On the eve of the COVID-19 pandemic, government spending was almost £890 billion, or around 40% of GDP. Health spending is a growing share of the total.
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What does the government spend money on?
The government spends huge amounts of money each year on our behalf. In 2019−20, on the eve of the COVID-19 pandemic, UK government spending was almost £890 billion, or around £13,200 per person. This was equivalent to about 40% of GDPGross domestic product [GDP] is a measure of an economy’s size. It is the monetary value of all market production in a particular area [usually a country] in a given period [usually a year]. – around the average for the post-war period. Following the onset of the pandemic, spending spiked sharply, rising to its highest level as a share of GDPGross domestic product [GDP] is a measure of an economy’s size. It is the monetary value of all market production in a particular area [usually a country] in a given period [usually a year]. since the First and Second World Wars.
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Note: The shaded section from 2020−21 onwards shows forecasts published alongside the March 2021 Budget.
Source: OBR Public Finances Databank, accessed May 2021.
Two-thirds of spending is on public services
The total amount of money that the government spends each year is called total managed expenditure [TME]. This can be broken down into a number of broad components. Around two-thirds of the total is ‘day-to-day’ spending on public services, such as the NHS, schools and prisons. Around a quarter of all spending is on social security, such as universal credit and the state pension. The remainder can be split into government investment [around 5% of the total] and [net] interest costs on government debt [around 3% of the total]. The chart below shows how spending on each of these components has changed over time. One notable trend is a more than doubling of social security spending as a share of GDPGross domestic product [GDP] is a measure of an economy’s size. It is the monetary value of all market production in a particular area [usually a country] in a given period [usually a year].. Another is the steady reduction in net debt interest costs as a share of GDPGross domestic product [GDP] is a measure of an economy’s size. It is the monetary value of all market production in a particular area [usually a country] in a given period [usually a year]. over the past 40 years.
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Note: ‘Day-to-day public services’ is defined here as total managed expenditure less spending on social security, net debt interest and public sector net investment. The shaded section shows forecasts published alongside the March 2021 Budget.
Source: IFS spending composition spreadsheet, available here.
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Spending composition [467.96 KB]
Components of spending
Another way to break down overall spending is into areas, or ‘functions’, of government. This is done in the pie chart below. Health spending is the largest single area of government spending, representing almost £1 in every £5 spent. The next-largest areas are social security spending on pensioners [largely the state pension], social security spending on working-age adults and children [including universal credit and disability benefits] and spending on education. Together, health, social security and education account for more than half of all spending.
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Note: ‘Other’ includes smaller items [such as spending on science and technology and on recreation, culture and religion] and numerous accounting adjustments.
Source: IFS spending composition spreadsheet, available here.
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Spending composition [467.96 KB]
Health spending is growing
The major trend of the past 70 years has been a steady increase in the share of government spending devoted to health and a corresponding decrease in the share devoted to defence. Between 1955−56 and 2019−20, health increased from 7.7% to 18.5% of total spending. This rise was more than offset by a fall in defence spending from 20.9% to 4.8% of the total [shown in the chart below]. In contrast, spending on education was largely stable.
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Source: IFS spending composition spreadsheet, available here.
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Spending composition [467.96 KB]
We see similar trends if we instead look at spending as a share of GDPGross domestic product [GDP] is a measure of an economy’s size. It is the monetary value of all market production in a particular area [usually a country] in a given period [usually a year]., as in the table below. Health spending has grown steadily to account for an ever-increasing share of GDPGross domestic product [GDP] is a measure of an economy’s size. It is the monetary value of all market production in a particular area [usually a country] in a given period [usually a year]., while education spending has been relatively stable. At the same time, the share devoted to spending on defence has fallen, as has the share devoted to spending on a number of other areas [notably housing and net debt interest costs]. The broad picture is that of a state increasingly focused on providing healthcare, long-term [social] care and pensions to the elderly – a trend that is likely to continue as the population ages.
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Note: Long-term care is defined here as total spending on personal social services, less the family and children and unemployment components. Figures for this measure are not available prior to 1996−97.
Source: IFS spending composition spreadsheet.
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Spending composition [467.96 KB]
Last reviewed: 04/06/2021
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Key themes : Revenues & spending
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