more money on hand. Many will not spend it but rather they will save it. The United Kingdom needs more spending if the economy is to get any better. The United Kingdom needs as much of the following to happen as possible. They want an increase in overall GDP and a decrease in unemployment  at the cost of an increased deficit and prices. These costs are of course things that the country would want to avoid but the countries government is essentially saying that they are alright giving up this little bit as long as it means that they can have the results they want. This is what happens when Aggregate Demand shifts to the right and Aggregate Supply does not move at all. The tax cuts for those less fortunate has some people on edge of course but things seem to be pretty overall. Mike Warburton who is a tax partner at the accountants of Grant Thornton, said: "We can already see in these proposals the influence of the Lib Dems on policy, with money being moved from middle and higher income earners to help those on lower salaries." There is a little politics in that statement but the message is that the tax bracket has moved up because of this fiscal policy.