Part A (45% of the mark for this assignment)
Question 1
Tablet Ltd operates in both England and Scotland, making fudge. Table 1 below gives some examples of the pay received by Tablet’s employees living and working both sides of the border. All of these employees are below state pension age.
Table 1 Examples of pay at Tablet Ltd (2018/19 tax year)
Employee
Living in
Gross pay
Pay after tax and National Insurance
Average income tax rate
Julia
England
£26,000
£21,060.88
10.88%
Donald
Scotland
£26,000
£21,060.88
10.88%
Karl
England
£49,000
Jeanie
Scotland
£49,000
1.1 In your own words, define a ‘progressive tax system’. (2 marks)
1.2 Complete the missing information in Table 1 by using the Income tax and National Insurance calculator to find Karl’s and Jeanie’s pay after income tax and National Insurance have been deducted, and also report the average income tax rate for Karl and Jeanie (not the average total tax rate). (4 marks)
1.3 Based on the information in Table 1 (including your answers to Question 1.2), explain which country has the more progressive income tax system: Scotland or England. (4 marks)
1.4 Now imagine it is four years later (2022/23). Julia’s pay after income tax and National Insurance has risen to £25,300. Over the four years, inflation has averaged 3.5% a year. Using the Inflation calculator, select and report the relevant result from your calculation to help you explain whether in 2022/23 Julia can afford a (material) standard of living that is higher, lower or the same as today. (5 marks)
(Total marks available for Question 1: 15 marks)
Question 2
Pep and Jose, in their 40s and 50s, respectively, are setting up home together in the North of England, along with Jose’s son, Alexis, aged 13.
Jose’s dad helps with childcare, allowing Jose to work part-time. With his salary and child benefit, Jose has an income of £13,000 a year after tax and other deductions. Pep works full-time, earning £25,090 a year after tax and other deductions. They have no other sources of income, and do not receive any tax credits or other benefits.
They expect their expenditure in the new shared home to be as follows
- Rent: £900 per month
- Council tax: £1250 a year
- Food and household items: £240 per week
- Water: £200 every six months
- Gas and electricity: £350 per quarter
- Broadband, TV and phones: £85 a month
- Transport: £350 a month
- Gym, leisure, meals out: £200 a month
- Standard annual season tickets for Pep and Jose for their local sporting team: £550 a year each
- Young person’s annual season ticket for Alexis for their local sporting team: £200 a year
- Holidays: £2700 a year
2.1
(a) Using the Household income equivalence calculator, calculate the annual equivalised net income of Jose’s household when he was living as a single parent with Alexis. (2 marks)
(b) Comment on whether Jose’s standard of living will change when he and Pep live together. (4 marks)
2.2 Draw up an average monthly cash flow statement for Jose and Pep’s joint household. (4 marks)
2.3 Pep and Jose are planning ahead to purchase a standard season ticket for Alexis at their local sporting team, as Alexis will be liable to pay the standard rate next year. Comment on the financial situation of the household reflected in 2.2 and how Jose and Pep might be able to pay for the rise in Alexis’s season ticket price. (5 marks)
(Total marks available for Question 2: 15 marks)
Question 3
Lokesh wants to buy a Vespa motorcycle to be able to get to work easily, as well as indulge in leisurely road trips. His local retailer sells the model he likes for £3000. However he doesn’t have the money to pay upfront so is looking at different financing options.
- Option A is a scheme where customers can pay for the bike in monthly instalments over three years, at a fixed APR of 18%.
- Option B is for Lokesh to use a combination of savings and a credit card loan. This would use up all of his savings of £2000, currently in a savings account, and the credit card would pay for the remainder. The APR on his credit card is 26%. He would repay £25 monthly.
3.1 Briefly explain what APR is and how it can be used. (3 marks)
3.2 Using the Borrowing and saving calculator, calculate the missing figures in Table 2 below, and show your workings. (6 marks)
Table 2
Monthly payment
Repayment period
Total interest paid
Option A
Option B
3.3 Discuss one advantage and one disadvantage of Option A over Option B. (6 marks)
(Total marks available for Question 3: 15 marks)
Word limit for Part A: 800 words
Part B (45% of the mark for this assignment)
Read the two sentences below, from an analysis of trends in household debt published at the end of 2017.
Debt lets households smooth shocks and invest in high-return assets such as housing or education, raising average consumption over their lifetimes. However, high household debt can make the economy more vulnerable to disruptions, potentially harming growth.
(Zabai, 2017, p.39)
Write an essay that further explains all the statements made in these two sentences, and that makes clear why secured as well as unsecured debt contributes to the costs and benefits they identify.
(Total marks available for Part B: 45 marks)
Word limit for Part B: 900 words
