Budgeting, risk & Provision of key Services (AQA GCSE Citizenship Studies): Revision Note

How taxes are raised

• Each year the government presents its Budget to Parliament, showing what it wants to spend for the following year and how the monies will be raised

• In the 2025 Budget, the government announced that it expected to raise £1,304 billion, mainly through taxation, in 2026-27

Expected sources of taxation 2026-2027

• The three largest sources of income are taxes paid by most people in the country

  • Income Tax

    • Income Tax is paid on earnings above the personal tax-free allowance (currently £12,570)

    • It is taken directly from wages, pensions and some other forms of income

  • National Insurance

    • National Insurance is paid by employees and employers on wages

    • It is used mainly to fund benefits such as the state pension, unemployment support and the NHS

  • Value Added Tax (VAT)

    • VAT is a consumption tax added to the price of most goods and services that people buy

    • The more someone spends, the more VAT they pay

How taxes are spent

• In the 2025 Budget, the government announced that its spending priorities for 2026–27 would focus on the NHS, education, defence, welfare support and improvements to infrastructure

Expected expenditure 2026-2027

• The largest areas of spending are

  • Social protection

    • Social protection spending pays for welfare benefits and support, such as pensions, disability benefits and unemployment support

  • Health

    • Health spending mainly funds the National Health Service (NHS), including hospitals, doctors, nurses and public health services

  • Education

    • Education spending covers schools, colleges and universities, as well as funding for teachers, buildings and support services for children and young people

  • Debt interest

    • Debt interest is the money the government must pay on loans it has borrowed in the past, reducing the amount available to spend on public services

How the government budgets and manages risk

• Government budgeting involves balancing economic conditions, public needs, political pressures and unexpected risks

Factors affecting government budgeting

Public spending priorities

• Governments have to make tough choices between what the country can afford, what is fair and what the public wants

• Areas like welfare, health, care for older people and education are the hardest and most expensive to manage in the long term

Welfare spending

• Welfare spending has increased significantly since the COVID-19 pandemic

  • More people rely on benefits due to job insecurity, low wages and rising living costs

  • A large number of people claiming Universal Credit are in work

    • Having a job does not always guarantee a sufficient income.

• The government wants to reduce welfare spending, but this is difficult

  • Spending cuts often affect the poorest in society, which is politically and morally controversial

• Raising the National Minimum Wage could reduce reliance on benefits

  • However, some employers may be unable to afford higher wages and could reduce staff

• Governments generally agree the best long-term solution is more people in secure, well-paid work

  • The challenge is creating jobs that generate income tax and National Insurance without increasing unemployment

Health spending

• The NHS is one of the most popular public institutions in the UK

  • Any major reform risks public opposition due to strong support for the NHS

• Health spending continues to rise, but productivity has not increased at the same rate

  • New treatments and medicines are often very expensive

• Changes in primary care have led more patients to seek help via A&E, increasing pressure

• The UK has an ageing population

  • People live longer but often need more medical treatment later in life

• Governments face difficult reform choices, including:

  • Whether to introduce charges for GP visits or missed appointments

  • Whether to encourage private medical insurance

  • Whether to devolve health responsibilities to directly elected mayors

Spending on the elderly

• An ageing population means higher spending on pensions and social care

• The state pension is paid to almost all elderly people

  • The pension age has increased over time to reduce costs

• The triple lock guarantee ensures pensions rise by the highest of inflation, wages or 2.5%, whichever is the highest

  • This has helped reduce pensioner poverty

  • Politicians are reluctant to change it because older people vote in high numbers

• Social care costs are mainly paid by individuals until their savings fall below a low threshold

  • Many elderly people worry about having to sell their homes to pay care costs

• Governments face pressure to reform social care but struggle to find a fair and affordable system

Education spending

• School funding is decided using a national funding formula

  • Many schools, especially in rural areas, argue they receive less funding per pupil

• Spending on SEND (Special Educational Needs and Disabilities) has increased sharply

  • This has forced the government to lend money to some councils to cover costs

• University tuition fees have risen in recent years

  • Despite this, many universities report financial difficulties

• The government has recently placed VAT on private school fees

  • This was intended to raise money to improve education for the 90% of students who receive a state education

• Ongoing debates include:

  • Whether schools need more central control or greater freedom

  • Whether university fees should be reviewed regularly or spending monitored more closely

  • Why SEND spending is rising and how the system can be made sustainable