Types of Government Expenditure:

1. Current Spending: This category of government expenditure involves the allocation of funds to maintain and support ongoing public services, such as paying the wages of NHS employees, funding public education, and maintaining public infrastructure like roads.
2. Capital Spending: Capital spending pertains to the allocation of resources for the development of new infrastructure and investments in various projects. Examples include building new bridges across the UK, conducting research and development (R&D) activities in industries, and constructing public facilities.
3. Welfare Spending: This type of expenditure is directed toward social welfare programs and transfer payments. Examples include providing public pensions, welfare payments like universal credit, and other forms of financial assistance to individuals or families in need.

Direct and Indirect Taxes:

Taxes can be categorized as either direct or indirect:

• Direct Taxes: These are taxes levied directly on individuals and corporations. Examples include income tax, corporation tax, and stamp duty. They are paid by the taxpayer directly to the government.
• Indirect Taxes: Indirect taxes are imposed on goods and services and are ultimately passed on to consumers in the form of higher prices. The amount of tax passed on can vary and is determined by the businesses that collect the tax. Examples include Value Added Tax (VAT), excise duty, and the climate change levy.

Types of Indirect Taxes:

Indirect taxes can be further classified into two main categories:

1. Ad Valorem Tax: These taxes are calculated as a percentage of the price of the goods or services. VAT, set at a rate of 20%, is an example of an ad valorem tax.
2. Specific Tax: Specific taxes are fixed amounts imposed on particular goods or services, regardless of their price. For instance, a specific tax might be set at £1.25 per liter of petrol.

Progressive, Regressive, and Proportional Taxes:

Taxes can be categorized based on their impact on individuals' incomes:

• Progressive Taxes: Progressive taxes are designed to take a larger share of income as one's earnings increase. In the UK, income tax follows a progressive structure, with higher-income individuals paying a larger proportion of their income in taxes.
• Proportional Taxes: Proportional taxes, also known as flat taxes, apply a consistent tax rate to all income levels, resulting in taxpayers paying the same proportion of their income in taxes. National Insurance Contributions (NICs) are an example of proportional taxes.
• Regressive Taxes: Regressive taxes are structured in a way that takes a larger portion of income from individuals with lower incomes. An example is excise duties, which are fixed taxes on specific products and have a regressive impact.

Canons of Taxation:

In Adam Smith's publication "The Wealth of Nations" (1776), he outlined several principles or canons that should guide taxation policies: