Budget 2018: How does the government collect and spend our money?

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The government raises and spends just under £800bn a year.

Such a big number is hard to picture, but for that money you could buy Tesco 40 times over, or Manchester United 200 times.

It is the job of the chancellor of the exchequer to oversee the collection and distribution of those funds.

Philip Hammond will lay out his plans on Monday, 29 October when he presents the Budget for the financial year which starts in April 2019.

His biggest money earner is income tax, but its importance has drifted lower in recent years. That is partly because the government has raised the threshold at which the basic rate, and the higher rate, is paid.

The trend is also a result of a change in the way people work. The rise of self-employment has curtailed tax returns as those workers often pay less income tax.

The same applies to National Insurance, although that stream of income was boosted in 2016 when rebates on National Insurance payments were ended.

Over the years VAT has become a more important supply of tax. Back in 2011 the standard rate was raised from 17.5% to 20%. VAT returns are also closely tied to the health of the economy and consumer spending, so the economic recovery since the financial crisis has raised the amount of VAT collected.

How is it spent?

As for outgoings, social spending is by far the biggest outlay for the government, accounting for more than a quarter of all spending.

It includes spending on state pensions, which has taken a rising share of government spending since 2008. But the other big element, benefits payments, has accounted for less of overall spending since 2013, according to the Institute for Fiscal Studies.

With an 18.5% share of the government budget, health is the next biggest government outlay. That share has been increasing for decades, a trend which is likely to continue as the population ages and better, but potentially more expensive, treatments and medicines enter the market.

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Education is the third biggest area of spending, with an 11.1% share – down from 13% in 2007. But that figure is skewed by the move away from student grants to loans, which are not counted as spending.

The figures for income and spending will also look a little different in Scotland, Wales and Northern Ireland. Since 1999, devolved administrations have been responsible for spending on certain policy areas, including education and local government.

Each administration receives funds from the UK Treasury, using a mechanism called the Barnett formula.

In addition, Scotland and Wales also control stamp duty and landfill tax returns and Scotland has control over other taxation areas. You can find out more here.

The Scottish government is to set out its draft budget on 12 December.

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