Syllabus: SQA - Higher Course Spec Economics
Module: UK Economic Activity
Lesson: Government Finance

Introduction

This unit sits within the SQA Higher Economics course, under the “UK Economic Activity” strand. It focuses on how government finances underpin major economic decisions. Students explore how taxation and spending drive public services, redistribute income, and influence key national goals like economic growth, inflation, and employment. The topic is designed to help students apply economic understanding to real-world policy and decision-making—core to both academic performance and practical life skills.

Key Concepts

According to the SQA Higher Economics specification, learners should understand and be able to apply the following:

• Government income sources:

  • Types of taxation, including direct (e.g. income tax) and indirect (e.g. VAT).

• Government expenditure:

  • Current expenditure: day-to-day services such as healthcare and education.

  • Capital expenditure: investment in infrastructure such as roads or schools.

  • Transfer payments: non-reciprocal payments such as unemployment benefits.

• Rationale for public spending:

  • Redistribution of income

  • Provision of public and merit goods

  • Stimulating economic activity during downturns

• Circular flow of income:

  • Especially in a closed economy without injections or withdrawals, helping students understand how money moves between households and firms via government activity.

Real-World Relevance

Students won’t need to look far to see these concepts in action. Recent UK budgets are rich with examples:

• In 2024, the UK Government increased capital spending to fund major transport infrastructure, aiming to stimulate growth in underperforming regions.

• The COVID-19 pandemic prompted unprecedented levels of current spending and transfer payments, highlighting the government’s role as an economic stabiliser.

• Ongoing debates about wealth taxes and NHS funding bring the tension between direct and indirect taxation into public view.

Mini case study:
During a recession, the government may opt to increase capital expenditure to stimulate jobs in construction and manufacturing, which feeds back into the economy through increased consumption.

How It’s Assessed

Assessment within SQA Higher Economics is designed to test both knowledge and application:

• Types of questions:

  • Data interpretation

  • Short structured answers

  • Extended responses

• Command words:
  Expect terms such as “explain”, “analyse”, “evaluate” and “describe” to appear frequently. These require students not just to recall facts, but to apply concepts to real-world or hypothetical scenarios.

• Assessment focus:

  • Understanding of taxation and spending structures

  • Ability to link fiscal policy to government objectives

  • Diagram-based explanation of the circular flow of income

Tip: Encourage students to practise drawing and explaining simplified versions of the circular flow diagram, as it can appear as both a standalone or context-based question.

Enterprise Skills Integration

This topic is rich in opportunities to build enterprise thinking:

• Decision-making: Students analyse how and why governments make choices about where to allocate limited funds.

• Problem-solving: Pupils can tackle scenarios such as “How should the government respond to rising unemployment?”

• Critical thinking: Debates around taxation levels or NHS funding help students weigh up trade-offs and make evidence-based arguments.

These are the same skills employers look for—especially in roles that involve policy, planning, or finance.

Careers Links

Understanding government finance opens the door to a range of career pathways:

• Public sector roles: Civil service, local authority planning, treasury analysis

• Finance and economics: Accountancy, tax advisory, economic consultancy

• Politics and public policy: Working with think tanks or NGOs on fiscal reform

Gatsby Benchmarks 4, 5, and 6 are easy wins here:

• Benchmark 4: Curriculum explicitly linked to careers.

• Benchmark 5: Encounters with employers and employees.

• Benchmark 6: Experiences of the workplace (e.g. mock budget planning workshops or council visits).

Teaching Notes

Tips for delivery:

• Start with what students already know: household taxes, council services, school funding.

• Use current news articles or headlines to spark discussion.

• Encourage students to play the role of government in classroom simulations—setting tax levels, allocating spending, defending their decisions.

Common pitfalls:

• Confusion between capital and current spending—use relatable examples (building a hospital vs paying nurses).

• Misunderstanding the link between taxation and redistribution—illustrate with case scenarios or simple graphs.

• Overcomplicating circular flow—keep it tight and clear, especially at first.

Extension activities:

• Ask students to analyse a recent UK Budget—what did the government prioritise, and why?

• Create a class debate: “Should the UK increase income tax to fund the NHS?”

Recommended tools:

• Use infographics from the OBR or BBC to bring government finance data to life.

• Try simple Excel models to show how changes in tax revenue impact spending choices.