Hello, my name's Ms. Ikomi.

I'm a teacher from London, and I'm going to be taking you through today's lesson.

Let's get started.

Today's lesson is called, "How does the government get its money?" It is part of the wider unit, "How does the economy work?" By the end of today's lesson, you will be able to explain what the budget is and how the government funds the country.

Our key words for today's lesson are budget.

This is the government's yearly financial plan.

It shows how much money it will collect and spend on public services like healthcare, education, and transport.

The next is funds.

This provides money for something.

For example, the government raising and allocating money would be funds.

First, we're going to think about what is the budget.

Every year, the government sets out its financial plans in what's called the budget.

The budget is organised and written by the Chancellor of the Exchequer.

The Chancellor is the government financial minister who is appointed by the Prime Minister, and they conduct all financial affairs in the country.

Anything related to government money, including how it's collected and spent, is referred to as fiscal affairs.

You might have seen on the news, the Chancellor of the Exchequer holding up red box.

This is the budget.

Let's do a check.

Which government minister creates the budget, is it A, the Prime Minister, B, the Secretary of State, C, the treasurer, or D, the Chancellor of the Exchequer? Pause your video and choose your answer now.

The correct answer is D, the Chancellor of the Exchequer.

The budget is the government's plan for how it will collect and spend money over a year.

Just like a person or a family needs to manage their revenue and expenses, the government must also decide how much money it's going to need to fund the country and where it will go.

The budget explains how much money will be spent on different services, potentially public services like healthcare, education, or even our rubbish collection each week.

The government's budget has two main parts.

The income, how much money is coming into the country, the revenue that the country is making, and next, the expenditure, how much do we need to spend on things that are happening within the country.

Income would include the money that government collects through things like taxes, for example, income tax from workers and businesses, value added tax that we pay on goods and services, and other sources like customs duties on imported goods.

Expenditure includes all the spending that we have for things like schools, hospitals, public transport, emergency services, and the benefits for people in need.

I'd like you to correct what Lucas has said to make it more accurate.

"The budget only tells us how much money is spent across the country." Pause your video and have a go at this now.

I asked you to correct Lucas' answer.

Let's see what we could have said.

We could have said, "The budget is the government's plan for how it will collect and spend money over a year.

It covers both income and expenditure.

It shows us how the government will get money and how that money will be spent." If the government collects more money than it spends, it would have a budget surplus.

That means that they would have extra funds that can be saved or used to reduce debt.

Much like a person can have debt, a country can also have debt.

However, if the government spends more than it collects, it has a budget deficit.

That means it will need to borrow money to cover the difference.

Just like a person may take out a loan, the government can also borrow money from either banks or investors.

They have to pay it back over time, often with significant interest, meaning that they pay back more than they borrowed.

The UK government has frequently run a budget deficit with only five surpluses since 1970-'71.

The last was in 2000-2001.

The average annual deficit has been about 3.

7% of GDP, peaking during crises like the COVID-19 pandemic, the 1970s, '90s, and the 2008 financial crash.

In 2022 to 2023, and in 2023 to 2024, high inflation, rising interest rates, and slow economic growth led to above average deficits.

The government spent heavily on energy support and debt interest to improve the cost of living crisis for the public.

The deficit is expected to decline to 2% of GDP by 2029 to 2030.

This is going to be driven by increased tax revenues and reduced spending.

When the UK goes through a period of economic decline, the government needs to make difficult decisions to gain some of the money back.

These difficult decisions can be made because the price of goods and services increase, the cost of living rises, and that means some people may struggle to meet their basic needs.

For example, they may be less able to pay their gas and electricity bills, or buy necessities like food or toiletries, or pay for things like their rent or their mortgage payments.

That may lead to individuals getting into debt.

I'd like you to pause your video and fill in the missing words in the following two sentences.

Pause your video now and have a go at this.

Let's check our answers.

If the government collects more money than it spends, it has a budget surplus, so extra funds can be saved or used to reduce debt.

If the government spends more than it collects, it has a budget deficit, so it needs to borrow money to cover the difference.

Well done If you've got those right.

The government's budget is important because it affects everyone in the country.

For example, if more money is spent on healthcare, hospitals might improve.

But if taxes are increased to pay for it, people might have less money to spend on other things.

The government has to make careful decisions to balance the budget in a way that benefits the country.

They have to do this at the same time as keeping their finances stable and having enough money to fund necessary services.

It's balancing between these needs and also keeping things stable.

Alex says, "I'm not an adult yet, so what the government do with the budget has no effect on me.

I don't see why I should be interested.

I wouldn't be able to listen to it anyway because it all happens in Parliament." Sofia is saying that this is not right.

"No, Alex.

The budget affects us all and is televised for us to watch.

The Chancellor gives a budget speech to the nation.

It even affects VAT raise.

We pay those on sweets, crisps, so even at basic levels, it affects you, let alone things like travel, healthcare, and the other services that you use." It's really important that we understand the budget because it helps us to see how our taxes are being used and why the government makes certain financial decisions.

The budget can be a really emotive topic.

That means that it makes people feel emotionally involved.

This is because we contribute a portion of our income to the government through taxes.

We also pay taxes for things that we buy and the services we use.

Therefore, decisions that are made about the budget can feel very personal.

Citizens may feel angry if they feel taxes are not being used properly.

True or false? The budget affects everyone.

Pause your video and choose your answer now.

The correct answer is true.

Well done if you got that right.

Let's put this into practise.

I'd like you to explain to your partner what a budget is.

In your discussion, I'd like you to make sure you include the answers to the following questions.

What is a budget? What does the budget include? When does the budget happen? Who delivers the budget? And why is the budget important for everyone? Pause your video and have a go at this now.

I asked you to describe to your partner what the budget is.

You might have discussed some of the following.

"The budget is the government's yearly financial plan, outlining how it will collect and spend money to run the country.

It includes income and expenditure on public services such as healthcare, education, transport, and benefits.

The budget is announced once a year by the Chancellor of the Exchequer, who explains how the government will manage its money and fund the country.

If the government collects more than it spends, there's a budget surplus.

But if the they spend more than it collect, there's a budget deficit, meaning the government has to borrow money.

The budget is important because it affects everyone.

It determines how much funding public services receive, and influences tax rates.

A well-planned budget ensures the country runs smoothly and the economy remains stable.

Understanding the budget helps people see how their taxes are used and why financial decisions are made." Next, we're going to think about how the government funds the country.

The UK government needs money to fund the country and balance the budget.

This is so the economy remains stable.

The government has to use that money to fund public services like healthcare, education, and transport.

Where this money comes from is varied.

There are different sources and the government has to really carefully manage the finances to make sure that everything runs smoothly.

The different sources that the government uses to fund the country are vast, but the six main ones that we're going to think about are taxes, borrowing money and debt, national resources, national assets, investments and profits, and fines and fees.

Taxes are the main way that the government get their money in order to fund the country.

We all pay taxes on different types of things.

For example, citizens and businesses might pay income tax on earnings.

We all might pay value added tax on goods and services that we buy.

And corporation tax is paid by business profits.

For example, someone earning 25,000 pounds a year will pay income tax on part of their salary, while a company will pay corporation tax on any profits it makes.

The tax money is used to fund essential services that benefit everyone.

There are lots of different types of taxes including income tax.

This is a tax on personal earnings above the personal allowance threshold.

Employees, self-employed people, and those with a taxable income will pay that tax.

Council tax, this is a local tax based on property value and is used to fund local services.

Households will pay this.

It is usually paid by the occupier or the owner.

National insurance, these are contributions that fund state benefits like pension and the NHS.

Employees, employers, and self-employed individuals pay national insurance.

Value added tax, this is a tax on most goods and services.

In 2025, this was 20% for standard goods.

Consumers pay this.

Businesses also collect it for HMRC.

Corporation tax, a tax on company profits that are above a certain threshold.

Limited companies and other organisations who make taxable profits will pay this.

Excise duty, these are taxes on specific goods like alcohol, tobacco, and fuel.

Consumers pay this.

It's included in the price.

Businesses, then again, pay it on to HMRC.

Let's put this into practise.

I'd like you to name two different taxes that citizens are charged by the government to fund the country.

Pause your video and have a go at this now.

You might have said any of the following.

Income tax, council tax, national insurance, value added tax, corporation tax, or excise duty.

Another source of income is through borrowing and debt.

Sometimes the government spends more money than it collects in taxes.

To cover this, it borrows money by issuing government bonds, which are loans that must be repaid with interest.

For example, the UK sells bonds to investors, banks, and even other countries, promising to pay them back later.

This borrowing helps fund projects like new hospitals, but increases national debt.

This was over 2.

5 trillion pounds in 2023.

If the government needs money, they might issue what? Government bonds, awards, or grants? Pause your video and have a go at this now.

The correct answer was bonds.

National resources are another way of funding the country.

The UK makes money from its natural resources.

Things like oil, gas, and minerals that come from the natural environment.

The government can tax companies that extract these resources or sell them directly.

For example, companies that drill for oil in the North Sea pay a special tax on their profits.

This helps fund public spending.

However, this income can change depending on global prices.

So if oil prices drop, the government would collect less money.

National assets are owned by the government.

Things like land, infrastructure, and transport networks can be used or leased to raise money.

For example, the UK government has sold former military buildings and old government offices to private companies.

They then turned them into homes or businesses.

The government also has privatised industries, like British Rail in the past, in order to generate funds.

I'd like you to match the term with the specific example that it applies to.

Pause your video and have a go at this now.

Let's check our answers.

The example of natural resources are oil, gas, and minerals.

Natural assets are land and infrastructure.

And privatised industries include British Rail.

Another source are investments and profits.

The government earns money through investments.

Some government-owned businesses, such as the Bank of England, make profits that can be used to support public spending.

For example, the Bank of England sometimes earns money from the interest on loans it provides to other banks.

The government can also invest in transport projects such as Heathrow Airport, earning money from airport operations.

Another way of funding the government is through fines and fees.

This includes things like speeding fines, court fees, and charges for using certain services such as passports or driving tests.

For example, in February 2025, applying for a UK passport costs 88.

50 pounds online or 100 pounds by paper form.

This money helps to fund government services.

Similarly, speeding fines contribute millions of pounds each year to government funds.

By using a combination of taxes, natural resources, and other income sources such as borrowing, the UK government ensures that it has enough money to fund the country.

Balancing these sources is really important to keep the economy stable and avoid too much debt.

This is why the budget has to be carefully designed and well explained every year, so we know exactly what money is coming in and where it is going out to.

Izzy says, "I don't think the government should charge us for documents like passports.

If we need to travel, we have to have a passport, so they should be free.

What do you think, Lucas?" Lucas says, "That would be great, but how would the government pay for them? We would just have to pay more taxes to balance the budget, because if there's more expenditure, there has to be more income, so it would never truly be free." That was a really good point, Lucas, and important for us to remember.

Let's do another check.

True or false? The government uses fines and fees to pay back debts rather than to fund the country.

Pause your video and have a think about why.

The correct answer is false.

This is because the government uses fines and fees to fund the country.

For example, they might use the money collected in fees for passports on things like improving border security or to improve the passport offices.

Let's put this into practise.

I'd like you to write a paragraph explaining how the UK government funds the country.

I'd like you to try and include at least two examples.

Sam's telling us that you could use the example of the North Sea oil or the Bank of England.

Pause your video and have a go at this now.

I asked you to explain in a paragraph how the UK government funds the country.

You might have included some of the following in your answer.

"The UK government gets its money from different sources to fund services like healthcare, schools, and transport.

The biggest source is taxes, where people and businesses pay things like income tax and VAT on goods and services.

If tax money isn't enough, the government uses borrowing and debt, selling government bonds to raise funds.

It also makes money from national resources like North Sea oil, where companies pay tax on what they extract.

Another way is through national assets, where the government sells things like old government buildings to private companies.

Investments and profits from government-owned businesses, like the Bank of England, also bring in money.

Finally, the government collects fines and fees such as speeding fines or passport charges, which help pay for services like border security.

Well done if you included some of that in your answer.

Today, we have been thinking about how the government gets its money.

We have learned that the UK government needs money to fund public services such as healthcare, education, and transport.

The Chancellor of the Exchequer creates the budget each year.

This is a financial plan showing how much money the government will collect and spend.

The government gets its money from six main sources, taxes, borrowing and debt, national resources, national assets, investment and profits, and fines and fees.

Taxes are the biggest source of that income.

By using a combination of these methods, the government ensures that it has enough money to keep the country running, and fund essential services for everyone.

That's the end of today's lesson.

Thank you for joining me.