A United Kingdom spending update

Remarkably, public spending actually went up last year as a share of our national income, according to a devastating analysis by the OECD.

In a spreadsheet buried deep on its website and annexed to its latest Economic Outlook, it says that public spending hit 49pc of UK GDP last year, a shocking increase on the 48.6pc of GDP spent by the state in 2011.

You should note that differing figures from the UK government show somewhat of a decline in spending in real terms, unlike this estimate.  It would be interesting to read a detailed explanation of why the OECD figures differ.

I would also note that, according to these estimates, UK public spending was 36.6% of gdp in 2000, and had edged up over 50% by 2009 and 2010 and now is still in the range of 49% or so.  Most of the run-up came over the bubbly years of 2000-2006.  Let’s start by calling that an unsustainable mistake.  I would say that, looking back, they didn’t get very much for this spending boost, did they?  That’s fact #1 that should start off any analysis of British fiscal policy looking forward.

Take a look at the recent sectoral details.  Public investment in varying forms is way down, and benefits and public pensions are way up.  It is correct to note that the decline in public investment, and its deleterious consequences.  It is also correct to see the British budget as illustrating David Brooks’s thesis — seconded by many conservatives — that benefits are eating our future.

Maybe I can forestall some of the usual objections to my UK posts simply by noting there are many different ways to measure austerity, and if you use the word in a particular way (“the UK should have had more public investment given its place in the business cycle”), you can claim the UK had austerity relative to that ideal.  Plus taxes went up a lot, most of all the VAT.

Still, these numbers should be put on the table.  Instead, I very often see these numbers being swept under the proverbial rug.  Perhaps it is believed they might confuse people.


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