The government taxes people and businesses and can change taxation rates
1. Income tax taxes individuals on their income
2. Businesses are taxed on profits
3. Businesses also pay business rate tax based on the value of their premises
High tax rates for individuals
Reduce consumers' disposable income, so people tend to spend less-this is bad news for businesses because it's likely to reduce their turnover
Low tax rates
Encourage people to spend, so businesses make bigger profits
High tax rates for businesses
Mean that profits after tax are lower
Business rate tax
The rate is the same all over the country
Because property values are generally higher in the South than in the North, businesses in the South generally end up paying more, which can reduce their competitiveness
There are also indirect taxes on spending, e.g. VAT, and taxes on pollution, tobacco and alcohol
High tax rates
Discourage individuals from spending, and businesses from expanding
Increasing income tax
Reduces spending power, cuts demand and lowers economic activity
Reducing taxes or giving businesses subsidies (financial assistance)