Hello, my name is Ms. Wyatt and I'm so pleased that you could join us here today for our citizenship lesson.

Welcome to today's lesson on how does the Government control debt, from the unit What has the UK economy got to do with me? By the end of today's lesson, you will be able to explain how national debt is managed and how it affects individuals.

We will be using the following keywords today, which are national debt and austerity.

National debt is an amount of money owed by the Government that has effects on the country's economy.

Austerity is a set of political-economic policies that aim to reduce Government budget deficits through spending cuts, tax increases, or a combination of both.

These words may be new to you today, but please don't worry as I am here to guide us through our lesson.

Our lesson on how does the Government control debt is split into two parts today with the first part exploring how is national debt managed, and then we will look at how does national debt affect individuals.

So when you are ready, let's start the first part of our lesson and look at how is national debt managed.

The UK Government manages national debt by borrowing money through bonds called gilts.

These are sold to investors including banks, pension funds, and the general public.

In return, the Government agrees to pay substantial interest on these bonds over time.

This borrowing allows the Government to fund essential services like healthcare, education and transport, especially when tax revenues aren't enough.

So when they're not getting enough money through the taxes, then this sort of borrowing through bonds is going to help massively.

For example, after the 2008 financial crisis, the Government borrowed large sums to rescue failing banks to prevent a collapse of the financial system.

The sentences below contain two mistakes each and are all incorrect.

So we need to identify the mistakes in the sentences and correct them.

So I'll read through the incorrect sentences for us.

So the UK Government manages national debt by borrowing money through grants called gifts.

The Government pay no profit on this borrowing.

There was a financial crisis in 2008 where the banks had to save the Government from collapse.

So there are mistakes in these sentences and we need to make sure that we correct them for them to make sense.

So pause the video and have a go at correcting these sentences.

Okay, good job everyone.

So the correct statements should now read.

The UK Government manages national debt by borrowing money through bonds called gilts, not grants and not gifts.

The Government pay substantial interest on this borrowing and there was a financial crisis in 2008 where the Government had to save the banks from collapse.

So well done if we've identified and corrected the mistakes.

Another way the Government manages national debt is by adjusting taxes and spending.

If the debt is too high, the Government might increase taxes to bring in more money or cut public spending on services like welfare or infrastructure.

One approach to reducing spending and reducing national debt is through austerity measures, which involve reducing public sector budgets, freezing wages, or limiting welfare payments.

Remember, austerity was one of our key words.

In 2010, the Government introduced austerity measures to deal with the large budget deficit following the financial crisis.

Austerity meant an increase in VAT and cuts to services like policing, education and healthcare and local councils.

So this austerity meant that there were cuts to services and spending on the services like policing, teaching, healthcare and your local councils.

And it did also mean that there was an increase in VAT.

While this helped control borrowing and national debt, it also made life harder for many people who relied on these services.

Think about it.

If the policing, the education, healthcare system, for example, have been running how they have been and then all of a sudden there's cuts to the services and the cuts to the spending on these services, it's going to make life harder for those people that rely on these services.

So let's read the scenarios below and decide whether you think that Government should borrow money or increase taxes to raise the necessary funds.

So let's tick one box for each answer.

So A, the UK Government needs to fund a new hospital.

So do you think that they should borrow money or should they increase taxes to do this? B, local Governments need money to improve roads.

So should they borrow or should they increase taxes? And then the UK needs more school places so must build schools.

Do they need to borrow or increase taxes? Them isn't necessarily a correct answer to this, but you need to be able to justify the reason why you've put whether they should borrow money or increase taxes.

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

Okay, so like Aisha says, "There are no right or wrong answers here, but it is important to think through your choices and be able to justify your reasons." So we said the UK Government needs to fund a new hospital.

The best way to do this would be through increasing taxes.

Local Government needs money to improve the roads, so increase taxes.

The UK needs more school places, so must build schools.

They're probably going to have to borrow money to be able to do this.

So you might have put the same as us and you might have also put different.

The Bank of England also plays a role in managing national debt through monetary policy.

One way it does this is by setting interest rates.

If the interest rates are low, it becomes cheaper for the Government to borrow money.

In contrast, if interest rates rise, paying back debt becomes more expensive.

For example, after the mini budget in 2022, interest rates on Government borrowing shot up, making it more costly to manage the debt.

Another method used is economic growth.

If the economy grows, the Government collects more tax without needing to increase rates, which helps reduce the debt burden over time.

For example, after World War II, the UK had a substantial national debt, but as the economy grew in the following decades, the debt became easier to manage.

Encouraging investment, job creation and innovation helps the economy grow and makes national debt less of a problem.

So how national debt could be managed is through economic growth.

Finally, the Government can manage national debt by selling state-owned assets or changing how it borrows money.

So another way that national debt could be managed.

These actions help reduce debt by bringing in money without raising taxes or cutting services.

This has happened in the past in the UK.

When Margaret Thatcher came to power as a Conservative Prime Minister in 1979, privatisation was only a minor part of the party's manifesto.

However, it became a core part of its ideology throughout the 1980s and the 1990s.

So in the manifesto, it was only there, it was only small, okay, but actually as time went on in the 1980s and the 1990s, privatisation became a big part of their ideology.

As a result, many industries and utilities that have been nationalised under the Labour Government in 1945 to 1951 were sold to private companies to manage the economy.

An example of this shift is the privatisation of British Rail from 1994 to 1997.

Before privatisation, British Rail was a Government funded public service.

But after privatisation, different rail franchises were sold to private companies to manage national debt.

While this introduced competition and in some cases improved efficiency, it also led to higher ticket prices and concerns over underinvestment in infrastructure.

It was a controversial way of managing national debt and is still debated in parliament today.

Other sectors like steel, airways, airports and aerospace, as well as utilities such as gas, electricity, telecoms and water were also privatised.

For example, British Telecom was privatised in 1984 followed by British Gas in 1986 and British Steel in 1987.

So the trend has continued into more recent years with the privatisation of Royal Mail in 2013.

These sales raised a significant amount of money for the Government in order to stabilise the economy and reduce national debt.

This mix of borrowing, taxation, monetary policy, economic growth and asset sales help the Government keep debt under control while funding essential services.

However, managing national debt is always a balancing act as too much borrowing can lead to economic instability.

The budget needs to be carefully balanced in order to run the country's economic policy successfully.

So the budget needs to be balanced if it's not, and if it becomes that the Government is borrowing too much, it can lead to economic instability.

So let's match the services to when they were privatised.

So we've got British Rail, Royal Mail, and British Gas, and we've got some options of dates on the right-hand side of our screen.

So let's match the services to when they were privatised.

Pause the video and have a go at this task.

Okay, let's go through our answers.

So British Rail became privatised between 1994 and 1997.

Royal Mail was 2013, which leaves us with British Gas becoming privatised in 1986.

So well done if we got these correct.

Which one of the following pupils is in favour of raising money and balancing the budget with privatisation.

Which one? So we've got, Andeep says, "I think it's better to have services we can hold to account more and scrutinise more easily." Sam says, "I would like the maximum amount of money spent on new innovations and advanced technology," and Laura says, "I would prefer to have lower costs and have services regulated more officially." So pause the video and have a think which one of the pupils is in favour of raising money and balancing the budget with privatisation.

Hopefully we've worked out that it is Sam.

Sam is saying that they would like the maximum amount of money spent on new innovations and advanced technology and therefore that would raise money and balance the budget.

So well done, if we got that correct.

For this task, we need to read the statements and tick the appropriate box to whether we are sure it's correct, whether we think it's correct, whether we think this is incorrect or whether you are sure that this is incorrect.

So we have gilts are bonds that the Government sells to investors.

We have the Bank of England can help settle debt by setting interest rates.

We have austerity measures increase public spending to help manage debt.

We have higher national debt always leads to lower taxes for individuals and privatisation reduces debt without cutting services.

So pause the video, reread the statements, and tick the box that you think is right.

Okay, so our answers should look like this.

So we should be sure that it's correct that gilts are bonds that the Government sells to investors and that the Bank of England can help settle debt by setting interest rates.

Then we should have, I'm sure this is incorrect, for austerity measures increase public spending to help manage debt, that's incorrect, and higher national debt always leads to lower taxes for individuals.

That is also incorrect.

Then we have privatisation reduces debt without cutting services.

This is right.

Okay, so we've got some that are correct and some that are incorrect and well done if we've got those right.

For the statements that were incorrect, let's rewrite them to make them correct and make sense.

So we had austerity measures increase public spending to help manage debt and higher national debt always leads to lower taxes for individuals.

So pause the video and have a go at rewriting these to make them correct.

Okay, so we might have said austerity measures involve cutting public spending rather than increasing it in order to reduce national debt.

So it's cutting public spending.

Then higher national debt can lead to higher taxes as the Government may need to raise more money to pay off what it owes.

So hopefully we've managed to rewrite these to make them make sense now.

Well done.

We have now explored how is national debt managed and we're going to look at now how does national debt affect individuals? So national debt affects individuals in many ways, including higher taxes, cuts to public services, and changes to interest rates.

When the UK Government has high debt, it may need to raise more money to pay it off.

One way to do this is by increasing taxes such as income tax, value added tax, or VAT, or national insurance, also known as NI.

So they can, or should I say, the Government can raise more money through different taxes to help pay off that higher debt.

For example, in April, 2022, the UK Government increased National Insurance Contributions, which are NICs to help fund health and social care services, which meant workers had less pay to take home.

Jacob says, "That must have been hard for people, but I suppose the budget needs to be balanced to help the country." So yeah, it's really unfortunate because this must have been really hard for people.

People were working and were taking less pay home because of the taxes.

Another impact of national debt is on public services.

If the Government decides to reduce spending to manage debt, it can lead to cuts in essential services like the NHS, education and policing.

During the austerity period from 2010 onwards, the Government reduced funding for local councils, which led to the closure of many youth centres and libraries.

This affected young people and families who relied on these services for education, support and community activities.

For instance, libraries provide free internet access and host social events like book clubs.

These youth centres and the libraries being closed led to a lot of people not necessarily having anything to do socially or being able to meet people or being able to learn more.

So it had a significant impact on society.

Alex says, "We don't have a youth centre open in my community anymore.

Apparently we used to, but they suffered as a result of the Government cuts.

It's a shame that we don't have the centre." Jun says, "When inflation is controlled and the economy is strong, the Government often give more money to local councils to build things like youth centres.

So you might get a new one built." Sofia's library had to close due to Government spending cuts.

How might this affect Sofia and people in her community? So we've just heard about the ways that it might make people feel and also the the implications of closing local community centres.

So Sofia's library is closed due to the Government spending cuts.

So how this affect her and the community around her? Maybe we said Sofia and other pupils might struggle to complete their homework because they no longer have access to books, computers, or required study space.

People in her community who use the library for free internet access or job searching might find it harder to apply for work or access important services.

The closure could also reduce social opportunities as libraries often host events, reading clubs and activities that bring people together.

So it will have affected the society or the community in different ways depending on how you used it and who you were.

Interest rates can also change as a result of national debt affecting individuals who borrow money.

If investors lose confidence in the UK Government's ability to manage national debt, they may demand higher national interest rates on Government borrowing.

This can lead to higher mortgage rates, making it more expensive for people to buy homes.

In late 2022, the economy experienced a deficit and mortgage rates rose sharply adding hundreds of pounds per month to many homeowners repayments.

The Government had to practise risk management strategies to stop interest rates and mortgage rates from rising too fast as people wouldn't be able to afford it.

National debt can also influence job opportunities and wages.

If the Government has high debt, it may not have enough money to invest in infrastructure projects, businesses, or job creation schemes.

This can slow down economic growth and make it harder for people to find well-paid jobs.

For example, after the 2008 financial crisis, public sector wage freezes were introduced and stayed for two years.

This meant that many workers did not see pay increases for several years, even as living costs rose.

So as the cost of living gets bigger, people's wages were staying the same before though the cost of living had risen, so it wasn't matching.

This affected some people being able to afford to live comfortably and saw people get into debt.

So let's match the start of these sentences to their endings.

So we've got sentences one, two, and three, and the endings are A, B, and C, but we need to work out which one goes where because they're not necessarily in the correct order.

So pause the video and have a go at matching the start of these sentences to their endings.

Okay, let's go through our answers.

So if investors lose confidence in the UK Government's ability to manage debt, they may demand higher interest rates on Government borrowing.

So we should have matched one to C.

When mortgage rates rise sharply, it adds hundreds of pounds per month to homeowners' repayments.

Which leaves us with when public sector wage freezes are introduced, many workers have no pay increases for years despite rising living costs.

So one to C, two to A, and three to B.

Finally, national debt can affect the cost of living.

If debt leads to high inflation where prices rise over time, everyday essentials like food, energy, transport, they become more expensive.

In October, 2022, the UK experienced high inflation partly due to rising interest payments on national debt, which contributed to increased costs for households.

This made it harder for many families to afford basic necessities, putting pressure on their finances.

To summarise, national debt is not just a problem for the Government.

It has real effects on individuals through taxes, public services, borrowing costs, job opportunities, and the cost of living.

So it's not just a Government problem here.

Managing national debt carefully is important to ensure that people are not unfairly burdened while still funding essential services for the future.

The Government has to manage the budget carefully in order to keep the public well and safe.

So let's choose the correct word to complete each sentence about the consequences of national debt.

So pause the video in a second, once we've read through each sentence and then choose which word makes the sentence make sense, have a go.

Okay, time for answers.

So if national debt causes higher inflation, the cost of living may become cheaper for families.

When inflation rises the price of everyday essentials like food and energy usually rises.

High national debt can make borrowing harder for individuals by increasing interest rates.

Managing national debt carefully helps ensure people are not unfairly burdened while still funding essential services.

So well done if we managed to choose the correct words to complete each sentence about the consequences of national debt.

For this task, we are going to match the method of managing national debt to its explanation.

So we have methods like raising taxes, borrowing money, austerity measures, privatisation, and economic growth.

We need to match them across to the correct explanation of these methods.

So pause the video now and have a go at matching the method to its explanation.

Okay, time for answers.

So raising taxes should be matched to increasing VAT or income tax to bring in more money.

Borrowing money, selling gilts to investors.

Austerity measures is reducing public spending on services like education and policing.

Privatisation is selling state-owned businesses and economic growth is expanding businesses and job opportunities to boost tax revenue.

So hopefully we know now the explanation behind the different methods of how the Government manages national debt.

Zainab is a mother of two children living in the UK.

She works but does not earn a high salary.

The UK Government has introduced austerity measures to manage national debt, which means there are cuts to public services.

Now we need to list four ways that Zainab's life might be affected by the austerity measures.

So there's been cuts to public services.

She's working but doesn't earn a high salary, and she has two children.

The Government has just introduced austerity measures to manage the national debt.

So we need to list four ways that Zainab's life could be affected by the austerity measures.

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

Okay, good job everyone.

So you might have included some of the same answers as we have.

So we said Zainab's local youth centre may close so her children no longer have a safe place to go after school.

The bus fares she relies on to get to work may increase due to reduced transport funding.

Her taxes are likely to go up, meaning she's got less money left at the end of the month.

And Zainab may have been hoping for a pay rise, but her employer cannot afford to increase wages due to the economic uncertainty.

So she's going to be staying at that low wage.

Okay, so maybe you've included other things, but these are four ways that Zainab's life could be affected by the austerity measures.

We have now come to the end of our lesson on how does the Government control debt, and we're going to have a go at summarising this for us before we finish our lesson.

So the UK Government manages national debt by borrowing money, raising taxes, and controlling spending.

If debt gets too high, it can lead to austerity measures where the Government cuts public services to reduce costs.

This can affect individuals by increasing taxes, reducing funding for services like the NHS and education and making borrowing more expensive.

High national debt can also lead to inflation, raising the cost of living and making essentials like food and energy more expensive.

Managing debt carefully is important to avoid the negative effects of austerity while still funding essential services for the future.

So this lesson was really important today and I hope we've learned a lot and enjoyed it as much as I have.

I hope to see you in the next one, bye-bye.