Hello, my name's Mrs. Hopper and I'm looking forward to working with you in this lesson on personal finance.

We're going to be thinking about lots of different aspects around money, where money comes from, what money is spent on, how things are funded, and how the government raises money as well.

So if you're ready to make a start and to have some interesting discussions about how we make and how we spend our money, let's get going.

In this lesson, we're going to be answering the question, who pays for all of this? We're going to consider how the government raises money from taxes on earnings and things that we buy, and how that money is used to fund services such as the NHS.

So if you're ready, let's make a start.

We've got some key words in this lesson, we've got tax, VAT, services, and percentage.

You may well have come across some of those before.

Let's learn a bit more about them.

But before we do that, let's just rehearse saying them.

Are you ready? I'll take my turn, then it'll be your turn.

So my turn, tax.

Your turn.

My turn, VAT.

Your turn.

My turn, services.

Your turn.

My turn, percentage.

Your turn.

Let's just go back to VAT, 'cause VAT stands for value added tax.

So my turn, value added tax.

Your turn.

Excellent.

I wonder if you've heard of that before.

Let's have a look and see what those words mean, they're gonna be important in this lesson.

So tax is money that you have to pay to the government so that it can pay for public services.

Tax is often paid on goods and services as well, and we'll find out more about that as we go through the lesson.

VAT or value added tax is a tax that's added to the price of some goods and services that we buy.

A service is a business whose work involves doing something for customers but not producing goods.

So the people who do work for us, but not necessarily the people who make things for us.

And a percentage, you may have learned about percentages in maths, is a part or a share of the whole.

And it's expressed as if it is a part of a total that is a hundred.

So we imagine that the whole of anything is a hundred, and we describe the parts as those parts of a hundred, percentages.

Look out for those words as we go through the lesson.

There are two parts to our lesson today.

In the first part, we're going to think about what is tax and what does it pay for.

And in the second part we're going to think about how much tax is paid.

So let's make a start on part one.

What is tax and what does it pay for? And we've got Laura, Jacobs, Sofia, and Andeep helping us to learn all about tax in this lesson.

It's wet break, and Laura is bending the class rulers to pass the time.

Have we all been guilty of doing that at one point or another? What do we think about that as a wet break pass time? I wonder what her friends are gonna say.

Sofia says, "I don't think you should do that.

It might snap." Laura says, "Well, why not? They're free, I can just get another one." Hmm, is she right there? Andeep says, "It's free to us but not the school.

The school has to pay for them." Rulers don't come from nowhere, do they? We have to buy them from somewhere.

They may be free to us in class, but somebody pays for them.

And Jacob says, "There's also a cost to the environment 'cause it's plastic." And getting rid of plastic, well, more of it's being recycled these days, but it's not an easy thing to recycle.

So being able to use them for as long as we can is a good idea.

Time to check your understanding.

Think about your school day.

What else is there apart from rulers that's free to you but must be bought or paid for by the school? Pause the video, have a think, and when you're ready for some feedback, press play.

What did you come up with? Here are some ideas we had.

So lots of books that we can read and enjoy.

I bet you've got a library in your school, maybe even in your classroom, and there are books there that you can borrow and read and enjoy.

Jacob says, "There's all that equipment that we use in PE in our lessons." That must have been bought by somebody, mustn't it? But it's free for you to use.

Sofia's thinking about art.

So you've probably got pencils, and paints, and paint brushes, and trays, and all those sorts of things.

Maybe you've even used charcoal in your drawings as well.

That art equipment has to come from somewhere.

Andeep says, "The teachers." We don't pay for our teachers, but somebody must pay the teachers.

So Laura asks the question, "Where do schools get their money from?" What do you think? You might want to pause and have a chat about this before we hear it from the others.

What did you think? Well, Sofia says, "Some schools are privately funded by tuition fees for each pupil." So there are schools that you pay to go to those schools.

"But most schools are funded by the government and they're called state schools." "But it's not just schools that are funded by the government," says Jacob.

What else does the government pay for? Well, Jacob explains further, "The government gives funding for lots of public services that we don't pay for directly." So things like public parks, the NHS, the emergency services and libraries.

We don't have to pay for those, they're funded by the government.

Can you think of any other services that the government funds? Ones that aren't paid for directly by us? Pause the video, have a think, and when you're ready for some feedback, press play.

I wonder what you came up with.

Here were some that we came up with.

Collecting the rubbish and recycling, that's funded by the government.

Police investigating crimes and keeping us safe.

We don't pay the police ourselves, they're funded by the government.

Sofia said, "Fixing roads and building new ones." Sometimes we might find that's a bit frustrating if there's roadworks around us, but the roads need to be fixed and new roads need to be built, there are more and more people using cars these days.

And Andeep says, "Children's playgrounds." Is there a playground near you where you like to go and play? Perhaps there's one that's got your favourite bit of equipment.

There's one near me that's got a zip line and that's always really popular.

So Laura asks another question, "How does the government get the money?" Where does it come from? Well, every working adult has to pay something called income tax.

That means that a percentage of what they earn is given to the government.

Their salary is the whole and then that is divided into two parts.

The tax that they pay and their take home pay, the money that's theirs to spend.

And the tax goes to the government to help to fund all those things we've been talking about so far.

The take home pay goes to fund their own homes and their own families.

The government also puts VAT, this is that value added tax onto some goods and services and it puts them onto the things that it considered to be wants and not needs.

You may have come across those words before in other lessons, things that we want but that we don't necessarily need.

And VAT is added to the wants rather than the needs.

So we've got a couple of examples here.

We've got some sweet treats and we've got vegetables.

Now sweet treats are a want and not necessarily a need.

And they have VAT added onto them at 20% and that money goes to the government.

Vegetables are considered to be a need, so there's no VAT on vegetables or fruit for that matter as well.

So that's one reason why it's cheaper to eat a banana than a bar of chocolate.

Time to check your understanding.

Which of the following items do you think have VAT? Remember VAT is on the wants and not the needs.

Pause the video, have a think, and when you're ready for some feedback, press play.

What did you think? Let's put some ticks on the ones that have VAT added.

So ice cream, I'm afraid that does have VAT.

Chocolate biscuits have VAT added to them, but not plain biscuits.

Crisps have VAT added to them but potatoes don't.

Potatoes are a need, crisps are more of a want.

We could live without crisps, we might not want to though.

Children's clothes do not have VAT but adults' clothes do have VAT.

Now adults do need clothes, but the need for children to have clothes is considered more important.

So adult clothes have VAT added but not children's clothes.

And although we need to be warm and dry and to have hot water in our homes, gas and electricity do have VAT added onto them.

Did you get all of those? Are there any that surprised you, I wonder.

You might want to have a chat about that.

Now you know which items do have VAT added.

So the government decides what percentage of income tax should be paid, and it also decides which items and goods or services should have VAT.

And you might have heard about this in the news perhaps that twice a year the government has a budget and it makes it public.

And somebody called the chancellor of the exchequer who's quite senior in the government announces what will change in terms of taxes and how the government is going to raise money to do the things that it needs to do.

So the government makes a budget to make sure that it has enough money to pay for everything.

Time for you to do some practise.

So you are going to tick the services or items that you think are paid for by the government, so funded by those taxes, and put across by the things that you think are paid for directly by the public, by people like you and me.

And in question two, you're going to imagine that you are working for the government.

Which of these public services are the most important and need the most funding? And which do you think need the least funding? So you're going to arrange them into a sort of pyramid of importance with the most important thing at the top.

You might want to discuss these with people and compare your answers.

What's the same and what's different, explain and justify, your answers may not match.

So pause the video, have a go at those two tasks, and when you're ready for some feedback, press play.

How did you get on? Let's have a look at question one.

So we're going to tick the ones that are paid for by taxes.

Calculators that are used in class will be paid for by the government.

That local skate park you might have near maybe the children's playground that's been built by your local government, so that's been funded by money raised by taxes.

The grit for the icy pavements, I'm not sure what time of year it is when you're doing this lesson, but if it's cold and frosty at the moment, you might notice that the roads and the pavements have been gritted so that the ice melts, that's paid for by the government.

And we talked about PE equipment in one of the other tasks, didn't we? And those school basketballs that you play with, those are funded by the government.

But if you go to the local swimming club, you probably have to pay for your swimming lessons.

And I'm afraid the government probably aren't gonna buy you that new pair of trainers you want either.

Now in part two you were thinking about what would you put at the top of your pyramid of importance if you were working for the government.

This is what Andeep put.

He put the NHS, the National Health Service at the top.

And so did Sofia.

But have a look at the rest of their pyramids.

The police were quite high up there, but then they've got different things.

Andeep put schools alongside the police.

But Sofia put refuse collection, that's the rubbish collections.

Let's see what they have to say.

Andeep says, "We both agreed that the NHS was the most important because it keeps people healthy." Sofia said, she thought that refuse collection was quite important.

She said, "Because I don't like seeing litter and it can damage habitats." I wonder where you put things, what did you have at the top? What did you think was the most important? And was it the same as the person you were working with? And on into the second part of our lesson, how much tax do we pay? So we've mentioned the fact that adults who work have to pay income tax, and the amount of income tax that they pay is proportional to their salary.

What do we mean by that? Well that means that the more they earn, the more they pay.

Everybody gets though to keep some of the money untaxed, and this is called a personal allowance.

Everybody is entitled to that.

But if you earn more than the personal allowance, then you do pay income tax on the rest of your earnings.

And there are three different bands.

The basic rate is 20%.

If you earn a bit more money than that, you pay a higher rate, which is charged at 40%.

And the additional rate, if you earn even more money than that is 45%.

So the more you earn, the more you pay.

But everybody gets the same personal allowance.

So let's do some calculating.

How much income tax would you pay on 20,000 pounds of taxable income at the basic rate? Gosh, lots of information there.

So we've taken off the personal allowance and what's left is that 20,000 pounds, that's the taxable income.

And we are paying income tax at the basic rate, which is 20%.

So what have we got to work out? Ah, Laura says, "We need to find 20% of 20,000 pounds." So we've got a bit of a table here to help us.

We know that 100% is 20,000 pounds.

That's the whole amount of our taxable income.

Laura says, "Let's start by finding 10%." Do you know how to calculate 10% of something? Remember we are thinking about parts out of a hundred.

So ten 100s is the same as one 10th.

So to find 10% we can divide it by 10.

And 10% of 20,000 pounds is 2000 pounds.

We can use our knowledge of place value to divide by 10 there, can't we? But we need to find 20%.

So Sofia says, "Now we can double it to find 20%." Two lots of 10% will be equal to 20%.

Two lots of 2000 pounds is 4,000 pounds.

So Jacob says, "You would pay 4,000 pounds of income tax on that 20,000 pounds of taxable income." Time for you to have a go at that, check your understanding.

So think carefully about what that bar model's showing you and what the words mean.

You are going to calculate how much income tax 30,000 pounds of taxable pay would generate at a basic tax rate.

So we've taken off the personal allowance, the taxable pay is 30,000 pounds and we're paying at that basic rate of 20%.

Pause the video, do your calculation, and when you're ready for the answer and some feedback, press play.

How did you get on? Did you use that 10% to help you? 'Cause we were calculating 20% again.

And if you remember before, we were able to calculate 10%, which was one 10th of the amount, so dividing by 10, and then double it to find 20%.

So 100% was 30,000 pounds.

We can divide by 10 to find one 10th or 10%, that's 3000 pounds, and then double it to find 20%, 6,000 pounds.

So this would generate 6,000 pounds of income tax.

So that one person's salary means that 6,000 pounds goes to the government to help fund public services and things like the NHS.

The amount of VAT, that value added tax that's put on goods or services also varies.

There are three different bands.

So the standard rate of VAT is 20%.

So for things considered wants and not needs, the cost of them is increased by 20% and that's the price that we pay.

Some items though have a reduced rate of 5%.

So those are things that are wants, but they're more important wants, they're more needy wants, I suppose, than the other ones.

So some items have a reduced VAT rate of 5%.

And some items, those things that are needs for everybody have a zero VAT rate.

So 0% is added so the cost doesn't change.

So Andeep, Sofia, and Jacob are going to work out how much a 10 pound item would cost with VAT at a standard rate of 20%.

So we need to find 20% of 10 pounds and add that on.

So 100% of the cost of the item at the moment is 10 pounds, isn't it? So let's start by finding 10%.

Can you remember how to find 10%? 10% a really useful one.

10% is the same as one 10th of the cost.

So we can divide by 10.

So we divide it by 10 and 10 pounds divided by 10 is equal to one pound.

So 10% is one pound.

But remember we need to find 20% so we're going to double that.

Double one pound is two pounds, so 20% of our 10 pound item is two pounds.

And we need to add that onto the cost because this is the value added tax we added on.

Two pounds added onto 10 pounds is equal to 12 pounds.

So that's how much that item would cost if we went to buy it.

Its value is 10 pounds, but because it's a want and not a need, it has VAT added, so we pay 12 pounds for it and that two pounds goes to the government.

Time to check your understanding of VAT.

Can you calculate how much a 50 pound item would cost with VAT at the standard rate of 20%? So think about what we've just done and see if you can apply that same thinking to this 50 pound item.

Pause the video, have a go, when you are ready for some feedback, press play.

How did you get on? So we're going to find that 10% again, aren't we? We can divide by 10 to find 10% because it's one 10th.

So 50 pounds divided by 10 is equal to five pounds, but we need 20%, so we're going to double it.

Double five pounds is 10 pounds and this is a value added tax.

So we need to add that 20% onto the original cost.

50 pounds plus 10 pounds is equal to 60 pounds.

So with VAT, this item would cost 60 pounds.

And sometimes you see prices listed excluding VAT, and you have to make sure to add the VAT on if you know it's going to be charged.

Something to look out for when you're buying things.

And time for you to do some practise.

So for question one you're going to calculate the amount of income tax that each of these amounts of taxable pay would generate.

So you've got three there to have a look at.

And for question two, you're going to calculate the price of each of these after VAT has been added.

Look carefully to see what rate of VAT is being added to each one.

And for question three, do you agree or disagree with what Andeep says, and can you explain your answer? Andeep says, "I think that everyone should pay the same rate of income tax no matter how much they earn." Do you agree or disagree? You might want to discuss that with some people around you.

Pause the video, have a go at those three questions, and when you're ready for some feedback, press play.

How did you get on? Let's look back at question one about income tax.

So for the first question, we were calculating at the basic rate.

So 20% and the taxable pay was 10,000 pounds.

So 20% of 10,000 pounds, well 10% is 1000 pounds, 20% is 2000 pounds, so this would generate 2000 pounds of income tax.

For B, we had 24,000 pounds that was taxable at the higher rate of 40%.

So this time we've gotta find 40%.

Well we can use that same strategy, find 10%, but this time we need to multiply it by four.

So 10% of 24,000 is 2,400 and times that by four is 9,600.

So this would generate 9,600 pounds of income tax.

That's quite a lot isn't it? And for C, we've got taxable pay of 6,000 pounds paying at the basic rate of 20%.

So 10% of 6,000 pounds is 600 pounds.

Double that 20% is 1,200 pounds.

So it would generate 1,200 pounds of income tax.

So in question two you are calculating the price of each of these after VAT had been added.

So in A, the pair of headphones with a value of 60 pounds and a standard rate of VAT of 20%.

So we need to calculate 20% of 60 pounds and add it on.

20% of 60 pounds is 12 pounds.

That added on gives us a total of 72 pounds, that's what we'd pay for the headphones.

In B, a chocolate bar has a value of 60 p.

I wonder if you spotted anything here.

So we had to find 20% of 60p because chocolate has that rate of 20% added onto it.

Well 60 pence, 10% is 6p, 20% is 12p.

So 20% added on means we've got to add on 12p.

Did you spot 60 pounds had 12 pounds added, 60p is gonna have 12 pence added.

So the cost of our chocolate bar is going to be 72 pence.

Did you spot in C though that we had a reduced VAT rate? A child car seat is much more of a need than a want, but it still has a bit of VAT added on, but just 5% this time.

So to calculate 5% we can find that 10%, but this time we can halve it.

So 10% of a hundred pounds is 10 pounds, half of that is five pounds.

So we'll add on the five pounds.

So the cost of the car seat with VAT is 105 pounds.

And in three you were deciding whether you agreed or disagreed with what Andeep had said.

He said that he thought everyone should pay the same rate of income tax no matter how much they earn.

Did you agree or disagree? Sofia agreed.

She said, "Because then everyone is paying the same proportion of money to the government, even if it's not the same amount." But Jacob disagrees.

He says, "I think the people who are wealthier should pay more because they've earned the money from everyone else." It is interesting to consider where money comes from and you may have disagreed with your friends over this.

It's an interesting discussion to have.

What do we think about income tax? And we've come to the end of our lesson.

We've had some really interesting discussions about where money comes from and who pays for the things that perhaps we take for granted.

And we've also thought again about wants and needs.

So some of the things we've talked about, the government funds many goods or services that are free to use, but to pay for these goods and services every working adult has to pay income tax at different rates.

And VAT is added onto lots of goods and services that are directly paid for.

The government then chooses what goods and services to fund with this money.

So hopefully you'll look out maybe for the next time there's a budget and think about what is it that we are paying more tax on or less tax on, and what is it funding.

I hope you've enjoyed discussing all of this, I certainly have.

And I hope we work together again soon.

Bye-bye.