Tax Series
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Taxes are likely to be your biggest expense over the course of your lifetime.
According to the Tax Payers' Alliance the average household will pay £1.1m in direct and indirect taxes over an entire lifetime. Therefore, it is good to be clued up on how you are taxed and where your money is going.
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There are two types of taxes, direct taxes and indirect taxes. Direct taxes such as income tax, are paid (you guessed it) directly to the Government. Indirect taxes are charged on goods and services, such as VAT, for which the seller is responsible for paying the tax to the Government.
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Income tax is the biggest contributor towards total tax revenue, making up roughly 25% of total receipts.
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The Government spends the majority of its tax revenue on social protection (31% 2021/22) and healthcare (23% 2021/22). Social protection spending includes state pensions, housing, sickness and disability benefits.
Public Spending 1998-2022
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If Government spend more than the tax revenues coming in, this is known as a budget deficit. In this situation the Government will need to borrow money to cover the difference.
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When tax revenues are higher than spending, the Government runs a surplus. Deficits and surpluses are similar to losses or profits for a company.
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For the last 10 years, the Government have been running a budget deficit, with it being particularly high in 2020/21 as a result of the support required during the pandemic.
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Source: Office for National Statistics
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The current UK Government debt is the accumulation of all deficits and surpluses. As at March 2022, UK Government debt totalled £2.365 trillion (same as £2,365,000,000,000)!
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