Preliminary Budget Report of the United Kingdom - Essay Example

The United Kingdom is one of the most prosperous developed nations in the world. Its people well standard of living with a gross domestic product percapita of 16,772 pounds (Xe, 2008); an adult literacy rate of 99%; and life expectancy of 79 years of age (CultureGrams, 2008). Despite the overall good general state of the nation the country just like any other capitalistic country has many economic problems that come with the complexity the government faces of maintaining such a system. This report analyzes the economic outlook stated by the UK government in its 2007 Pre-Budget Report. The Pre-Budget Report was presented by the Chancellor to the people in order to provide relevant socioeconomic information and projections about the plans the government has on how to improve the lives of the British people residing in the United Kingdom. The main macroeconomic objectives set out in the Budget Report are: achieving macroeconomic stability, investing in the future, a more simplified tax system, improvement to its SR04 efficiency programme, increasing future resources sources, modernizing the tax system along with implementation of reforms to both the inheritance tax & capital gains tax obligations and protecting the environment (Hm-Treasury, 2007) One of the key objectives of the government is to invest in the future. In order to realize this goal it is imperative to plan ahead and forecast future macroeconomic events to prepare a solid plan that takes into consideration mitigating factors (Kotler, 2003). To do so the United Kingdom’s governmental administration studied the current constraints / problems the system or people are facing. One of such issues is the old age dependency ratio and rising consumer expectations of public services; another problem is the exploitation of natural resources and the pollution levels of the country’s production activity which is destroying the climate and further contributing to global warming (Hm-Treasury, 2007). An economic system attempts to achieve paretto efficiency, but equilibrium implies that when one takes away resources to achieve a goal another gets damage in the process. This situation in economic terms is a cost of opportunity which is defined as the cost of passing up the next best choice when making a decision (Investorwords, 2008). The United Kingdom established within its budget report various initiative that will help them overcome common events that do not allow many nations to prosper due to the lack of forward thinking. Some of these strategies include: sustainable growth and prosperity, fairness and opportunities for all, stronger communities and a better standard of life; and a more secure, fair and environmentally sustainable world (Hm-Treasury, 2007). Maintaining macroeconomic stability is an essential component of a sound economic plan, thus within a budgetary process the agent in charge has to ensure revenue streams continue to exist to increase the purchasing power of the nation. All capitalistic structures depend on a tax system in the form of collections from individuals and business entities in order for the government to obtain the funds they need. The budgetary projections of the UK government illustrated in their report follow a methodology based in historical patterns of the nation’s collection during the last five years. The government publicly admitted its systems were outdated and obsolete in many aspects. A tax system is efficient if is able to collect the revenues it set out to collect and if is able to determine the true economic activity within the system. Any undetected economic activity falls in the category of subterranean economy. It is a misconception to think that the subterranean economy is limited to illicit activity such as drug trade or counterfeit merchandise. Any person that generates any type of income such as mowing a lawn and does not report it to the government is as much of a financial delinquent as the kid that stands in the corner to sell drugs. The treasury department of the United Kingdom must invest heavily in technology and qualified human resources in order to improve its ability to collect taxes. New tax initiatives and reforms such as the inheritance tax and capital gains tax are useless unless the root of the problem of insufficient tax collection is targeted in a well planned out systematic manner. The tax system of any country should depend more on the rich than the poor. This implies focusing more on multi-million dollar business entities and rich entrepreneurs than on the measly salary of blue collar workers. To this end the UK demonstrated in its 2007 Pre-Budget Report good initiatives. Some of these initiatives include (1) Implementation of new legislation to gather greater inflows derived from the sale of lease companies, (2) utilization of investment techniques such as hedging currency risk against the tax treatments of loans and derivatives, (3) Extension of the changes made to stamp duty, intermediary relief to shares admitted to trading on multilateral trading facilities, (4) the creation of a new Advance Agreement Unit to provide certainty to businesses of significant inward investment and corporate restructuring,(5) utilization of new advanced technological systems to facilitate the use of Electronic Vehicle Licensing. This move by the facto increases the overall revenue of the nation since the UK has a population of over 60 million inhabitants which means there are millions of cars that must be licensed (Hm-Treasury, 2007). The IS-LM model is utilized by economist to explain how income and interest rate are determined simultaneously in the goods and money markets; these variables within the model may be in equilibrium within the model, but if the labour market is not in equilibrium progress can not be achieved (Kim & Kin, 2003). The consequences of such a model within an economic system such as the economy of the United Kingdom is that it can facilitate the governments macroeconomic analysis to determine the point in which the labour market does not have neither an excess demand or labour shortage nor an excess supply which leads to unemployment shortage. One of the problems with the UK’s labour market is that it is more aligned with the patterns of its western ally, USA, than with the EC it belongs too thus the behavior of the country employment movements are not typical of other European countries (Economist, 2002). That being said the unemployment of the country is one of the lowest of all European countries. The Pre-Budget Report analyzed in this paper is an example of the type of public information that is prepared by the state so that all citizens of the UK or anyone with interest in the economic state of this nation can read and analyzed the work the government of the UK is performing. There are certain inherent weaknesses in the plan, but overall the intentions are good and the government is trying to help out its people. Everyone must get involve to improve the standard of living of the community. For example recycling is a simple task that will improve lives of everyone in this planet. It is also important for the academic community which includes its students to come up with ideas on how to improve the community and contribute to the solution that are needed to help out the people. References CultureGrams (2008). Country Report: United Kingdom. Retrieved May 26, 2008 from CultureGrams database. Economist (2002). The British Economy: Continental Drift. Retrieved May 28, 2008 from Economist database. Hm-Tresury.gov (2007). 2007 Pre-Budget Report and Comprehensive Spending Review. Retrieved May 26, 2008 from http://www.hm-treasury.gov.uk/pbr_csr/report/pbr_csr07_repindex.cfm Investorwords.com (2008). Definition: Cost of Opportunity. Retrieved May 26, 2008 from http://www.investorwords.com/3470/opportunity_cost.html Kim, Y., Kin, L. (2003). Ch.6 Income Determination – The IS-LM & the AD-AS model Retrieved May 28, 2008 from http://subject.skhlkyss.edu.hk/epa/f7ch6.html Kotler, P. (2003). Marketing Management (11th ed.). New Jersey: Prentice Hall. Uregina.ca. Review of IS-LM-AD model. Retrieved May 28, 2008 from http://www.econ.uregina.ca/king/econ302-2000/lectIb.pdf Xe.com (2008). Currency Converter: USD to GDP. Retrieved May 26, 2008 from http://www.xe.com/ucc/convert.cgi Appendix A: Short Run behavior in the IS-LM model (Uregina). Read More