Saturday, December 03, 2005

Public Spending Growth

Since Labour came to power in 1997, public spending as a percentage of GDP has increased by 2.4%. This is the highest of any G7 country, which on average achieved a reduction of 1% over the same period.

International Spending Comparison

Using comparable OECD definitions (General Government expenditure), Britain is currently on the G7 average for public expenditure as a percentage of GDP, at just over 43%. The US is lowest on 35%, and France highest on 53%.

For more countries and years, see IFS International Comparisons.

Friday, December 02, 2005

Main Spending Areas As % Of GDP

Social Security is the largest spending programme, and has doubled over 40 years. But NHS spending is growing faster.

Public Expenditure As % Of GDP

Public Expenditure (Total Managed Expenditure) is currently around 42% of GDP, up from 38.9% in 1997-98. The government forecasts an increase to 42.4% in 2008-09, a 3% increase under Labour.

Under the 1979-97 Tory governments, spending was reduced by about 5% of GDP, a substantial achievement.

The IFS have an excellent briefing note.

Thursday, December 01, 2005

Government Waste

The government's own waste review- the Gershon Review- came up with £21 bn pa "efficiency savings". But it was seriously flawed, being more a series of aspirations than a serious attempt to identify waste.

The Tories' James Review came up with annual savings of £35 bn. But it was also flawed, not least because it took credit for the £21 bn of dubious savings identified by Gershon.

The Taxpayers' Alliance estimated total waste in 2004 at £81 bn.

The Cost Of Big Government

It is now firmly established that higher taxation depresses GDP growth by distorting economic incentives and penalising success. Studies show that a 10 percentage point increase in the tax/GDP ratio cuts trend growth by 0.5-1.0 per cent per annum, making the cake smaller for all of us (good overview here).

Neither does big government do particularly well in the field of welfare- dividing the cake up. Studies by the IMF, the ECB and elsewhere show that once government expands much beyond 30 per cent of GDP there is little further improvement in the major indicators of welfare other than crude income distribution. And the costs in terms of economic efficiency are high. (ECB paper here).