Friday, December 05, 2014
Back to the 1930s?
Posted by David Smith at 08:45 AM
Category: Thoughts and responses

In the light of the Office for Budget Responsibility's observation, endorsed by the Institute for Fiscal Studies, that the ratio of government spending to GDP is set to fall to its lowest level for 80 years - since the 1930s - a little clarification might be useful.

The OBR has no good data for overall government spending before 1948 so has extrapolated this from a narrower and different measure produced by the Bank of England: the contribution of government consumption of goods and services to GDP. It might be appropriate to do this, but this is not hard data.

A better measure of spending on public services is public sector current expenditure, not least because during the past half century - when more of industry was in the public sector - public sector gross investment often reached 10% or more of GDP, three times its current level.

On this measure, public spending will fall to its lowest level in relation to GDP since 1972-3 to deliver a 1% budget surplus, and its lowest since 1973-4 to eliminate the budget deficit.

In real terms, government spending is set to fall to its lowest level since the early 2000s.

In cash terms, total managed expenditure will rise by 8.3%, to 779.9 billion, in 2019-20 compared with last year, 2013-14. On the same cash basis, current spending will rise by 7.4% to 707 billion.