Hello.

My name is Miss Wyatt and I am so pleased that you could join us here today for our citizenship lesson.

Welcome to today's lesson on How is the Government responsible for borrowing, from our unit, What has the UK economy got to do with me? By the end of today's lesson, you will be able to explain why the Government borrows money and how it protects individual borrowers.

We'll be using the following keywords throughout our lesson today, and these keywords are borrowing, borrower, and debt.

Borrowing is the act of receiving money from a lender with the agreement to repay it later, usually with interest.

Borrower is a person, business, or government that takes money from a lender and agrees to repay it under specified terms. And debt is an amount of money owed by an individual or organisation to a lender.

So some of these keywords may be new to you today, but please don't worry as I'm here to guide you and we use them often in this lesson.

Our lesson on how is the Government responsible for borrowing is split into two parts today, with the first part looking at why does the Government borrow money? And then secondly, how does the Government protect borrowers? So when you're ready, let's begin our lesson.

The UK Government raises most of its money through taxes, such as Income Tax, VAT, and Corporation Tax.

However, sometimes the amount collected in taxes is not enough to cover all the costs of running the country.

When this happens, the Government has to borrow money to make up the difference.

Borrowing allows the Government to continue funding essential services, invest in long-term projects, and respond to unexpected economic challenges.

So the Government has to borrow money through taxes, and sometimes the amount collected in those taxes isn't actually enough to try and run the country, so the Government has to borrow to make up that difference.

So let's check our understanding so far.

What does borrowing allow the Government to do? So we've got some gaps to fill in.

So borrowing allows the Government to continue funding essential blank.

What could be that missing word? And then we've got blank in long-term projects and respond to blank challenges.

So let's pause the video now and have a go at filling in the gaps in our sentences.

Okay.

Hopefully we've had enough time now to fill in these gaps, so let's go through it together.

So, borrowing allows the Government to continue funding essential services, invest in long-term projects, and respond to economic challenges.

So we should have worked out that our missing words where services, invest, and economic.

Well done if we got those correct.

The Government borrows money by issuing government bonds, which are loans that must be repaid with interest.

Okay, so they're known as bonds.

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, which was over 2.

5 trillion pounds in 2023.

Okay, so the Government borrows money by issuing these bonds, which are loans that will be repaid with interest.

So, if the Government need money, they might issue Government, is it A, bonds; B, awards; or C, grants? What will they issue? Can you remember? Hopefully we remembered that if the Government needs money, they might issue government bonds.

So we should have said A, bonds.

Well done if we did.

One of the key reasons for Government borrowing is to maintain and improve public services.

For example, the Government provides financial support to those who are unemployed or on low incomes through benefits.

In 2022, when the cost of living increased due to rising food and energy prices, the Government borrowed money to provide extra support for those struggling to afford basic necessities.

Without this borrowing, many families might have faced extreme hardship.

So the Government is borrowing this money to improve public services and maintain our public services, like healthcare, education, infrastructure, social cohesion, for example.

The Government also borrows to fund large infrastructure projects that improve the country in the long-term.

A good example is the expansion of the UK's broadband network to improve internet access in rural areas.

In recent years, the Government has invested billions in high-speed internet, making it easier for businesses and individuals to work, study, and connect with others.

This kind of investment boosts the economy by creating jobs and supporting businesses, but because it is so expensive, the Government needs to borrow to make it possible.

So one example is funding the expansion of the UK's broadband network.

So those that didn't have great internet access, perhaps in the rural areas in particular, it was easier for them to work, to run businesses, to study, to connect with others because they then had that high-speed internet.

Izzy says, "The Government has installed a super fast broadband service in our road quite recently and it's so much better.

My mum can work at home more easily." Sam says, "I love fast internet! It means I can play online games easily with my friends!" So you might be thinking now, "Yeah, actually, my internet is really fast and it's faster than it's ever been before probably." And this allows us to get onto the internet faster, we can play online games, we can connect, we can work from home much more easily now.

Another reason for borrowing is to respond to unexpected economic challenges.

So for instance, in 2022, the UK Government borrowed money to help households struggling with the rising energy prices after Russia's invasion of Ukraine.

So, no one could have really planned for the unexpected to happen, especially when it comes to economic challenges, and because of this, the Government has to borrow money to support and maintain public services and society.

For example, to prevent people from facing unaffordable bills in October 2022, the Government introduced the Energy Price Guarantee.

To ensure affordable payments, the Government had to borrow this money to help millions of families pay their bills.

This kept the economy stable by ensuring people could still afford to buy other essential goods and services.

However, borrowing too much can be risky because the Government has to pay this interest on its debts.

If borrowing becomes too high, it can reduce the amount of money available for future public services.

So it's a tricky thing to get right.

UK Government must balance borrowing carefully, making sure there is enough funding for important services while ensuring that debt remains manageable.

By borrowing wisely, the Government can invest in the country's future, protect citizens from economic shocks, and ensure that the economy remains stable.

So let's have a go at matching the start of the sentences of 1, 2, 3, and 4 to their endings on A, B, C, and D.

So we have in 2022, borrowing helped families.

We have borrowing too much can.

We have the Government borrows to help public services.

And we have large projects like broadband expansion.

The endings are on the right-hand side of the screen.

So let's pause the video and have a go at matching the start of the sentence to their endings.

Okay, it's time to go through our answers.

So in 2022, borrowing helped families cope with rising living costs.

Borrowing too much can limit future public spending.

The Government borrows to help public services like benefits for unemployed people.

Which leaves us with large projects like broadband expansion require Government borrowing.

So we had 1 to B, 2 to D, 3 to C, and 4 to A.

Well done if we got those right.

For this task, we need to imagine that we are the Chancellor of the Exchequer.

The Government has collected taxes, but it's not enough to cover all spending.

So we need to write a speech to the public explaining why the Government needs to borrow money, what the borrowed money will be used for, so try and choose at least two key areas, and how borrowing can help the country in the long-term.

So we've got to write a speech here and we've got to explain to the public why the Government has to borrow money, what the borrowed money is gonna be used for, and how it can actually help the country in the long run.

So pause the video and have a good go at this task.

Okay.

Well done, everyone.

It's time to go through our answers, and our speech might include some of the following, okay? So we wrote: today, I am making an important decision that will shape our country's future.

The taxes we collect help pay for schools, hospitals, and transport, but right now, they are not enough to cover anything that we need.

That is why we must borrow money: to protect vital services, invest in our economy, and support those who need help the most.

One key area we will invest in is public services.

By borrowing, we can ensure that hospitals have enough doctors and nurses, schools have the resources they need, and support is available for those struggling with the rising cost of living.

In 2022, borrowing helped provide extra financial support to families facing higher food and energy bills.

Without it, many people would have suffered.

We will also invest in infrastructure projects to create jobs and improve the country.

Expanding high-speed broadband to rural areas will allow businesses to grow and pupils to access better education.

Large projects like these cost billions, but by borrowing now, we can a stronger economy for the future.

However, we must borrow responsibly.

If we take on too much debt, it could reduce the money available for public services in the future.

That is why the Government will manage our borrowing carefully, investing wisely to keep our country moving forward while ensuring our economy stays stable.

Thank you in advance for your support.

So hopefully we've managed to explain to the public why the Government has to borrow money and give an example of what projects that this money can be used for, okay? So we might have referred to the high-speed broadband, or we might have referred to when in 2022, the cost of living increased, but well done on your efforts with this task.

We have now looked at why does the Government borrow money and we are to move on to how does the Government protect borrowers? Just like the Government borrows money to manage the economy, individuals also borrow money to afford important things in life, such as homes, cars, or education.

Borrowing can be useful, but it also comes with risk, especially if interest rates are too high or repayments become unmanageable.

To make sure people are treated fairly when they are borrowing, the UK Government has put rules and protections in place to prevent financial exploitation and help those struggling with debt.

Aisha says, "Do either of you know what financial exploitation means?" So let's think for a second.

We might know what financial means or finance, and we might know separately what exploitation means or exploiting.

But if we put those two words together as a term, what do we think it might mean? Sofia says, "It's when someone is tricked or forced into giving away money or their belongings." And Alex says, "An example of financial exploitation can be fraud, scams, blackmail, or theft." Okay, so it's not a good thing, exploitation is not a good thing, and financial exploitation is when someone is forced into giving their money away.

So, let's identify one risk of borrowing and one way the Government protects borrowers.

So we need to do two things here really.

So we need to identify one risk of borrowing and one way that the Government helps protect borrowers.

So pause the video and identify those two things for us.

Okay, well done, everyone.

So, we could have said, one risk of borrowing is if interest rates are too high or repayments become unmanageable, we can fall into serious debt.

And one way that the Government protects borrowers is they've put in rules to ensure people are treated fairly, preventing financial exploitation, and helping those struggle with debt.

So well done if we got those.

One way the Government protects borrowers is by regulating banks and other lenders.

So these people that are giving out the money, such as banks, they're making sure, the Government is making sure that they are being regulated.

The Financial Conduct Authority, or the FCA, makes sure that lenders follow strict rules, such as providing clear information about interest rates and fees.

For example, if someone takes out a credit card, the lender must tell them exactly how much they will be charged if they do not pay off their balance in full each month.

So there's no secrets.

This stops lenders from hiding extra costs and ensures people know what they are agreeing to before borrowing this money, so they know what they are about to take on and the responsibility that they have.

When applying for any kind of loan, credit card, mortgage, et cetera, the lender also has a duty to check affordability to ensure both sides are protected.

So the lender, the banks, they also have to look at your credit score, for example, and your affordability to make sure that you can actually afford to pay them back and you are in a position to.

For example, Leya wanted a 10,000 pounds loan to buy a new kitchen, and she had to tell the lender her salary and monthly outgoings so they could check affordability.

The lender refused the loan on the basis that she couldn't afford the repayment, so she would end up in debt.

Another important protection is the limit on high cost loans, such as payday loans.

Payday loan companies used to charge extremely high interest rates, making it easy for people to fall into this cycle of debt.

For example, in January 2015, the Government rules came into force with new regulations from the FCA, capping the amount of interest payday lenders could charge borrowers.

So capping means they put a limit to it.

Before these rules, some lenders charged over 1,000% interest per year, trapping people in debt.

The interest rates on payday loans are now limited and borrowers cannot be charged more than twice the amount they originally borrowed.

This has helped thousands of people avoid financial ruin, okay? So these payday loans are now limited and borrowers can't be charged more than twice the amount that they have originally borrowed.

So the statements below are all incorrect, they're all wrong.

So, let's identify the one mistake in each statement and let's have a go at correcting it.

So I'm gonna let you read through these statements and I'm gonna ask you to identify the mistakes with the statements.

Once you've done that, have a go at correcting them.

Pause the video and have a go.

Okay.

Hopefully now we've managed to identify the mistakes and correct them within our sentences.

So let's go through our answers.

So the Financial Conduct Authority, so the FCA, make sure that lenders follow strict rules to protect borrowers.

So we should have changed Conduct.

If someone takes out a credit card, the lender must show extra costs and fees.

So we were looking for the word show.

Number three, before 2015, some payday lenders charged over 1,000% interest per year, trapping people in debt.

And number four, borrowers taking payday loans cannot be charged more than twice the amount they originally borrowed.

So, well done if we managed to identify the mistakes and correct them.

The Government also helps people who are struggling with debt by offering support and advice.

Organisations such as Citizens Advice and StepChange provide free debt advice to people, helping them manage their repayments.

In 2021, the Government introduced the Breathing Space, Debt Respite Scheme, which gives people in problem debt 60 days without interest or fees being added while they work out a repayment plan.

So it gives them this time to work out how we're gonna repay it.

This allows individuals to take control of their finances without the pressure of increasing debt.

Finally, the Government protects borrowers by ensuring that essential loans like mortgages are affordable.

The Bank of England oversees interest rates to prevent sudden increases in mortgage repayments.

For example, during the cost of living crisis in 2022, many homeowners saw their mortgage rates rise, making repayments much more expensive.

The Government worked with banks to offer support, such as temporarily reducing payments for struggling borrowers.

These measures help ensure that individuals who borrow money are treated fairly and are not pushed into financial debt.

Ron doesn't know how to manage his debt and needs free advice to help him plan his repayments.

Can we explain to our partner where he could go for support? So turn to someone else and explain to them what Ron could do for support when he's coming to repaying these debts.

Okay.

Hopefully we've managed to explain to our partner now where Ron could go for support.

So we said, Ron could go to Citizens Advice or StepChange, both of which provide free debt advice to help him plan his repayments and manage his finances.

So you might have included Citizens Advice or StepChange in your answer.

He may also be eligible for the Breathing Space scheme, introduced by the Government in 2021 to give people 60 days without extra interest or fees being added to their debts while they work out a repayment plan.

So maybe you included the Breathing Space scheme when you were explaining this to your partner.

Well done on your efforts in this task.

For this task, I would like us to write a two-part report titled, "How the Government Protects Borrowers." Now, your report must include examples and try and be structured as followed.

So part one, tell us about the risks of borrowing.

Part two, give us at least three ways that the Government protects borrowers.

And the conclusion should end with advice for borrowers.

So we've got a two-part report.

Part one, risks of borrowing; part two, three ways that Government can protect borrowers; and then finalise it with the advice for borrowers.

So let's pause the video and get ready to write this two-part report.

Okay, well done, everyone.

So let's start by looking at what we wrote for part one.

So the risks of borrowing.

So, borrowing money can be useful for buying homes, cars, or covering unexpected expenses, but it also carries risks.

One major risk is high interest rates, which can make repayments much more expensive over time.

For example, payday loans used to charge 1,000% interest per year, trapping people in debt cycles.

Another risk is rising mortgage rates, as seen in 2022 when many homeowners struggled with increased monthly payments.

Additionally, some lenders may include hidden fees or unclear terms, making it difficult for borrowers to understand what they owe, which can lead to unexpected financial hardship.

So we should have explained the risks of borrowing in our first part.

Our second part, we needed to explain how the Government protects borrowers.

So, to prevent borrowers from being exploited, the Government has introduced several protections.

The Financial Conduct Authority, or FCA, ensures that lenders follow strict rules, such as providing clear information about interest rates and fees.

The Government also capped payday loan interest rates in 2015, preventing lenders from charging more than twice the original loan amount.

Another key protection is the Breathing Space scheme, introduced in 2021, which gives people in problem debt 60 days without extra interest or fees while they arrange repayments.

These measures help protect individuals from financial exploitation and unmanageable debt.

Then we should have finished with a conclusion, so advice for borrowing safely.

While borrowing can be helpful, it's important to do carefully.

Borrowers should always check interest rates and repayment terms before taking out a loan and seek advice from Citizens Advice or StepChange if they struggle with debt.

Using Government protections wisely, such as the Breathing Space scheme, can also help manage financial difficulties.

By borrowing responsibly and understanding their rights, individuals can avoid debt problems and stay in control of their finances.

So, well done on your hard efforts for this report, we wrote a lot here, but hopefully we've managed to explain how the Government protects their borrowers.

We have now come to the end of our lesson today, and I'm gonna summarise it for us.

So the UK Government borrows money when tax revenue is not enough to fund essential services, infrastructure projects, or to respond to economic challenges.

Borrowing helps support public services like the NHS, invest in projects such as broadband expansion, and provide financial aid during crises like rising energy costs in 2022.

However, borrowing too much can be risky, as high debt levels may limit future Government spending and lead to economic instability.

The Government also protects individuals who borrow money by regulating lenders through the FCA, capping payday loan interest rates, and offering support schemes like Breathing Space.

So thank you so much for joining us for our lesson today.

I hope you've enjoyed it as much as I have and have learnt a lot about how the Government is responsible for borrowing.

I hope to see you in the next one.