Here's how the government spends our taxes
With the national insurance cut was at the heart of Jeremy Hunt's budget - Yahoo News takes a look at what our taxes actually get spent on
Jeremy Hunt’s national insurance cut was the centrepiece of his spring budget this week.
The chancellor’s pre-election giveaway, which takes effect next month, will be worth an average of £450 for workers and £350 for the self-employed.
However, living standards remain squeezed and millions of people face being dragged into higher tax bands - something Labour was keen to point out in the aftermath of the budget. Ahead of this year’s general election, it’s clear tax is going to be a key battleground issue between the two main parties.
But where does the government actually spend the money it takes from us in tax? Here, Yahoo News UK breaks down how the Treasury slices up each pound from our earnings.
How does the government spend our taxes?
First of all, it should be pointed out that the following breakdowns are based on government figures which were last updated in January: prior to this week's budget. However, they still give a good indication of where taxpayers' money goes.
This first chart shows how much is spent comparatively on different sectors.
So, almost half of our taxes - 40% - is spent on health (20%) and welfare (20%) alone. When we consider some of the numbers and factors behind these key sectors, we can gain an understanding of why so much is spent on them.
For example, under health spending, the NHS has a gigantic workforce of around 1.7 million people: making it one of the biggest employers in the world - and the biggest in Europe. Around two-thirds of its budget goes on headcount.
Funding of the NHS is broadly split into two areas - day-to-day running costs (which accounts for the vast majority of spending) and infrastructure. The health service sees around 1.3 million patients every day.
And it's not going to get any smaller - acccording to the NHS Long Term Workforce Plan, the projected demand for staff by 2036/37, will be in the region of 2.3-2.4 million people.
Welfare, meanwhile, is defined by the government as "social protection". This includes spending on numerous areas such as unemployment benefits, tax credits, public sector pensions... as well as benefits or support covering categories such as old age, sickness and disability, housing, children and families.
Universal credit is expected to account for 27 per cent of total welfare spending in 2023-24.
A further 40% is spent on national debt interest (12%), state pensions (10%), education (10%) and business and industry (8%).
Of those, it is perhaps worth pointing out that general government gross debt was £2,636.9 bn at the end June 2023, according to the Office for National Statistics, equivalent to 101.2% of gross domestic product (GDP). That's up from 85% of GDP at the end of March 2020.
This second chart, meanwhile, shows the total amounts spent on the same areas as above.
We are paying more tax than ever
Hunt said on Wednesday that his latest budget package would cut personal taxes to their lowest level for almost 50 years.
However, the Office for Budget Responsibility said the tax burden is still set to rise to its highest level since 1948, amid forecasts (see chart, below) this will represent 37.1% of GDP within the next five years.
Shadow chancellor Rachel Reeves said this week that Labour backed Hunt’s move to cut national insurance, but added: “These measures come in the context of a rising tax burden, the highest it has been in 70 years, and the tax burden is rising in each and every year of the forecast period.
“Under this government’s plans, for every £10 they are taking from families in higher tax they are only giving £5 back. They’re giving with one hand and taking twice as much with the other - and they expect people to be grateful.”
However, with Labour way ahead in the polls, the government has challenged Reeves to say whether she will fund Labour's plans to invest in public services through borrowing and further tax rises.
Reeves has not answered this, only saying they will be set out "in an orderly and a responsible way".
Read more
Am I eligible for new cost of living payment? (Yahoo News UK)
Budget key points: What did Jeremy Hunt announce? (Evening Standard)
Jeremy Hunt admits National Insurance won’t be scrapped ‘any time soon’ (City A.M.)
