Conservative economic policy.

So, as the homework was to explain conservative economic policy, I’ll now take a look closer at that. I’ve made a research in internet, have read people’s blogs, and as I understood, I’ll explain...

There are two main parties in Britain, the Labour party and the Conservative party. In the Last elections the winner was a Labour party ,and now they are ruling party, with Gordon Brown as the Prime minister.

I comprehended that the main aims of that policy is to reduce taxation and spend less money on “useless things” , and at the same time increase spending on more useful areas: Conservatives emphasize the importance of increased spending on education and health services and to do that there is a need to reduce spending on unnecessary things such as ID cards, Council tax, advertising and consultancy in central government and unelected regional government since the term opportunity cost applies to government spending.

As we can see from the graph , if we reduce spending on ID cards from X to X1, we will have opportunity to increase spending on health services from Y to Y1. Opportunity cost appears because government budget is limited.

Below is several points on what Conservative party would do with taxes.

1)Freeze council taxes: Council tax is a tax based on the value on ones property, which means that the higher the value of your property/properties the higher tax you have to pay. In other words the more property you have, the more taxes for you. And also according to the Conservatives, this will save each person about 200 pounds a year. They say that “spare money” will come by reducing wasteful spending on advertising and consultancy in central government.

2) They also want to cut taxes for businesses that create new jobs. To make that plan real, they want to spend 2.6 billion pounds and think that it will create 350 000 new jobs the next year which will reduce the unemployment. Unemployment is a situation where people are out of work but are willing and able to work.

3) To reduce corporation tax. Corporation tax is a tax on a firms profit. So, a cut in the corporation tax increases the amount of profit firms can keep.

4) To give a VAT tax holidays for businesses. VAT stands for Value added tax and is a tax that is imposed on the sale on goods and services at different rates. The standard rate is 17.5%. The Conservatives implies that a VAT holiday will prevent many businesses form “hitting the wall”.

5) cut National Insurance by 1% . The national insurance is a tax paid by most people who is working. The money from the national insurance is used to pay for a number of benefits and retirement pension. According to the Conservative party a tax cut for this type will help to help immediately to small firms, who have difficulties with paying their bills. It is also estimated that it will save them up to 600 pounds.

6) raise the Inheritance Tax threshold to £1 million. Stamp duty is a tax levied on documents. Anyone who buy their first home under 250 000 pounds will pay no stamp duty. The Conservative party want to take 200 000 people out of stamp duty a year, which means one million over a parliament. This will save the average first time buyer about 2000 pounds.

Futhermore Conservatives want to save money on:

1)“The cost of social failure. Family breakdown, unemployment, drug and alcohol addiction – these social problems rack up the biggest bills for government, so we’ve got to get them down.

2)“The cost of unreformed public services. Massive top-down state monopolies cost more and deliver less, so we need to improve the running of public services through more choice, competition and non state collective provision.

Also Conservatives were for overvaluing exchange rate in order to make pound stronger against other currencies. Decisions about interest rates have to be in power of Central Bank. Conservatives put more influence on fiscal policy rather than monetary. Conservatives see government intervention as necessary tool to maintain economic growth.