Taxation and Government Spending

Who pays for the country?

Roads, schools, hospitals, benefits, defence - the government pays for all of it. But where does the money come from, and who decides how it is spent? The answer is taxation and government spending, overseen by the Chancellor of the Exchequer. And behind the figures sits a genuine political debate: how much should the state provide, and how much should be left to individuals? This module covers all three.

The money words

Five terms carry this topic. Learn them before the checks lean on them.

Two kinds of tax

Taxes split into two families. The difference is simple: is the tax on what you earn or own, or on what you spend?

Direct or indirect?

VAT is added to the price of most goods and services you buy. What kind of tax is it?

• An indirect tax, because it is charged on spending
• A direct tax, because it is charged on income
• Not a tax at all, just a shop's price
• A local council charge only

What is each tax charged on?

Spot the direct taxes

Select the THREE taxes that are DIRECT taxes, charged on income or wealth.

• Income Tax
• National Insurance
• Corporation Tax on company profits
• VAT
• Fuel duty

The Chancellor's job

The Chancellor of the Exchequer is the senior minister in charge of the country's money. Once a year the Chancellor sets out the Budget, which has to balance two sides: Income - mostly from taxes - against expenditure, the spending on public services. The Chancellor also manages the national debt and the economic risks, and decides how to allocate funding between departments such as health, education and defence.

Whose job is it?

Who is responsible for setting the government's Budget and managing the nation's finances?

• The Chancellor of the Exchequer
• The Speaker of the House of Commons
• The monarch
• Black Rod

Where the money goes

Tax money pays for the public services most people use. The biggest areas are health (the NHS), education (state schools), welfare (benefits for people on low incomes or out of work), pensions for retired people, plus social care, defence, transport and more. Here is where the debate begins: should the government raise more tax and provide more, or tax less and let individuals and the private sector provide? People disagree - and a strong answer can argue both sides.

Match each service to what it provides

Two sides of the debate

The tax-and-spending debate has two genuine sides. Choose the strongest point each time.

• Someone argues for HIGHER taxes and more government spending. Which is their strongest point?
• Someone argues for LOWER taxes and less state provision. Which is their strongest point?
• You are asked to evaluate the debate in an exam. What makes a top-band answer?

From tax to service

Put the journey of public money into order, from raising it to checking it.

• The government sets the tax rates
• Citizens and businesses pay their taxes
• The Chancellor allocates the money in the Budget
• Government departments spend it on public services
• Parliament scrutinises how the money was spent

Direct and indirect tax

A tax paid straight to the government on income is a _____ tax, while a tax added to the price of goods you buy, like VAT, is an _____ tax. The _____ of the Exchequer sets the yearly _____ that balances income against spending. Much of that spending goes on public services such as the _____, and how much the state should provide is a genuine political debate.

Should taxes rise?

"The government should raise taxes to spend more on public services." Evaluate this statement, giving arguments for and against, and reach a supported judgement.

• Explain how the government raises money through direct and indirect taxes
• Give at least one argument FOR higher taxes and more public spending
• Give at least one argument AGAINST, such as people keeping more of their own money
• Reach a balanced, supported judgement rather than a one-sided list