How does the government raise and spend money?
How the government raises money through taxation, the main types of tax, how the Budget and public spending work, where public money is spent, and the debates over how much should be taxed and spent.
A focused answer for OCR GCSE Citizenship Studies on taxation and public spending: how the government raises money through tax, the main types of tax, how the Budget and public spending work, where public money goes, and the debates over the level of tax and spending.
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What this dot point is asking
OCR wants you to explain how the government raises money through taxation, the main types of tax, how the Budget and public spending work, where the money goes, and the debates over how much should be taxed and spent. This Section 2 topic links to the economy and to personal finance in Section 3, and is examined through knowledge questions on taxes and spending and through "Explain" and "Evaluate" questions on tax and spending choices.
How the government raises money: taxation
Taxes can be direct (taken from income, such as income tax) or indirect (added to what you buy, such as VAT). Some taxes are progressive (higher earners pay a larger share), which OCR may ask you to discuss in terms of fairness.
The Budget and public spending
The debate over tax and spending
There is a continuing political debate over how much the government should tax and spend. Higher taxes can fund better public services and support for those in need, but leave people and businesses with less of their own money and can affect the economy. Lower taxes leave more money in people's pockets but mean less for services. Different parties take different positions, which is why tax and spending are central election issues. OCR rewards showing you understand this trade-off and can argue both sides before reaching a judgement.
Try this
Q1. Name the tax charged on the money people earn. [Knowledge recall]
- Cue. Income tax.
Q2. Explain why the government collects taxes. [Short explanation]
- Cue. To pay for public services and support such as the NHS, schools, the police, defence, pensions and benefits, which could not be funded otherwise.
Exam-style practice questions
Practice questions written in the style of OCR exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
OCR J270 20192 marksIdentify two ways the government raises money.Show worked answer →
A short knowledge question (2 marks, 1 mark each). Reward two correct taxes or sources.
Acceptable answers: income tax (a tax on earnings), National Insurance, Value Added Tax (VAT, a tax on most goods and services), council tax (local), business rates, and duties on items such as fuel, alcohol and tobacco. Borrowing is also a way the government raises money to spend.
Top marks. Two distinct sources named correctly. "Taxes" on its own is too vague for both marks; name specific taxes.
OCR J270 20218 marksExplain why the government needs to raise money through taxation.Show worked answer →
An extended "Explain" question (8 marks, AO1 and AO2). Reward developed reasons, each with examples of spending.
Reason one (public services). Taxes pay for services everyone relies on, such as the NHS, schools, the police and the armed forces, which could not be funded otherwise.
Reason two (welfare and support). Tax funds the welfare state, including pensions and benefits, supporting people who are retired, unemployed, disabled or on low incomes.
Reason three (infrastructure and the running of the country). Tax pays for roads, public transport, the justice system and the running of government itself, which keep the country working.
Top band. Three developed reasons linked to real areas of spending, with a judgement on the most important (often health and welfare, the largest areas of spending).
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Sources & how we know this
- OCR GCSE (9-1) Citizenship Studies J270 specification — OCR (2016)
- Income Tax rates and Personal Allowances — UK Government (GOV.UK) (2023)