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I am interested in what current taxes being paid are paying for - i.e. "where" they go temporally. So for example, if someone currently working has their taxes going towards the current pension.

So, my question is: how long does it take for your money to be actually paying for something?

What I am getting at is essentially, is everything instant (i.e. your money goes in and comes out for current outgoings like welfare etc.) or does it suffer some kind of delay?

I am from the UK, so am particularly interested in how it works here, but any comments on how it works in countries wit similar civil arrangements would also be appreciated.

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The United Kingdom has a Pay-as-you-Earn (PAYE) system. In most other countries, this is called Pay-as-you-Go, and in the USA it is called withholding. Income is withheld from employee's paychecks, and is transfered to the government by the employers on a regular basis on their employee's behalf.

Different countries have different guidelines that determine how often taxes are paid. In the UK, it is a function of the average monthly check to Her Majesty's Revenue & Customs (HMRC) that would be sent by the employer. If it is low enough, they only have to pay the taxes quarterly (in the USA, businesses file taxes quarterly).

The UK, just as in the USA, uses taxes it collects to pay for current expenses. Any delay would be a function of when your employer electronically transfered your monthly/quarterly PAYE income withholding, or when a particular government expense needed to be paid. With few exceptions, taxes are placed in the general fund to be spent on whatever the government desires. For more information about how your government spends your money, see this graphic.

Department/ organisation 2010/11, £bn 2011/12, £bn % change including inflation

TOTAL SPENDING 689.63 694.89 -1.58

Department for Work and Pensions (DWP) 160.08 166.98 1.88

Department of Health (DH) [See note] 105.45 106.66 -1.2

Department for Education 58.28 56.27 -5.7

Debt interest payments 43.30 48.20 8.73

HM Revenue and Customs (HMRC) 45.78 46.59 -0.61

Ministry of Defence (MoD) 38.12 37.25 -4.55

DEVOLVED SPENDING SCOTLAND 34.53 33.52 -5.18

Communities and Local Government (CLG) 37.60

[...]

  • Thank you for the information, that is very helpful. When you say that "when a particular government expense needed to be paid", does that just mean that it will be saved if there is something the government is saving up for? – AAM Dec 10 '13 at 19:17
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    @AAM - Governments have bills to pay that come due at various times. They also have income that comes in at various times. They don't typically "save up" for anything, but they do put the income into accounts, typically at a central bank (Federal Reserve for the US; Bank of England for the UK), from which bills are paid. They issue bonds when bills must be paid before revenue comes in, or when they deliberately run a budget deficit. The former case is like a small business line of credit that smooths cash flow. The latter is a different discussion on economic policy. – Rick Goldstein Dec 10 '13 at 22:47

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