4.5.1 Public expenditure

• Capital expenditure


  Spending on assets, which can be used multiple times
• Current expenditure


  Spending on goods and services which are consumed and last for a short period of time
• Transfer payments


  Welfare payments from the government to provide a minimum standard of living for those on low incomes
• Transfer payments in the UK

  • Job Seeker's Allowance
  • Income Support
  • Child benefit
  • The state pension
• Transfer payments are a means for the government to redistribute income from the rich to the poor
• In the UK, the government spends most of their budget on pensions and welfare benefits, followed by health and education
• Income tax is the biggest source of tax revenue in the UK
• Education spending in the UK has remained relatively constant
• Social security payments have generally increased since the war
• Defence spending in the UK is falling
• Productivity and growth


  • Governments can spend money on supply-side policies to improve human capital and boost long run growth
  • Education and training can mean higher value products can be made and productivity can be improved
  • Fiscal policy aims to stimulate economic growth and stabilise the economy
• Crowding out


  • Governments might have to fund its spending using taxes or running a budget deficit, which leaves fewer funds in the private sector for firms to use
  • When the government borrows a lot of money, interest rates might increase, discouraging spending and investment among the private sector
• Level of taxation


  • The tax rate might increase if government debts get too high
  • In the UK, the size of government spending is about 40% of GDP, meaning citizens have a lower tax burden than in a country such as Switzerland where government spending is 60% of GDP
• Equality and living standards

  • Progressive taxes could be used to reduce inequality
  • Redistributive policies and welfare payments could be used to help those on the lowest incomes
  • Government spending on housing and public services helps provide equal opportunities and ensures a minimum standard of living for all