The Growth of the Public Sector

Abstract

In the 1870s and 1880s total public sector expenditure in the United Kingdom, net of transfer payments in the form of subventions paid by central government to local government agencies to defray the costs of providing important services, averaged 10 to 11 per cent of Gross Domestic Product, GDP, the conventional measurement of the size of the national product of the economy in a financial year, customarily 12 months from April to the following March, but this share began to rise in the 1890s to reach 15 per cent during the decade before the Great War after having been somewhat greater during the Boer War, as shown in Figure 1.1. During the Great War, by which term contemporaries described the First World War, public spending rose sharply in response to the war effort, before declining to a new peacetime level that, throughout the interwar years, remained well above the level attained before 1914. For most of this later period, total net government spending ranged between 25 per cent and 30 per cent of GDP but rose above 30 per cent as another great international conflict approached. During the Second World War government spending reached even greater heights than it had during the First World War, and came close to 70 per cent of GDP. When peace was restored, public expenditure found a new and fairly stable level between 35 per cent and 45 per cent of GDP in most years although the trend turned clearly downward towards the end of the 1980s when it fell below 40 per cent of GDP. The decline in the final decades of the century reflected the policy of privatizing public sector housing which was energetically pursued by the Conservative government in the 1980s, the stock being sold on extremely generous terms to existing tenants as an inducementto encourage them to purchase. By 1988–89 total managed public sector expenditure had fallen to 39.3 per cent of GDP although it exceeded 40 per cent again in the mid-1990s before falling to 39.3 per cent in 1997–98, as the newly elected Labour government committed itself as an election pledge to adhere to the public sector spending plans of their predecessors in office for the first two years of the new parliament, so that public spending fell to 38.4 per cent in 1998–99 and to 37.7 per cent in 1999–00 before recovering to 38.4 in 2000–01 by which time the trend was again clearly upwards. [Rodney Lowe, p.455] By the middle of the first decade of the new century public expenditure had, again, passed the level of 40 per cent of GDP.