Extract C: The 'National Renewal and Capital Allocation Statement' (NRCAS)
In the UK, the government has launched the 'National Renewal and Capital Allocation Statement' (NRCAS), an interactive online portal designed to show taxpayers how their income tax and National Insurance contributions are directly channelled into long-term capital investments. For an individual on an average salary of £38,000, the statement shows that of their direct tax contributions, £2,100 is allocated to green energy transition infrastructure, £1,600 to transport networks, £1,200 to school and hospital construction, £800 to research and development grants, and £700 to servicing interest on national debt. The Treasury believes that demonstrating this direct link between taxation and national wealth-building will secure public support for sustained public investment.
However, critics warn that the portal oversimplifies the complex nature of public finance. By framing public services as a personal direct transaction, it risks encouraging higher-income earners—who pay a larger share of progressive direct taxes—to lobby for lower direct tax rates, arguing that they do not personally utilise or benefit from these collective capital projects. Furthermore, the portal completely ignores the vital role of indirect taxes, such as VAT and environmental levies, which are highly regressive and place a heavy relative burden on lower-income households who rely most on these public services.
An independent macroeconomic policy institute commented: "The government's focus on linking individual direct taxes to physical infrastructure is politically convenient but economically misleading. If the public demands cuts to progressive direct taxes, the government may be forced to either scale back critical infrastructure projects or fund them through increased borrowing. High national debt levels and rising borrowing costs mean that relying on debt to finance long-term growth could trigger inflationary pressures or crowd out private investment, ultimately undermining the very productivity gains the government hopes to achieve."
Extract C states: "If the public demands cuts to progressive direct taxes, the government may be forced to either scale back critical infrastructure projects or fund them through increased borrowing."
Using the data and your knowledge of economics, to what extent do you agree that a major expansion of government capital expenditure on infrastructure, funded by an increase in progressive direct taxes, would boost long-term productivity and living standards in the UK? Justify your answer.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.