Analysis the cost of running the UK economy in the fiscal year 2003/2004, and also try to analysis the various funding mechanisms that the British government implements.

Introduction:

Every developed country has a degree of State Control in economy. United Kingdom is one of the developed countries. The Government's goal is to deliver high and stable levels of growth and employment, with opportunity and rising living standards for all.

In this assignment, I am going to analysis the cost of running the UK economy in the fiscal year 2003/2004, and also I will try to analysis the various funding mechanisms that the British government implements.

The UK economy background

1.GDP

Gross Domestic Product (GDP) is a measure of the total domestic economic activity. It is the sum of all incomes earned by the production of goods and services on UK economic territory, wherever the earner of the income may reside. GDP is equivalent to the value added to the economy by this activity. Value added can be defined as income less intermediate costs. Therefore growth in GDP reflects both growths in the economy and price changes (inflation).

UK growth of GDP from 1998-2003.

From this chart, we can obviously see that the UK economy keeps stable slowly levels of growth from 1998 to 2003.

2 National income

National income is the sum of the incomes that all individuals in the economy earned in the forms of wages, interest, rents, and profits. It excludes government transfer payments and is calculated before any deductions are taken for income taxes.

The measures of national income and national product that are used in Britain derive from an accounting system called the national income accounts. These accounts have a logical structure, based on the simple yet important idea that whenever national output is produced, it generates an equivalent amount of national income. ( Beekie.W.D, Allen.D.C and Crook.J.N, 1998, pp364).

Taxation

The UK tax system could theoretically have an income base or an expenditure base. The main difference between the two is in the treatment of saving. As income can be used to finance consumption and saving, both are taxed in an income-based system. Under an expenditure-based system tax is only levied on expenditure on final consumption, and saving is therefore exempt. In an invested to yield future income saving are made from taxed income, and are then invested to yield future income in the form of dividends, interest and capital gain, which are liable for more tax. The implication is that savings (or deferred consumption) are taxed twice under an income-based system and once under an expenditure-based system. One of the main aim of the Meade Committee’s proposals was the removal of distortions and the encouragement of saving, for at the moment we do not have a purely income-and expenditure-based tax (as well as VAT, a direct tax on expenditure). ( Henry .J, 1996, pp210)

4 Labor markets

In 2003, the number of employment is 28.15 million. Proportion of employment is 74.6% in the British population. And number of unemployment is 1.48 million. There is 5% people unemployment in the British population. So, this level is better than other developed country. British industry and manufacturing are going down in last 5 years. There is 16% employee lost job in manufacturing from 1999-2003. But, British services industries keep stable growth. That means is give people more workplaces.

Inflation

Because war in Iraq. The petroleum price is going up, and realty keeps highly price, British inflation preponderate over 2.5% that is the central bank prescribe. The highest was 3% in first quarter 2003.

The cost of running the UK economy in the fiscal year in 2003/2004.

National income.

National income refers to the sum of all the incomes obtained from the production of goods and services in a country throughout the year. It can be measured in three ways. In addition, to the sum of the income of the country (the “incomes approach”). It can also be derived by adding the value of the output of the goods and services produced by the country (the “output approach”), or by adding the total expenditure on goods and services within the economy (the “expenditure approach”). (Brian. A and Robin. M, 1998, pp331) .So,

National Income = National Expenditure = National Output.

There are three main ways in national income; there are savings, taxes and imports. And also withdrawals and injections into the circular flow of income.

In the UK, public spending includes money spend by central government, local authorities and public corporations. The main source of UK central government incomes is taxation. Taxation is sometimes said to be progressive if it bears more heavily on the rich than on the poor. As we shall see, income tax in the UK is usually thought to be progressive, although this partly depends ...