Who rules //
Who Controls the Money?
Who pays for everything and where does the money come from?
Chancellor of the Exchequer
The Chancellor of the Exchequer is responsible for the country's financial affairs – the economy. The chancellor decides how to raise money and how, where and when to spend it. Money is needed to pay for things such as the health service, education, defence and transport. If there's not enough money in the kitty, then the chancellor has to borrow it, just like ordinary people might borrow money from a bank to buy a house or new car. The sums are just bigger.
It's taxing stuff
Tax – we all have to pay it. Even you end up paying tax although you probably don't realise it. Why do we have to pay it? The government needs money to run the country and provide services to people.
However, it's not quite like going to a shop and buying something. A soldier won't actually turn up at your door to ask for money to defend you in war, and a teacher will not ask you to pay them directly for your education. Instead the government raises money through various taxes. All the taxes are collected and the chancellor decides on the priorities for spending.
How does the government get the tax?
There are direct taxes – ones that are paid directly such as income tax. This is where a percentage of earners' wages goes to the government.
There are also indirect taxes. These are 'hidden'. You don't realise you're paying them because they're included in the price of what you're buying.
An example is value added tax (VAT). This is added to the price of goods (except food, children's clothes, books and newspapers). As it's included in the price of what you buy, you don't notice it. Shops then pay the government the VAT they have collected from all the goods they've sold. VAT is currently 17.5% of the price.
Key Points
- The Chancellor of the Exchequer is responsible for raising money and deciding how and where to spend it.
- Money is raised through tax which is paid by individual people and businesses.
- There are two types of tax: direct and indirect.
- The money raised through tax is used to pay for all the services the country needs.
Reality Bytes
Some doctors believe that there should be higher tax on fatty foods such as chocolate, crisps and burgers. They think that this would discourage people from eating unhealthy food. A survey found that young people disagreed with this on the grounds that increasing prices of unhealthy food was unfair and restricted their rights.
So what would young people do if they could choose how to raise and spend the government's money? According to a survey by NatWest Bank, children think that celebrities who earn lots of money should pay higher tax than everybody else to pay for health and education services. This would ensure that they are giving something back to the people who made them wealthy in the first place. The survey also found that 50% of young people felt the tax on cigarettes should be higher to discourage smoking and that more money should be spent on preventing cruelty to animals, schools, hospitals and combating homelessness.
Interesting Facts
- It is estimated that in 2004/05, the government raised £455 billion through taxes.
- The largest area of government spending is Social Security – around £138 billion.
- Historically, the Inland Revenue (the government department responsible for tax) only collected money. Today one of its main roles is to reallocate money – giving some of the tax paid by people in work to families needing financial support, for example.
Big Questions
- What do you think about having to pay tax out of the money you earn? Do you think this is fair?
- Why do you think some things have tax added and others don't?
