Fiscal and Monetary Policy

Topics: Tax, Taxation, Taxation in the United Kingdom Pages: 12 (3450 words) Published: November 9, 2012

As an assistant manager for Skanska I have been asked by my manager to explain how fiscal and monetary policy decisions affect the business in which I work. To undertake this task I will provide explanation of the fiscal and monetary policies. I will also explain what interest rate is and what could be possible changes on it. Additionally, I will explain how both policies could make changes in employment level. Fiscal policy

Economic climate is essential to be controlled within every single county because this helps control important activities within the particular country. All countries where economy is developed created and follow polices which ensure that money spent by government are used in an appropriate way. Those policies are known as fiscal and monetary policies.

Fiscal Policy

Fiscal policy could be defined as a legislation which was introduced by government to control the economy. The fiscal policy control and affects public taxation, public expenditure and borrowing money. Fiscal policy includes direct and indirect taxation, public finances, public sector borrowing, pre-budget report and redistribution of income. The purpose of fiscal policy is to monitor, control and support economy as a whole.



Taxation could be defines as a collection of money by government from their citizens and corporation businesses to found operational expenditure of the country. Changes in taxation would have a large influence on economy because amount of obtained money could be spent for different purposes or needs of the country. Taxation could be divided into two main types which are direct and indirect taxation.

(Ref. Book: Business level 3, Book Publisher: Edexcel Page: 300 Author John Bevan)

Direct Taxation

This particular type of taxes is paid by population and businesses on their income and profit. If the amount of income is higher than the higher will be direct tax which will have to be paid. Direct taxes could be collected by government in form of income tax, corporation tax, council tax, working tax, road tax, capital gains tax, inheritance tax, stamp duty, national insurance (NI).

(Ref. Class notes- Direct and Indirect taxation Lecturer- Brenda Horan Date- 06/02/2012)

• Income TaxIncome Tax rates 2011-12 by tax band and type of income

Income tax is a main financial source for government to found activities of the country and public services. This is pay by anyone within the country who has an income. It is protected by legislation that organisations and individuals have to proof how much income was generated for each year. Income tax could be calculated in three ways which is 20, 40 and 50 percent. Additionally, there is a possibility of personal allowance which means that some people income is not taxable as they do not earned enough to pay income tax. This tax year the basic personal allowance or tax-free amount is £7,475. Furthermore, some people may be entitled to a higher Personal Allowance if they have reached the age of 65 or over.


• National Insurance Contributions

This is another form of tax which is based on income. National Insurance contribution also known as NI is paid by employees and employers to the government. NI is dependable on the amount of money which is earned by each party and whether people are employed or self-employed. Through National Insurance contributions employees are building up to entitlement for different social benefits if they have to. Additionally, NI building up a form of state pensions when employees would be retired. There is one restriction where people do not have to pay NI and this is when they reach retirement age.


• Corporation Tax

Corporation tax is a form of tax which is based on taxable...
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