I earn £30,000. I'm angry there was no fuel duty cut in the Budget
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Fiscal policy, Taxes, subsidies and price controls, Wages and income inequality
What happened
The UK Budget did not cut fuel duty, and a person earning £30,000 a year is unhappy about it; the BBC asked people with incomes ranging from £4,062 to £150,000 a year what they thought of this year's Budget.
The economics
A Budget is the central instrument of fiscal policy, through which taxes and spending affect households' disposable income and aggregate demand. Fuel duty is a tax on a particular good, so leaving it unchanged keeps motoring costs the same, which reduces drivers' real income and may dampen consumption. Comparing people across income levels also shows that one tax decision affects different income groups differently.
Figures to quote
- £30,000
- £4,062
- £150,000
Evaluation
Not cutting fuel duty matters little to high-income households but weighs more on lower earners who depend on cars to commute, so the distributional effect deserves discussion; fuel duty is also often used as a corrective tax to discourage carbon emissions, and keeping it high preserves that environmental incentive.
Practice question
Using this example, analyse the effect of the government not cutting fuel duty on households' disposable income and aggregate demand, and evaluate the trade-off between fairness and environmental protection.
Where it fits in the syllabus
- Fiscal policy: The government changes spending and taxation to influence aggregate demand and economic activity.
- Taxes, subsidies and price controls: Indirect taxes, subsidies and maximum or minimum prices that governments use to change market outcomes.
- Wages and income inequality: How labour markets set wages, and how income and wealth are shared across people.
- IB Economics: Fiscal and Monetary Policy, Government Intervention and Market Failure, Aggregate Demand and Supply
- A-Level Economics: Economic Policy, Government Microeconomic Intervention
- AP Macroeconomics: National Income and Price Determination, Long-Run Consequences of Stabilisation Policies
- AP Microeconomics: Supply, Demand and Market Equilibrium, Market Failure and the Role of Government, Factor Markets and Income Distribution
- IGCSE Economics: Government Macroeconomic Policy, Government Intervention, The Allocation of Resources