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Study Notes

Government Spending

GCSE, AS, A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 3 Jul 2018

This study note looks at government spending in the UK.

Government spending - revision video

Government spending is spending by the public sector on goods and services such as education, health care and defence.

Total UK government spending was around £745 billion in 2015. This was 43% of GDP. Of this, £50 billion was on capital spending. Spending on public services such as education & health is 22% of GDP.

Social welfare protection is the largest element of government spending, with the NHS and Education the biggest single departmental items.

Government Current and Capital Spending

Current spending – on providing public services

  • Salaries of NHS employees
  • Drugs used in health care
  • Road maintenance budget
  • Army logistics supplies

Capital spending – new public infrastructure

  • Construction of new motorways and bridges
  • New equipment in the NHS
  • Flood defence schemes
  • Extra defence equipment

Economic Importance of Government Spending

  • Is a Key Component of Aggregate Demand
  • Has a big Regional Economic Impact
  • Important in providing Public & Merit Goods
  • Can help achieve greater Equity in Society

How Government Spending can affect Incomes

Welfare state transfers

  • Universal child benefits / unemployment benefit
  • Public (state) pensions
  • Conditional welfare transfers e.g. Conditional on attending unemployment programmes
  • Targeted welfare payments- linked to income

State-provided services (in-kind benefits)

  • Education - reduces inequality of market incomes
  • Health care – state provided health services
  • Social housing e.g. Provided by local authorities
  • Employment training

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