Introduction
Taxation is a phenomenon which has existed for many hundreds of years and still forms an integral part of all advanced countries economies today. Taxes are essential for governments to fund the services and infrastructure needed for the development of a modern state, however, taxation policy can be unfair and regressive at times, severely impacting certain members of society. This essay will outline taxation in the UK and the government’s policy on taxation, considering who benefits, the fairness or unfairness of taxation, and the effects on economic growth.
Taxation in the UK
The UK’s taxation system consists of several different taxes which vary by type and purpose, these are; direct taxes which are compulsory on individuals and companies, indirect taxes which are charged on goods, services and activities and taxes on international trade and transactions. The majority of taxes are collected by the HM Revenue & Customs on behalf of the government who then use this revenue to fund public services, welfare, infrastructure and other projects. Generally, the most prominent direct taxes in the UK are income tax, council taxes and inheritance tax, with significant indirect taxes including Value Added Tax (VAT), stamp duty, corporation tax and customs duty.
Government Taxation Policy
The UK government has a responsibility to ensure taxation policy is fair and encourages economic growth, which is can be advanced by careful collection of taxes and appropriate distributive policies. Generally, progressive taxation is the preferred system as it takes into account an individual’s ability to pay, however, in the UK, taxation policy is slightly regressive due to the higher rate and threshold of income tax and the flat-rate structure of other taxes such as VAT. This structure is beneficial from a government perspective as it brings in more revenue from those with higher incomes, however, this policy can be seen as unfair and stifles the economic growth of higher earners.
Who Benefits From Taxation?
This answer to this question largely depends on the type of taxes and purpose for which they are collected. Generally, direct taxes are designed to fund services for everyone on society, however, those with the highest earnings often benefit more from improved public services compared to those at the lower end of the income bracket who may not benefit at all. Indirect taxes are typically collected to fund government projects and are proportional to the wealth of an individual or company, which benefits those at higher end of the income bracket.
Conclusion
The UK’s taxation system is necessary to fund the state’s services and projects, however, it is important that this revenue is raised fairly and that all individuals have access to the same opportunities. The government needs to ensure taxation policy is able to achieve this, although criticism can be raised that its current policy is regressive and disproportionately affects those on lower incomes. Nevertheless, no matter the rate or type of tax, taxation is necessary for governments to provide the services on which society depends and effort must be made to ensure everyone can access the same public services.
