Government Spending
Government (or public) spending each year takes up over 40% of gross domestic product. Spending by the public sector can be broken down into three main areas:
- Transfer Payments: Transfer payments are government welfare payments made available through the social security system including the Jobseekers’ Allowance, Child Benefit, the basic State Pension, Housing Benefit, Income Support and the Working Families Tax Credit. These transfer payments are not included in the national income accounts because they are not a payment for output produced directly by a factor of production. Neither are they included in general government spending on goods and services. The main aim of transfer payments is to provide a basic floor of income or minimum standard of living for low income households in our society. And they also provide a means by which the government can change the overall distribution of income in a country.
- Current Government Spending: i.e. spending on state-provided goods & services that are provided on a recurrent basis every week, month and year, for example salaries paid to people working in the NHS and resources used in providing state education and defence. Current spending is recurring because these services have to be provided day to day throughout the country. The NHS claims a sizeable proportion of total current spending – hardly surprising as it is the country’s biggest employer with over one million people working within the system!
- Capital Spending: Capital spending would include infrastructural spending such as spending on new motorways and roads, hospitals, schools and prisons. This investment spending by the government adds to the economy’s capital stock and clearly can have important demand and supply side effects in the medium to long term.