Current government priorities Essay

How far does the budget reflect current government priorities? â€Å"Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it† – Ronald Reagan In my coursework I shall be discovering what the annual government budget is, what it is spent on and why, correlating this with current priorities. I shall be investigating to what extent does the governments’ expenditure reflect on these current government priorities i.e. the amount spent on defence, the education sector and social protection. I shall be mostly using secondary research, through using websites and maybe books. I will compare spending from previous budgets to the current one and find out where changes, if any, have been made. Through figuring out where the money is spent, I can discover what the main priorities are but not neglecting the fact that some sectors are larger and undoubtedly require money being spent, e.g. Healthcare and public order & safety. Government expenditure is vital for the efficient running of the economy. The need for much of the government expenditure arises from the facts that some goods will not be provided at all by a free market economy (public goods) and that others will be under-provided (merit goods). It is spending on these goods that accounts for a large proportion of government spending (health, education, police and defence, among others). Some government expenditure is aimed at providing a safety net for the less well off in society and ensuring that they are able to survive in the event that they lose their jobs or have insufficient income. The department that deals with the allocation of most of this money is the Department of Social Security. Other government expenditure is aimed at various areas that may be considered important in a developed economy – providing a transport infrastructure, supporting the work of local government and servicing any debts that may have been accumulated in th e past. Fiscal policy refers to government policy that attempts to influence the direction of the economy through changes in government spending or taxes. Fiscal policy can be contrasted with the other main type of economic policy, ‘monetary policy’ which attempts to stabilize the economy by controlling interest rates and the supply of money. The government in power needs to ensure that the budget expenditure is divided correctly and proportionately to the areas that require it most. This depends on the government priorities. The two main instruments of fiscal policy are government spending and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy: On aggregate demand and the level of economic activity; the pattern of resource allocation and the distribution of income. Fiscal policy is the use of government expenditure and taxation to manage the economy. The main changes in fiscal policy happen once a year in the Budget. It is in the Budget that the Chancellor sets the levels of taxation and government expenditure for the next fiscal year. The fiscal year runs from 6th April one year until 5th April the following year. This is why the budget is usually in March. The changes in it come generally into effect in the following month. Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when at a level between 2-3%), increases employment and maintains a healthy value of money. Unfortunately, the effects of any fiscal policy are not the same on everyone. Depending on the political orientations and goals of the policymakers, a tax cut could affect only the middle class, which is typically the largest economic group. In times of economic decline and rising taxation, it is this same group that may have to pay more taxes than the wealthier upper class. Similarly, when a government decides to adjust it’s spending; its policy may affect only a specific group of people. A decision to build a new bridge, for example, will give work and more income to hundreds of construction workers. A decision to spend money on building a new space shuttle, on the other hand, benefits only a small, specialized pool of experts, which would not do much to increase aggregate employment levels. Graph to show inflation rates in the UK compared with the United States and Canada. Monetary Policy involves changes in the base rate of interest to influence the rate of growth of aggregate demand, the money supply and ultimately price inflation. Monetarist economists believe that monetary policy is a more powerful weapon than fiscal policy in controlling inflation. Monetary policy also involves changes in the value of the exchange rate since fluctuations in the currency also impact on macroeconomic activity (incomes, output and prices). Basically, it is the process by which the government/ bank controls the supply of money, or trading in foreign exchange markets. Monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy has the goal of raising interest rates to combat inflation or calming an overheated economy. The government receives its’ money from many different areas, the graph on the next page shows exactly where from and how much: As from the chart we can see that the largest proportion of governments’ income is due to income tax that at à ¯Ã‚ ¿Ã‚ ½157bn it is à ¯Ã‚ ¿Ã‚ ½63bn more than the 2nd largest. Tax comes in many forms, as shown by the chart and when totaled up it is à ¯Ã‚ ¿Ã‚ ½587bn, this breaks down to à ¯Ã‚ ¿Ã‚ ½9,650 for every man, woman and child in the UK per year. What is the money used for and spent on? Well the money that the government has gathered from its’ many different forms of tax is spent entirely on the public. The pie chart below clearly represents what these different sectors are and how much money is actually spent on them. As we can see social protection is predominantly the largest sector that government spending is allocated with a à ¯Ã‚ ¿Ã‚ ½57bn lead on the second largest, health, at à ¯Ã‚ ¿Ã‚ ½104bn. From this chart it can be easy to assume that the areas with the largest spending would be those that are the largest priorities. That can be accepted to a certain extent to where you look deeper within that and take into account that some sectors are larger than others and therefore require more money to keep them running, i.e. social protection. Now I shall look at the different sectors and analyze each one, looking at the government’s main aims and objectives and comparing whether the money they are spending on each one is reflecting that; for example if in public order and safety the government wanted to initiate huge crackdown on underage drinkers and vandalism then surely the money spent in that area would be increased dramatically. I shall compare what was spent on those sectors in the year 2006 and compare that with the budget released in 2007. Taking into account inflation, which from 2006 to 2007 was 3% I can work out whether spending, has increased by a lot, remained the same or dropped. To begin with I shall look at the area of social protection, which is the largest of all spending. Social protection consists of policies and programs designed to reduce poverty and vulnerability by promoting efficient labor markets, diminishing people’s exposure to risks, enhancing their capacity to protect themselves against hazards and interruption or loss of income. In 2006 the government spent à ¯Ã‚ ¿Ã‚ ½151bn on social protection whereas in 2007 they spent à ¯Ã‚ ¿Ã‚ ½161bn, which even after taking into account inflation this is still a dramatic increase. This could by due to the fact that unemployment has risen from 2006 – 2007 and with employment and training being an area of social protection, more money is being spent to try and bring the figures down again. The next sector that I shall look at is the environment. Protecting the environment is a major concern for today’s government; well it has been for many years but even more so now. As Britain’s industry continues to expand and destroy most of our beloved countryside and pollute our skies, pressure groups and environmentalists increase the strain on the government to protect and instigate new legislation to help reduce the effects of the unstoppable industry. In attempts to keep these groups happy the government invests more money every year to meet their demands. Examples of these include the à ¯Ã‚ ¿Ã‚ ½800m environmental transformation fund and funding for cleaner ways to produce energy such as wind farms and nuclear power. There has been an increase of expenditure for housing and environment from 2006 – 2007 of à ¯Ã‚ ¿Ã‚ ½4bn, which concludes the fact that it is an ever-increasing issue. This research indicates that current government spending in the environment does directly reflect the fact that is a main priority. In the past 3 years it has shown that the government has increased it’s spending by around à ¯Ã‚ ¿Ã‚ ½4bn per annum on the environment. If compared with other sections of spending, the environment ranks lower in comparison with others, such as social protection. This could signify that the environment is not classed as such a high priority; although relating to my earlier point of stating that the some areas are larger and therefore require more money suggests that it is not less of a priority. However, it could also be due to the fact that the government believes that protection of the population and the healthcare too are more of a priority than preserving the environment. So it can be looked at in both ways. I myself believe that the government thinks the environment is less of a priority and therefore less money should be invested there. Healthcare in Britain is different to that in most other countries in the way that we have adopted a system called the National Health Service. The NHS is paid for through our taxes and so therefore offers healthcare for everyone in the UK and securing the provision of comprehensive, high quality care for all those who need it, regardless of their ability to pay or where they live or their age. The aims set out by the Department of Health are to: * Supporting activity at national level to protect, promote and improve the nation’s health; * Securing responsive social care and child protection for those who lack the support they need. The key objectives for pursuing these aims are to: * To reduce the incidence of avoidable illness, disease and injury in the population. * To treat people with illness, disease or injury quickly, effectively and on the basis of need alone. * To enable people, who are unable to perform essential activities of daily living, including those with chronic illness, disability or terminal illness, to live as full and normal lives as possible. * To maximise the social development of children within stable family settings. These aims and objectives are generic to most years of the NHS but as research and new technologies develop the spending must increase to match demands of the population. In 2002 the Chancellor of the Exchequer announced that by 2008 there would be the largest ever increase in health spending at à ¯Ã‚ ¿Ã‚ ½40bn. This is a huge enlargement of the budget spending and obviously shows that health is a main priority if the government is willing to increase it’s spending by this much. It has been released that every year there shall be an increase of around 4% on health spending. Although the government is injecting a large section of the budget into health care it is not dramatically increasing it every year and sacrificing other sector’s money to pour more into healthcare. The government is slowly increasing the amount spent in health and all the time, every year introducing new legislations and targets to make the NHS a more efficient and improved service for everyone within the UK. â€Å"We are determined to maintain our disciplined approach, determined not to make the old British mistakes of paying ourselves too much today at the cost of higher interest rates and fewer jobs tomorrow† – Gordon Brown This quote suggests that by not putting too much money into a single sector it reduces the chances of having an economic backlash in the future. I agree with this and believe that by making smaller steps and gradually increasing expenditure it improves the economy at a much greater scale in the long run and prevents unwanted repercussions that may damage the economy. By pushing more money into the sectors it could cause the desired effect to become counter-productive and hinder more than help. Some people believe that the budget is only increasing in the health sector by such amounts because the ongoing criticisms have driven the government to improve it’s image and please the people to keep the current party in power. Fostering high standards of education is the Government’s greatest responsibility. In England this responsibility lies with the Departments for Children, Schools and Families (DCSF). About 93 per cent of children are educated in state-run primary and secondary schools; the remainder go to independent schools that rely on privately-paid tuition fees. Through these central government organisations, the provision of education in the UK includes monitoring and improving standards in schools, colleges and universities; ensuring that everyone – no matter what disability or special need they may have – is included and has access to high quality education; promoting work experience for young people and vocational training for employees; and encouraging lifelong learning. Through the British Council, the Government actively promotes education in the UK to countries all over the world. Other major organisations help to guide and make welcome some 275,000 overseas students who currently enjoy the advantages of living and studying in the UK. Before June 2007 schools were the responsibility of the former Department for Education and Skills. Education is gradually becoming increasingly more important within the UK as greater than ever numbers of young graduates roam the job market relegating others without degrees into a league of themselves. To employers education is the main thing they look at on CVs, dismissing experience and background for the simple number on the piece of paper. So education is a main priority for the government to try and make Britain’s children as well qualified as they can be, pushing the economy further up the ladder and improving things for all. So education for the government has became a huge priority and this can be shown by the recent announcement to raise the school minimum leaving age to 18; offering college courses and apprenticeships and also A-Levels to every child. Implementing this new legislation would obviously require a huge increase in the budget allocated for education, which would either mean another increased tax, which has happened for the past 11 years while Gordon Brown had been Chancellor, or sacrificing other areas of spending to improve education. Making these decisions requires undoubtedly many months of thinking and consultation before arriving at a suitable judgment. In the 2007 budget report, the government announced that investment in education and skills would rise to à ¯Ã‚ ¿Ã‚ ½90bn by 2010/2011. In a clearer spectrum, there is a à ¯Ã‚ ¿Ã‚ ½4bn increase from 2006 to 2007 then a à ¯Ã‚ ¿Ã‚ ½5bn increase from 2007 to 2008 and therefore proves that the government is gradually increasing the percentage increase spent on education annually. In evaluation it can be said that although there isn’t a dramatic increase in the spending on the education sector, there are other factors that affect the efficiency of it too. For example money may not be being spent efficiently in the employment and the social protection areas, which are having a direct effect on the education, this can easily be mistaken as problems within the education spending rather than stepping back and realising that it could be issues somewhere else. Increasing the funding in education and training programs could significantly reduce unemployment levels (a major concern for the government) and increase the productivity per worker. In the UK the productivity per worker is substantially lower than other countries such as the US and Germany by as far as 30% in 2002. I believe that education is a major priority for the current government as competition from other countries towers above Britain and with the productivity per worker as low as it is, surely suggests that something within the education sector must be improved to raise our working standards. As the investment in education carries on rising at such rates it must be taken for granted it is becoming an even greater priority, especially with other countries almost mocking us with their efficiency. In 2007 we missed 24 of our 57 targets set by the government in education which raised awareness of the problem widely and brought it to the forefront of priorities. I believe in Britain we need better qualifications to lower unemployment and bring our workforce into the productivity ranges we need to compete with other countries or otherwise our place in the world’s economy will gradually being to fall. In comparison with previous years spending the 2007 budget does not seem to have any major, out of place differences with previous years and generally it appears every sector has just risen with the same annual percentage. However it is within these sectors where the money expenditure has changed. Implementing new legislations and programs, eliminating ineffective ideas and changing the dynamics of how each area is run is where the change in money being spent has taken place. This is a pie chart to represent the budget was spent in 2006: In 2007: In conclusion the amount spent on each sector does reflect the amount to which it is a priority but many other factors must be taken into account when judging that. Some areas such as social protection are such a far larger sector than that of industry, agriculture, employment and training and therefore will ultimately require more money to keep it running smoothly and keep the economic balance. Other areas may be of greater importance and priority such as education, but by spending ridiculous amounts of money on it will be counter-productive and cause many long term problems so despite the fact it is more of a priority, by spending less money on it does not reflect that. By reviewing past years budgets and comparing them with more recent ones it is possible to find where greater amounts of spending has occurred and what sectors are gradually having a greater percentage increase in their spending annually. Another reason why spending doesn’t reflect current government priorities is because although spending may not increase that much, time and effort to reorganise and implement new legislation to improve an area could equally suggest that it is a priority but money would not solve it, just improving the efficiency would. Sometimes spending money on one area will directly affect another positively anyway such as improving education will also improve employment and training. As a general rule the government’s role is to keep inflation low, keep unemployment low, balance in international trade and maintain a flourishing and prospering economy. The government has been investing large amounts of money into training schemes and other projects that have ultimately led to the unemployment rate falling to 5.2% in February 2008. The claimant count was 793,500 in February 2008, down 2,800 over the previous month and down 126,500 over the year. This is the lowest figure since June 1975. The claimant count has now fallen for 17 consecutive months. This shows that the investments into training and education has led to the fall in unemployment which proves my theory that spending in other sectors subsequently helps others. One could just quite plainly say that the government spending does not reflect current government priorities or otherwise if it did then there would be a perfect economy because the money spent would be used to it’s full potential in exactly the right places, doing exactly the right thing; lowering unemployment, improving healthcare, lowering inflation etc. I believe that the difference in the previous budget and the current one describes the extent to which the budget reflects current government priorities better than the looking at the budget itself as the current priorities will determine how much spending will increase in each sector and those with the larger increases (after taking into account inflation) show that they are more of a priority than those with little or no increase. Generally, the government invests the money into areas which is sees to be crucial for the future, so dependent on the priorities, the budget is spent taking into account these and areas of needed development; so if it isn’t spent directly reflecting government priorities, it has taken these into account and spent it most wisely considering areas that need improvement but are not always priorities. 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