Use Of Taxation And Its Effects On Income

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Another policy that Thatcher implemented was the use of taxation, she preferred to use indirect taxes rather than taxes on income and she also used VAT. Thatcher’s ultimate goal by doing this policy was to increase GDP, increase employment and keep inflation at bay. The use of taxation had some good effects and some bad effects. In many ways the tax policy introduced led to a use of policy mix and also promised far too much which is why it all went wrong.

The policy included decreasing income tax and corporation tax but increasing indirect tax and VAT. She reduced the income tax rate for the wealthy from ‘83 percent to 60 percent and the common rate was cut from 33 percent to 30 percent’ (Fsmitha.com. 2015). Due to this policy
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2013), so in fact prices were higher than before, this increase in VAT is said to hit the poor harder. This was said to be done to pay the loan that the Britain had from the International Monetary Fund and to also create budget balance. Inflation, went from above 15 percent in 1980 to

3 percent in 1986 as shown in figure 3. As you can see along with the decrease in the interest rate, GDP was slowly rising in the economy as people were spending more of their income as their GDP per capita was increasing shown in figure 4 and people saw their income and wages become larger. This led to Britain’s goods/services and economy becoming more competitive and showing signs of recovery. The tax policy was proving to be quite a success as it gave the economy much needed revenue, ‘throughout the 1980s revenue from the 90% tax on North Sea oil extraction was used as a short-term funding source to balance the economy and pay the costs of reform’ (Wikipedia, 2015), this was helping the deficit and also allowing for governments to spend some money on welfare benefits for the unemployed. This revenue was never seen to have been acclaimed.
‘The fiscal and monetary squeeze, combined with increased revenues from the North Sea oil led to an appreciation in the exchange rate’ (Hoskins, M. 2015), for
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