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Discuss the key problems with financing the statutory social services through the various forms of taxation.

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Introduction

Got 59% Discuss the key problems with financing the statutory social services through the various forms of taxation. In this essay primarily I will discuss the various forms of taxation used by the government today, secondly I will conclude with the main problems the government face in relation to financing the statutory social services. Presently the largest source of income for financing the social services is from three sources, the first is from taxes (including rates) which accounts for 70%, secondly from social insurance or national insurance contributions which is 20% and thirdly from fees and charges making up 10%. There are quite a few differing forms of tax; the first I will discuss is direct and indirect taxation. Direct taxation is effectively taxes on income or wealth of households, local or central government can charge these and indirect taxes are taxes on use of income (Le Grand, Proper and Robinson p.207) Indirect taxation tends to be regressive; for example the percentage of income paid in indirect taxes falls as income rises. Regressive taxation takes a higher proportion of the income with those on a lower income than those with a higher income. ...read more.

Middle

National Insurance Contributions is tax paid in relation to a wage by an employee and is also paid by an employer. This is the most vital form of finance for the social services in many countries and has been used to fund social security and also health and social care. (Le Grand, Propper & Robinson). National Insurance paid by employees is said to be close to the amount of household income before tax paid by people in the lower income bracket. Households with the top income in the UK pay nearly 25% of their income in tax, in effect to try to reduce the inequality of gross incomes. While households in the bottom lower income bracket pay 7.5 % of their gross income but 8.2 % when including National Insurance, those in the top wage bracket pay 43% and 41 % respectively. Most public services today carry a 'fee' such as for use of swimming pools and leisure services, more often it is a 'charge' that is used, this may be minimal and is basically a small amount or donation a fraction of the total cost. ...read more.

Conclusion

Raising taxes is said to cause a disincentive to work. The new Labour government had pledged a distributive tax system and promised not to increase taxes (Harolambos &Holborn), but I feel that I must point out that the present Labour Government has 3 gone back on its word and is putting up tax, The Chancellor Gordon Brown described it as 'a duty' and "More than that, taxes will rise not out of compulsion, not because they've dashed the economy on the rocks". (www.observer). Taxes rise in the belief that this will produce increases in public goods which Labour had promised but has not delivered. Tony Blair and Gordon Brown had promised that we could enjoy better public services and lower levels of tax, now they contradict themselves with the fact that serious spending requires serious tax, even if they still prefer to call it money for modernisation. In the most recent Budget we can see that the amount the Chancellor is proposing to repay in debt declines sharply in 2005, which, consequently happens to be the most likely year of the next election. It would not be surprising if there were cuts in taxes just before the Government attempts to get re-elected for a third term. ...read more.

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