UK Government Spending
UK Government Spending

UK Government Spending

Recently I heard that the UK government spends 45% of GDP. This seems crazy because GDP is the Gross Domestic Product – the total monetary value of all final goods and services in the country. 45% of that comes from Government. Seriously?

Here’s whatI found on IFS (https://ifs.org.uk/taxlab/taxlab-key-questions/what-does-government-spend-money)

The government spends huge amounts of money each year on our behalf. In 2022–23, UK government spending was almost £1,200 billion, or around £17,000 per person. This was equivalent to around 45% of GDP. Apart from the first year of the COVID-19 pandemic, when government spending reached a high of 53% of GDP, this is the highest level of spending as a share of GDP for the last 40 years, and is above the post-war average (of around 40%).

Should it be this high? I don’t think so.

Regardless, it will always be a huge amount (defence, education, welfare…) and we need to be able to pay for it. When they refer to the deficit, this is the difference between what the government brings in (taxes) and how much it spends. It must be funded by debt (borrowing) and the bigger the debt, the bigger the interest payments. Then the government needs to increase taxes, just to keep up with the spiralling cost of debt.

Here’s another tidbit for you. Ever listened to the song Taxman by The Beatles? I was surprised to find out that the lyrics are based on the reality of the time. Not, as I thought, an exaggeration to highlight the tax taken by the government.

"One for you, nineteen for me"

1/20 =0.05 = 5%

Turns out that in 1965–66 tax year there was a super tax for the wealthiest people that was at 95%(!). Which, when you consider that the rates for income tax today are:

BandTaxable incomeTax rate
Personal AllowanceUp to £12,5700%
Basic rate£12,571 to £50,27020%
Higher rate£50,271 to £125,14040%
Additional rateover £125,14045%

Less than half the tax rate for the highest earners! Though this was reduced back to 50% as the government was worried about stagnation in the economy.

The Beatles received an MBE shortly after, presumed to be thanks to their tax paying. Personally, I think that if you earn a lot of money you should pay, progressively, more tax. If you’re a British passport holder then you should pay tax on your income in the UK and your income abroad – even if you live abroad, if you want to keep your British passport. None of this non-dom nonsense.

It should also be noted that income tax is charged within the bands. For instance, if you have £150,000 in income (lucky you, well done!) then you still get £12,570 tax-free, then the portion you earn between £12571 to £50,270 is charge at 20% and so on. So your income, at the levels of those people, is no more than theirs.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.