How the government raises money through taxation, how it decides public spending priorities, and how economic decisions affect citizens and public services.

What this dot point is asking

AQA wants you to explain how the government raises money through taxes, how it decides what to spend money on, and how these economic decisions affect citizens and public services. You should be able to give examples of taxes and of public spending, and to handle a simple tax calculation. This Politics and participation topic (Paper 1 Section B) mixes "Explain" questions on types of tax and the Budget with applied questions that ask you to calculate, for example, the VAT on a purchase. The examiner rewards accurate use of the terms direct and indirect tax, an understanding that spending involves choices, and correct, clearly shown calculations.

How the government raises money

A direct tax is paid directly to the government by the person or business on whom it is charged, based on income, profits or wealth: income tax on wages, National Insurance on earnings, and corporation tax on company profits are examples. An indirect tax is collected by a business when a customer buys something and then passed to the government, so the consumer bears it indirectly: VAT on most goods and services, and duties on fuel, alcohol and tobacco, are examples. The distinction matters because direct and indirect taxes affect people differently: income tax can be made to rise with earnings (those who earn more pay a higher rate), while a flat indirect tax such as VAT takes the same proportion of a purchase from everyone regardless of income.

The Budget and public spending

In the Budget the Chancellor announces changes to taxes and the planned spending for public services. Public money is spent on services such as the National Health Service (NHS), education, defence, welfare benefits, the state pension, policing and local services. Many of these are free at the point of use, meaning citizens do not pay directly when they use them (for example NHS treatment), but they are paid for collectively through taxation. If the government spends more than it raises, it borrows to cover the gap, adding to the national debt, which is itself a reason it must weigh spending against income.

Making choices

Because money is limited, the government must decide its priorities: spending more on one service, such as health, may mean spending less on another or raising taxes. These choices reflect the values and promises of the governing party and the pressures of the time, such as an ageing population increasing demand for health and pensions. Different parties prioritise differently, which is part of what voters choose between at an election. AQA expects you to recognise that public finance is fundamentally about trade-offs, not unlimited provision.

How economic decisions affect citizens

Tax and spending decisions shape everyday life: they affect how much money people keep after tax, the quality and availability of schools, hospitals and other services, and the support available to those who are out of work, disabled or retired. A rise in income tax leaves people with less to spend; better-funded services improve everyday life but must be paid for. Citizens can influence these decisions by voting for the party whose tax and spending plans they prefer, and by campaigning on particular issues, for example to protect funding for a local service.