If GDP is going up steadily, people pay more in tax because they’re earning and spending more.

When the economy is growing and GDP is on the rise, individuals tend to earn more and spend more. This increase in economic activity leads to higher tax revenues for the government as people pay more taxes on their income and purchases.

Government Spending and Public Services

With more money flowing into the government coffers, authorities have the option to allocate these funds towards public services such as schools, police departments, and hospitals. Investing in these essential services helps to improve the overall well-being and quality of life for citizens.

Impact of Economic Downturns

Conversely, when the economy contracts and a country enters a recession, the situation can reverse. In times of economic hardship, governments experience a decline in tax revenues as people earn less and spend less. This reduction in income may prompt authorities to implement austerity measures, including freezing or cutting public spending or increasing taxes.

The Covid-19 Pandemic and UK Recession

In 2020, the world was hit by the unprecedented Covid-19 pandemic, leading to widespread economic turmoil. The United Kingdom faced its most severe recession in over 300 years as businesses shuttered, unemployment surged, and economic activity plummeted. To mitigate the economic impact of the crisis, the UK government had to borrow billions of pounds to provide financial support to individuals and businesses.