AQA GCSE Economics: UK government revenue, spending and types of tax (8136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions follow the AQA GCSE Economics (8136) specification, for first teaching from September 2017, section 3.2.1.2 Government income and expenditure. All countries, firms and figures are invented for illustration. Revise first with the study guide and the revision notes. Other links: AQA GCSE Economics hub, printable checklist and free diagnostics.

Questions

1. State two main sources of UK government revenue. [2]

2. State two main areas of UK government spending. [2]

3. (a) Explain what is meant by an indirect tax. [2] (b) From income tax, VAT, corporation tax and fuel duty, identify the two indirect taxes. [2]

4. Country B charges income tax at 0% on the first 9,000 of income, 25% on income from 9,000 to 30,000, and 45% on income above 30,000. Each rate applies only to the income in that band. (a) Work out the tax due on an income of 24,000. [2] (b) Work out the tax due on an income of 50,000. [3] (c) Calculate the average tax rate at an income of 50,000. [1] (d) Use your answers to show that this income tax is progressive. [2]

5. A product is sold for 84 including a sales tax of 20%. (a) Calculate the price before tax. [2] (b) State the amount of tax in the price. [1] (c) The tax rate rises to 25% and the price before tax is unchanged. Calculate the new selling price. [2]

6. Country E charges every household a fixed licence fee of 180 a year. Household P has an income of 15,000. Household Q has an income of 72,000. (a) Calculate the fee as a percentage of income for each household. [2] (b) Explain why the fee is regressive. [2]

7. The table shows the government accounts of Country C (invented figures, billions).

Revenue	Amount	Spending	Amount
Income tax	64	Social protection	70
National Insurance	41	Health	52
VAT	47	Education	30
Corporation tax	18	Defence	14
Excise duties	15	Transport	11
Other	15	Debt interest	13
		Other	20

(a) Calculate total revenue and total spending. [2] (b) State whether there is a deficit or surplus, and its size. [1] (c) Calculate health spending as a percentage of total spending, to 1 decimal place. [2] (d) Calculate the share of total revenue from direct taxes, to 1 decimal place. [2]

8. Country A charges a fuel duty of 0.40 per litre. Household R has an income of 20,000 and buys 1,000 litres in a year. Household S has an income of 80,000 and buys 1,600 litres. (a) Calculate the duty paid by each household as a percentage of income. [2] (b) Explain why this duty is regressive, and why it might be criticised. [3]

9. Using the income tax bands in question 4, a worker’s pay rises from 29,000 to 31,000. The worker thinks the extra tax will leave them worse off. (a) Calculate the extra tax paid. [3] (b) Calculate the rise in take-home pay and explain why the worker is mistaken. [2]

10. “The government should raise more of its revenue from indirect taxes than from direct taxes.” Evaluate this statement. [9]

11. Country D plans to raise health spending from 80 to 88 (billions). (a) Calculate the percentage increase. [1] (b) Explain two ways in which the government could pay for the extra spending, and give one opportunity cost of the plan. [5]

Answers

1. Any two from: income tax, National Insurance contributions, VAT, corporation tax, excise duties (fuel, alcohol, tobacco), council tax or business rates [1] [1]. [2] Examiner insight: A named tax earns credit; “taxes” or “tax on people” is too vague to separate from the question, so name the tax.

2. Any two from: social protection (pensions and benefits), health, education, defence, public order and safety, transport, debt interest [1] [1]. [2] Examiner insight: “Public services” is a general label, so give the specific area. Naming two different areas matters, since a repeat of the same area is only one point.

3. (a) A tax on spending [1], collected by the seller and passed to the government, so the burden is usually passed on to the consumer through the price [1]. [2] (b) VAT [1] and fuel duty [1]. [2] Examiner insight: “Paid by the consumer” alone is incomplete. Include who collects it or how it is passed on. Do not choose corporation tax, which is a direct tax on profit.

4. (a) Taxable slice = 24,000 - 9,000 = 15,000 [1]; tax = 15,000 x 0.25 = 3,750 [1]. [2] (b) 25% band: 21,000 x 0.25 = 5,250 [1]; 45% band: 20,000 x 0.45 = 9,000 [1]; total = 14,250 [1]. [3] (c) 14,250 / 50,000 x 100 = 28.5% [1]. [1] (d) At 24,000 the average rate is 3,750 / 24,000 = 15.6% [1]. It rises to 28.5% at 50,000, so a higher income pays a larger percentage of income, which is progressive [1]. [2] Examiner insight: Set out the working band by band. Multiplying all of 50,000 by 0.45 is a frequent slip, and showing each band separately makes your method clear and easy to check.

5. (a) Price before tax = 84 / 1.20 [1] = 70 [1]. [2] (b) 84 - 70 = 14 [1]. [1] (c) 70 x 1.25 [1] = 87.50 [1]. [2] Examiner insight: Taking 20% of 84 (16.80) is the usual error and does not give the tax, because the 20% was added to the pre-tax price, not to the final one.

6. (a) P: 180 / 15,000 x 100 = 1.2% [1]. Q: 180 / 72,000 x 100 = 0.25% [1]. [2] (b) The percentage of income paid falls as income rises (1.2% to 0.25%) [1], so the fee takes a larger share of the lower income, which is the meaning of regressive [1]. [2] Examiner insight: The answer needs the percentages, not only that both pay 180. Equal amounts are the reason the share falls, but the share is what defines the term.

7. (a) Revenue = 64 + 41 + 47 + 18 + 15 + 15 = 200 [1]. Spending = 70 + 52 + 30 + 14 + 11 + 13 + 20 = 210 [1]. [2] (b) Deficit of 10 [1]. [1] (c) 52 / 210 x 100 [1] = 24.8% [1]. [2] (d) Direct taxes = 64 + 41 + 18 = 123 [1]; 123 / 200 x 100 = 61.5% [1]. [2] Examiner insight: Pick the right total as the denominator, since spending shares use total spending and revenue shares use total revenue. Say which taxes you treated as direct.

8. (a) R: 1,000 x 0.40 = 400, and 400 / 20,000 x 100 = 2.0% [1]. S: 1,600 x 0.40 = 640, and 640 / 80,000 x 100 = 0.8% [1]. [2] (b) The duty is an indirect tax charged per litre and usually passed on in the price [1]. The share of income paid falls from 2.0% to 0.8% as income rises, so it is regressive [1]. It may be criticised because it takes a bigger share from lower-income households and so can widen inequality (or because households with no alternative to a car cannot avoid it) [1]. [3] Examiner insight: Use your figures from (a) in the explanation. A link back to inequality or fairness turns a description into a point about consequences.

9. (a) Tax at 29,000 = 20,000 x 0.25 = 5,000 [1]. Tax at 31,000 = 5,250 + 1,000 x 0.45 = 5,700 [1]. Extra tax = 700 [1]. [3] (b) Take-home pay rises by 2,000 - 700 = 1,300 [1]. Only the income above 30,000 is taxed at 45%, so the higher rate applies to part of the rise, not to all earnings, and the worker is better off [1]. [2] Examiner insight: Distinguish the rate on the extra income (marginal) from the average rate. Explaining only that “45% is paid on the extra” does not show why total pay does not fall.

10. Indirect taxes, such as VAT and fuel duty, are charged on spending and collected by sellers [1]; direct taxes, such as income tax, are charged on income and profits [1]. For: indirect taxes are cheap and easy to collect and hard to avoid [1], they let people choose how much to pay by choosing what to buy [1], and duties on goods like tobacco can discourage harmful consumption as well as raise revenue [1]. Against: they are often regressive, because a poorer household spends most of its income on taxed goods [1], so inequality could widen [1]. Raising prices may also reduce sales, so revenue may rise less than expected [1]. Judgement: a mix is best, because direct progressive taxes support fairness while indirect taxes add stable revenue. The balance depends on whether the government’s priority is raising revenue or reducing inequality [1]. [9] Examiner insight: Weigh the two sides against each other and finish with a decision that your own points support. Setting out pros and cons without choosing between them, or arguing only one side, leaves the evaluation unfinished.

11. (a) (88 - 80) / 80 x 100 = 10% [1]. [1] (b) Way 1: raise taxes, such as income tax [1], which leaves households with less disposable income and may reduce their spending [1]. Way 2: borrow more [1], which adds to the national debt and means higher debt interest in future years [1]. Opportunity cost: the money could have been spent on another area, such as education, or used to cut taxes [1]. [5] Examiner insight: Each way needs a consequence to be developed. State a way and then say what it does to households or the debt. The opportunity cost must name what is given up.

Where marks are usually lost

• Judging a tax by the pounds paid rather than by the percentage of income.
• Charging the top band rate on all earnings instead of the slice above the threshold.
• Taking a percentage off a tax-inclusive price instead of dividing by 1 + the rate.
• Using the wrong total when working out a share of revenue or spending.
• Naming no specific tax or spending area when asked to state one.
• Mixing up direct/indirect with progressive/regressive.
• Describing a deficit and the national debt as the same thing.
• Writing a one-sided answer to an evaluate question, or one with no judgement.

Next steps

• Re-read the study guide and the revision notes.
• Go to the AQA GCSE Economics hub and tick off topics on the checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

AQA GCSE Economics (8136), specification for first teaching from September 2017, published by AQA: section 3.2.1.2 Government income and expenditure.