Revision Session 4 The Government & the economy

What is taxation?

We pay Direct & Indirect Tax Can you give an example of a direct tax? Can you give an example of an indirect tax?

Direct Tax- Tax which is charged directly out of an individual’s income. Income tax and National Insurance are the most important kinds of direct taxation for the government. Direct tax is payable on whatever a person earns, either from their salary, interest on savings, rental on properties they rent out etc. The government takes a percentage and what that percentage is is based upon a persons total earnings. Indirect Tax- Tax which is charged on the things we buy. Indirect taxes are usually set at a fixed rate eg Value Added Tax 20%. You only pay indirect taxes if you use the services or buy the goods they are charged on. For example you would not pay Road Tax if you did not own a car. Corporation Tax- Businesses pay corporation tax which is tax on their profits. Any rise in the rate of this tax could mean businesses have less money to invest

Taxation The government raises money to pay for public services such as the NHS through tax. Each year the government estimates how much it will need to spend and informs the House of Commons of its plans, the HofC has to give it’s approval of the spending plans before any money is spent. When it does begin spending, the Public Accounts Committee is there to make sure tax payers money is spent correctly. This is another way in which Parliament scrutinises Government.

How does the government help manage the economy? Economy means everything to do with money, business, creation of wealth etc in a country. If an economy is “booming” what does this mean? What is it easy to do in a booming economy? People have jobs Businesses are doing well People spend money on things they want BORROW MONEY! Because…. Banks are confident people can pay back loans… People use money to buy more goods… so more jobs are needed to make those goods….more people earn money

When the economy stops booming & declines…. People lose their jobs They can’t pay back their loans Banks may suffer & may even go out of business…. People spend less & save more in case they lose their jobs… As people don’t spend, demand for products falls… Businesses fail and people lose their jobs THE ECONOMY IS NOW IN RECESSION

How does the government help to manage the economy? When business is doing well… Government might increase taxes so it can afford to build schools, hospitals, roads. It also does not want the economy to grow too fast or lending might increase and prices rise rapidly When business is doing badly… Governments might support them by giving them loans so they invest in new products & equipment. Government might lower taxes so people have more money to spend on goods & services…, higher demand means business employ more workers

ADJUSTING THE ECONOMY Governments try to adjust what is happening to the economy in their country by making changes to taxes, interest rates, pensions, banking activity…. TAXES Cut VAT by 2.5% people have more money to spend INTEREST RATES Increased by 1% Loans more expensive. Sales of houses & cars fall PENSIONS Extra £60 per year for pensioners. Food & energy sales increase BANKS Government makes sure banks have more money to lend. Business activity increases

The economy is split into two sectors THE PUBLIC SECTOR The public sector includes services like the army, the police force, hospitals, most schools PUBLIC means they are owned by the government and paid for out of TAXES for the BENEFIT and SERVICE of EVERYONE THE PRIVATE SECTOR The private sector contains all the businesses owned by private individuals PRIVATE means that these businesses are funded PRIVATELY and are run for the BENEFIT of the PEOPLE WHO OWN THEM AND THEIR CUSTOMERS & EMPLOYEES

What are public services & what public services do the government & local authorities (councils) provide? Public services need a lot of money to pay for buildings & staff & the government mainly uses taxes to pay for them eg hospitals. Public services are usually free when we use them- for example we do not have to pay directly for hospital treatment when we need it. Can you work out who provides each of these services CENTRAL GOVERNMENT or LOCAL AUTHORITY (council)

Central government or local authority? Armed Forces Recycling Parks & open spaces Building new roads & railways Social services (care homes, childrens services) Prison Service Health Service Central Local Central Local Central

BUT businesses are now helping to run public services on behalf of the government For example………. Bill is a street cleaner but he is not employed by the East Hampshire council. He works for a private company called SERCO. SERCO is contracted by East Hampshire council to clean the streets. SERCO won the contract by bidding to provide this public service. The local authority still use taxes to pay for it but they pay SERCO now rather than employing their own street cleaners and the equipment they would need. Such arrangements are called PUBLIC-PRIVATE PARTNERSHIPs (PPPs)

All major political parties approve of PPPs to some extent. Successful partnerships provide good services at a competitive price & make a profit for businesses involved Advantages of direct Government (state) provision Everyone receives equal service People receive a service based on their needs rather than ability to pay As most people are receiving the same service, standards may be higher Elected politicians maintain close supervision & control of the service Rates of pay & conditions of service for workers are identical across the country People can choose the service they want & pay for it People are encouraged to look ahead & anticipate their needs Business involvement brings in new ideas & drives up standards as companies compete with each other for customers Companies lose business if they provide a poor service so encourages good service provision Elected politicians can focus on checking service standards & getting good value for the taxpayer. Advantages of private (business) provision

Should there be more private provision of public services? During the last Labour government , the Labour party encouraged more private provision in education by encouraging businesses, charities, churches to support state education through the Academy Programme. Academy schools are state funded schools directly funded by central government and independent of direct control by the local authority. Academies are self-governing and all are constituted as non-profit charitable trusts. They may receive additional support from personal or corporate sponsors. They must meet the same National Curriculum core subject requirements as other state schools and are subject to inspection by Ofsted.state funded schools local authoritynon-profitcharitable trustsNational CurriculumOfsted

The Conservative coalition government , went further than this by encouraging groups of parents & teachers to start new Free Schools & run them. The idea behind this was to give parents more choice & drive up standards. A Free School in England is a type of Academy, a non-profit- making, independent, state-funded school which is free to attend but which is not controlled by a Local Authority. They are subject to the same School Admissions Code as all other state funded schools. Free Schools are governed by non-profit charitable trusts that sign funding agreements with the Secretary of State. To set up a Free School, founding groups submit applications to the Department for Education. Groups include those run by parents, education charities and religious groups. Free Schools are expected to offer a broad and balanced curriculum. Free Schools are subject to the same Ofsted inspections as all other maintained schools and are expected to comply with standard performance measures.Academynon-profit charitable trusts Secretary of StateDepartment for Education

Evaluate the viewpoint “It is better for the government & local authorities to provide education, other groups should not be allowed to interfere.” In your answer you must Explain the arguments in favour of the government & local authorities providing education Explain arguments in favour of parents, trusts, charities & businesses providing education Explain your own point of view. Plan a response to this 6 mk question