How the Government spent your money last year
UK Government spending exceeded tax revenues by a whopping £120 billion last year. What did they spend it on? And what does that overspend mean for you this year?
The Office for National Statistics has revealed that the UK's budget deficit in the 2012/13 financial year came in at £120.6 billion. As this is just £300 million less than the £120.9 billion shortfall for 2011/12, the Chancellor claims that he is delivering on his 'Plan A' of reducing government overspending.
Then again, what is £300 million when compared to total Government expenses? With spending predicted to be £720 billion in 2012/13, it's a mere 1/2,400th of total spending. To put it another way, this £300 million saved accounts for a little over 3.5 hours of Government spending.
Even £300 million is a tiny drop in a very big ocean!
How the Government taxes you
With figures in millions, billions and trillions being thrown about, it's very hard to get your head around these numbers.
To make things clearer, I'm going to break down the Office for Budget Responsibility's (OBR) forecasts for this financial year into numbers that make sense to individual households. Here we go, starting with predicted tax revenues:
|
Tax |
Revenue (£billion) |
% of total |
Per household |
|
Income tax |
155 |
25.3% |
£5,962 |
|
National Insurance |
107 |
17.5% |
£4,115 |
|
Other taxes |
107 |
17.5% |
£4,115 |
|
Valued Added Tax (VAT) |
103 |
16.8% |
£3,962 |
|
Excise duties |
47 |
7.7% |
£1,808 |
|
Corporation tax |
39 |
6.4% |
£1,500 |
|
Council tax |
27 |
4.4% |
£1,038 |
|
Business rates |
27 |
4.4% |
£1,038 |
|
Total |
612 |
100.0% |
£23,538 |
The first thing to note is that not all of these taxes are personal taxes. Corporation tax and business rates are levied on businesses, so they don't really lend themselves to per-household analysis.
Nevertheless, the total taxes collected by HM Government amount to more than £23,500 a year for each of the UK's 26 million households. Of this total, more than a quarter (25.3%) comes from income tax, which averages out at close to £6,000 per household.
The second biggest tax in Britain is National Insurance, worth over £4,100 per household, or more than a sixth (17.5%) of total taxes. The UK's sales tax, VAT, averages to almost £4,000 per household, again more than a sixth (16.8%) of tax revenues.
Other major personal taxes include excise duties (including taxes on alcohol and tobacco) averaging more than £1,800 per household, and council tax, costing over £1,000 per household.
How your taxes are spent
As we've seen, our Government raises huge sums in taxes in order to run the country. However, its spending vastly exceeds its income, as this spending table shows:
|
Service |
Expense (£billion) |
%of total |
Per household |
|
Social protection |
220 |
30.6% |
£8,462 |
|
Health |
137 |
19.0% |
£5,269 |
|
Education |
97 |
13.5% |
£3,731 |
|
Other |
53 |
7.4% |
£2,038 |
|
Debt servicing |
51 |
7.1% |
£1,962 |
|
Defence |
40 |
5.6% |
£1,538 |
|
Personal social services |
31 |
4.3% |
£1,192 |
|
Public order and safety |
31 |
4.3% |
£1,192 |
|
Housing |
23 |
3.2% |
£885 |
|
Transport |
21 |
2.9% |
£808 |
|
Industry |
16 |
2.2% |
£615 |
|
Total |
720 |
100.0% |
£27,692 |
The first point to note is that Government spending should average nearly £27,700 per household this year. This is over £4,150 a household more than is collected in taxes, which explains why the UK has one of the highest budget deficits in the world. In effect, the Government is borrowing from Britain's future to spend an extra £4,150 per household today.
As for the breakdown of this spending, Britain's biggest bill by far -- accounting for over three-tenths (30.6%) of the total -- is social protection. This includes various types of welfare benefits for people who are out of work or disabled, but more than half of this total goes towards paying State Pensions.
The next biggest bill is healthcare (the National Health Service, general practitioners and so on), which costs nearly £5,300 per household. Education takes third spot, costing over £3,700 per household.
The fifth-biggest bill, at more than £1,500 per household, is interest on the UK's debt pile. Since 2008, our national debt has exploded, more than doubling to £1,186 billion.
Next comes defence, costing each household over £1,500, followed by personal social services (nearly £1,200 a household) and public order and safety (including policing), also costing close to £1,200 a year.
How the Government borrows in your name
With Government spending exceeding taxes by over £4,150 a household, how does HM Treasury fund this spending gap, known as the 'budget deficit'?
The simple answer is the UK borrows from international investors by issuing UK Government bonds known as 'gilts'. In this financial year, the total shortfall is estimated to be £108 billion, almost all of which the Government will borrow by issuing an average of £9 billion of new gilts every month.
All pain and no gain
What you've seen today is that, despite so-called austerity measures, Government spending will exceed taxes by £108 billion this year. In effect, the Treasury will borrow £4,150 in 2013/14 from each household's future -- including yours.
One way to think of this shortfall is for every £5 the Government raises in taxes, it spends nearly £5.90. In effect, this represents an overspend of nearly a fifth (17.6%) for 2013/14. Although higher taxes and restrained public spending will eventually bring down future budget deficits, Britain is highly unlikely to balance its books for at least another five years.
So we can expect another few years of hardship ahead. Only when our economy recovers and growth resumes can we once again look forward to rising living standards.
More on politics and finance:
Government's Help to Buy scheme slammed
Why does George Osborne hate self-employed women?
Can banks take your savings?
FCA: new regulator's powers mean an end to dodgy products
Tax and benefits changes 2013/14
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Comments
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I don't begrudge the 50% of the £220 billion being paid for social care, as it is being claimed by pensioners, the majority of who have paid their way throughout their working life. The other 50% is questionable? After all, Mick Philpott is the supreme example of how an element of our society can abuse the system to the point that makes working for a living a dumb idea (Only Fools and Horses work, as the old saying goes). We also have to consider all the little projects that MPs have created, such as the Super Fire Stations that, to this day, lay idle, costing us millions a year to run. Add all these little projects together and they soon mount up. Also, we have to question government purchasing. Why does a laptop that costs £300 to a consumer cost ten times that to the Civil Service (£3000). Also, why do some Civil Servants need a new laptop every year, or every six months? There is a lot of waste in government, mainly in the area of bureaucracy. For example, how much of that £220 billion gets paid to the actual claimants, and how much is syphoned off because of red tape. If you cut the middle men out, that figure of £220 billion is probably a lot less. Actually, if I was an MP, and wanted to syphon off some cash for myself, I'd use the Social Care budget to hide my activity. Maybe we should ask DellBoy to run the country. After all, all he wants to do is spend a penny more than he earns. Question? Why is it that it doesn't matter what austerity measure are brought in, they always seem to spend more than they earn? If taxation went up to 30% basic rate, duty on fuel went up 20p a litre, and VAT was increases to 25%, they would still spend more than they earned. WHY? (I sometimes think that MPs see being an MP and being the pinnacle of their career, and want to make an impact whatever the cost. They also honestly don't see their dubious actions as fraud, even though claiming porn on expenses obviously is).
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"The UK borrows from international investors by issuing UK Government bonds" Not quite true. The government owes quite a lot to those pension funds that guarantee super pensions to judges, MP's, top doctors, lawyers and so on. The debt quoted includes 375 billions supposedly owed to the Bank of England. I didn't notice in this article given to Pakistan in foreign aid which will double this year... We can't afford to look after our disabled, but can give billions in aid to other countries...
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Quite a few comments on here about the traditional "left" and "right" parties again. The main difference between them, as far as I can see, is that they say different things. Whoever we have in charge, expenditure goes up. Even this week, we have Mr. Osborne saying that the defecit has reduced by 0.3% (hooray) but no reference to the fact that they are still SPENDING an increasing amount each year. We cannot go on like this. Even in feudal times, tithes were 10% and that paid for the wars as well! I know this is a simplified comparison but my point is that government has got to be made to rein in expenditure and let the productive side of the country do its job properly. Government should be setting the policy, protecting us and collecting the taxes. The JOBS should be done by the private sector. That, in turn, will raise revenue income and create efficiencies. The government (whatever colour) has a long history of incompetence in dealing with business matters; there are dozens of examples. It's time to get a government to GOVERN and let the private sector WORK. I know the "left" will disagree with this but it is the only way for the country to get back on its feet. Added to this, as I said above, pensions need to be funded. That alone would have got us out of trouble if the state scheme had been set up properly. r.
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06 May 2013