How to spend £300 billion

This is a handbook - the first of its kind - providing a comprehensive picture of total government spending, local as well as central, in Britain. It begins with an overview of spending plans for 1996-97, follows this with details of the various spending programmes from defence to central management, and concludes with an analysis of the sources of government revenue and an indication of the trends in the different kinds of public spending in real terms since 1978-79. The presentation of the data is largely in the form of pie charts and bar diagrams coupled with a running commentary, item by item, to provide the reader with essential background information. All this is set out with clarity and competence, as one would expect with a respected financial analyst and a former member of the Treasury staff, and it should prove a useful work of reference on government spending. The treatment is rigorously factual without discussion of the merits or effects of expenditure on this or that.

It is precisely the facts about where the money goes that one most needs to know. Total public expenditure of Pounds 307 billion can be divided into three roughly equal parts. First come social security benefits amounting to Pounds 96.6 billion. Of these benefits, the basic retirement pension (Pounds 28 billion) is much the largest, particularly if one adds in other state pensions which bring the total up to Pounds 34 billion. The balance includes housing benefit (Pounds 11 billion), income support (Pounds 11.7 billion), incapacity and disability benefits (Pounds 17.2 billion) and jobseeker's allowance (Pounds 6 billion). Some of these are contributory benefits paid from the National Insurance Fund (Pounds 45 billion), which finances about half the value of all benefit payments (so that they do not fall on the taxpayer).

About another third of government spending (Pounds 90 billion) is accounted for by health (Pounds 42.3 billion), education (Pounds 37.8 billion) and social services (Pounds 9.8 billion), leaving defence (Pounds 23.3 billion), law and order (Pounds 14.6 billion), transport (Pounds 10.2 billion) and a miscellaneous group (Pounds 44 billion) to make up a little more than the last third.

Few readers are likely to read right through the successive chapters in this book, but a casual dip into it can be revealing. In the energy chapter, for example, it is interesting to find that two years after the privatisation of the coal industry, the government is still spending Pounds 380 million a year on the industry under five different headings. Up to November 1996 purchasers of electricity were paying an extra 10 per cent for power, most of which was going in 1996-97 as a subsidy of Pounds 700 million to the old Magnox nuclear reactors. There are other subsidies of which one hears little: Pounds 7 million to British shipyards to compete for foreign contracts and another Pounds 7 million to help promote overseas sales of the Airbus. The chapter on agriculture lists the payments made under the Common Agricultural Policy in the United Kingdom of around Pounds 3.4 billion in 1996-97, including Pounds 764 million for cereals, a further Pounds 223 million for setting aside land from production, and Pounds 600 million on market intervention to sustain prices. It also sketches the history of BSE up to to July 1994, pointing out that government spending on measures to deal with it had by then reached a total of Pounds 184 million but had envisaged only a further Pounds 16 million in 1996-97. The financial arrangements with the European Community are explained in chapter 16; and the net contribution of the United Kingdom to it in 1996-97, after adjustments in respects of BSE and development aid, is reckoned at Pounds 2.19 billion.

The authors have made their own adjustments to the figures to secure consistency with their definition of income and as a result their estimate of the PSBR for 1996-97 (Pounds 26.9 billion) differs slightly from the official estimate. They make no reference to the Public Sector Financial Deficit but they do discuss the General Government Financial Deficit (which is presumably the same). The Maastricht Treaty requires this to be under 3 per cent of GDP and although it was expected to be higher, at 4 per cent, 1996-97, they indicate that the government hopes to see it drop to 0.7 per cent in 1998-99. Apart from any doubts one may feel, one has to reflect on the difficulty of defining a budget deficit unequivocally and on the economic propriety of setting so strict a limit to it irrespective of the level of unemployment.

This is a book to be warmly commended to a public which, as the authors remark, is largely ignorant of where their money is going and has difficulty in thinking in terms of such large numbers.

Sir Alec Cairncross was until recentlychancellor, University of Glasgow.