Government Spending

This study note looks at government spending in the UK.

Government spending is spending by the public sector on goods and services such as education, health care and defence.

Total UK government spending was around £745 billion in 2015. This was 43% of GDP. Of this, £50 billion was on capital spending. Spending on public services such as education & health is 22% of GDP.

Social welfare protection is the largest element of government spending, with the NHS and Education the biggest single departmental items.

Government Current and Capital Spending

Current spending – on providing public services

• Salaries of NHS employees
• Drugs used in health care
• Road maintenance budget
• Army logistics supplies

Capital spending – new public infrastructure

• Construction of new motorways and bridges
• New equipment in the NHS
• Flood defence schemes
• Extra defence equipment

Economic Importance of Government Spending

• Is a Key Component of Aggregate Demand
• Has a big Regional Economic Impact
• Important in providing Public & Merit Goods
• Can help achieve greater Equity in Society

How Government Spending can affect Incomes

Welfare state transfers

• Universal child benefits / unemployment benefit
• Public (state) pensions
• Conditional welfare transfers e.g. Conditional on attending unemployment programmes
• Targeted welfare payments- linked to income

State-provided services (in-kind benefits)

• Education - reduces inequality of market incomes
• Health care – state provided health services
• Social housing e.g. Provided by local authorities
• Employment training