The Budget and Public Expenditure

Abstract

Raising and spending public money is a task that remains largely in the hands of the British Government. It is ultimately an intensely political process because it is about who benefits from government activity, and who pays for those benefits. As was noted in Chapter 2, electors expect a high standard of public services, but are more reluctant to pay for them. In practice, governments have less room for manoeuvre in meeting the demands of the electorate than is often realised. First, tax revenue is considerably affected by the state of the economy, so that during a recession, receipts from income tax, corporation tax and VAT fail to meet their projected totals. The 1992 Budget Red Book gave an estimate of general government receipts £4.4 billion below that estimated at the time of the 1991 budget, and the 1992–3 forecast showed an even greater shortfall below the 1991 estimates. Second, expenditure is influenced by many factors outside the immediate control of the government, such as the level of unemployment, but also by longer-term demographic factors such as the age structure of the population. Britain’s ageing population will require increasing funding for pensions and social security benefits, and place greater demands on the health service, needs which will be met by a smaller proportion of the total population in work.