Topic / economics

Fiscal Policy

Taxation, government spending, borrowing and their effects on aggregate demand and incentives.

Core exam brief

Know the idea before you use the evidence.

Definition

Fiscal policy is the government's use of taxation, spending and borrowing to influence economic activity and distribution.

Chain of analysis

Expansionary fiscal policy can raise disposable income or government demand, increasing aggregate demand and output through multiplier effects.

Evaluation trigger

Assess the size of the multiplier, crowding out, the output gap, debt sustainability and whether measures alter long-run supply.

Latest verified coverage

22 Sept 2026 · United Kingdom

Fiscal Policy

UK public sector borrowing was £18.3 billion in August 2026

UK public sector borrowing was £18.3 billion in August 2026, while net debt was equivalent to 93.8% of GDP.

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People entering a national tax authority office

Analysis and example bank

26 August 2026 · United Kingdom

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UK electricity VAT will fall from 5% to 0% from 1 October 2026

The UK government has confirmed that VAT on household electricity will be removed from 1 October 2026. The rate falls from 5% to 0% for the rest of the 2026-27 financial year. The government estimates the change will save households about £45 a year on average, cost around £850 million in 2026-27 and reduce CPI inflation by about 0.10 percentage points. It says the current-year measure is funded through cancellation of the £1.8 billion Digital ID programme.

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The HM Revenue and Customs building seen from Parliament Square in London

11 June 2026 · Developing economies / Global

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World Bank forecasts developing-economy growth slowing to 3.6% in 2026

The World Bank's June 2026 Global Economic Prospects forecast developing-economy growth slowing from 4.4% in 2025 to 3.6% in 2026. More importantly for A-Level evaluation, the Bank said developing economies excluding China and India are approaching a decade with almost no progress in narrowing the per-capita income gap with advanced economies. This makes the release a strong growth-versus-development case.

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The stone facade of the Bank of England in London

21 August 2026 · United Kingdom

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UK public borrowing was £1.8bn in July 2026

UK public sector net borrowing was £1.8bn in July 2026 and net debt stood at £2,984.9bn, or 94.1% of GDP. The example is useful for separating the borrowing flow from the debt stock and evaluating fiscal policy rather than treating all borrowing as automatically harmful.

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Rows of terraced houses in Dorset, United Kingdom