To what extent does the government budget/statement reflect current government priorities?

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How far does the budget reflect current government priorities?

“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 the 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 , this theory basically states that governments can influence  productivity levels by increasing or decreasing  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.

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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 ...

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