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Public Expenditure: Policy and Control

Published online by Cambridge University Press:  26 March 2020

R.W.R. Price
R.W.R. Price*
Affiliation:
National Institute of Economic and Social Research
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Extract

The present government came to office with a commitment to cut state spending while reducing government intervention in the economy and extending the sphere of private choice through tax reductions. This philosophy, while of significance for the longerterm development of the public sector, is actually of limited use in explaining the 1979 public expenditure reductions. These stem from one of the recurrent crises of financial control which have afflicted public spending plans in the last decade and a half. The purpose of this article is to analyse the financial and economic background to the cuts, which, it is argued, would have called for programme adjustments whatever administration had been in office, though the type of reductions made may bear the imprint of different political philosophies.

Type
Articles
Information
National Institute Economic Review , Volume 90 , November 1979 , pp. 68 - 76
Copyright
Copyright © 1979 National Institute of Economic and Social Research

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Footnotes

This article explains that a major factor in the 1979 public expenditure cuts is the long run tendency for public expenditure to increase in relative cost. It traces the origins of this to the inadequate measurement of public service output and describes the historical trends in the ‘relative price effect’. The article argues for a better measure of output and cost in the government sector so that the development of services can be planned more coherently, without recourse to programme cuts. It shows that cash limits do not fully solve the problem, and that the recent cuts will have no immediate effect on the share of government spending in GDP.

References

Notes

(page 69 note 1) Public spending here includes general government spending and the investment and interest payments of the public corporations; it excludes net lending, which contributes to the difference between the financial deficit and the PSBR.

(page 70 note 1) The Government's Expenditure Plans, 1979-80 to 1982-83. Cmnd 7439, January 1979.

(page 70 note 2) Financial Statement and Budget Report 1979/80, HMSO, 12 June 1979.

(page 70 note 3) The Government's Expenditure Plans 1980-81. Cmnd 7746, November 1979.

(page 70 note 1) The GDP factor cost deflator.

(2) From equation (2) above we can see that QCG is related to the public expenditure share, S, simply by dividing by QGDP; i.e. S=QCG/QGDP.

(page 71 note 1) In interpreting the relationship between public expenditure and GDP attention should be focused on changes in the ratio, since there are well-known difficulties in relating public spending magnitudes, which are essentially at market prices, with GDP at factor cost.

(page 72 note 1) Fourth Report of the Expenditure Committee, House of Commons, 21 February 1979, pp. 50-56.

(page 72 note 2) The November 1979 White Paper gives no figures for the volume growth of public spending by economic category; the forecast here is for a 0.5 per cent fall in QGGC by 1980/81.

(page 75 note 1) The cuts incorporated here are those announced in the Budget, plans an estimate of the reduction implied by Cmnd 7746 for 1980/1 (see footnote (b) to table 5).