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Home arrow Political science arrow A Century of Fiscal Squeeze Politics : 100 Years of Austerity, Politics, and Bureaucracy in Britain

The Implications of a Changing Public Spending Profile for Fiscal Squeeze

One noticeable variation over time in spending squeezes is reflected in the sixth column of Table 2.3, which shows an appreciable fall in the proportion of spending cuts accounted for by reductions in public sector investment in spending squeezes since the 1970s (when such spending cuts accounted for between one-third and all of the total spending squeeze).

Overall

episode

Sub-episode

Govt.

orientation

Form of government

Composition of spending

Composition of

revenue

Most cut categories3

Gross Inv. fall as a % of total

fallb

% changes to Lower (L), standard

(S), & highest (H) tax ratec

Income, profit, & capital tax (% of rev. rise)d

1916-18

1916-18

Mixed

War coalition

L 70, S 100, H 80

61.6

1919-25

1919-21

Right

Con-Lib coalition

Def.

-6.6

1923-25

Right

Mixed & volatile

So. Sec., Edn, Def

23.2

1931-35

1931-32

Mixed

Min. Lab & emerg. coalit.

L 30, S 10, H 10

53.2

1933-35

Right

National Govt. coalition

Edn, So. Sec.

35.9

1941-45

1941-45

Mixed

War coalition

L 30, S 20, H 10

78.8

1946-49

1946-49

Left

Majority Labour

Def.

-21.9

S -10, H -10

1953-55

1953-55

Right

Maj Con

So. Sec.

33.3

L -25, S -11, H -5

1960-61

1960-61

Right

Maj Con

No change

46.3

1964-69

1964-67

Mostly left

Maj Con & Lab

S 10, H 3

39.5

1968-69

Left

Maj. Lab

Def.

57.1

L 50

1973-78

1973-5

Right, Left

Maj Con & Lab

S -10, H -6

54.6

1976

Left

Min Lab

109.1

No change

1977-78

Left

Min Lab

Edn

57.1

No change

1980-88

1980-81

Right

Maj Con

No change

33.3

1983-88

Right

Maj Con

So. Sec, Def.

28.7

S -17, H -33

1993-99

1993-99

Right, Left

Maj Con, Min Con, & Lab

So. Sec, Def.

26.1

L -50, S -12

2010-15

2010-15

Right

Con-Lib coalition

Edn, Pub. order

31.6

H-25, VAT 33

Notes:a Current spending categories recording the biggestfall as a proportion of GDP. So.Sec = social security, Edn. = education, Def. = Defence, Pub. Order = public order. Figuresfor2010-15 episode usedata up to 2013/14.b Government investmenton newinfrastructure projects including Public Finance Initiative paymentsfrom the1990s.c L = Lowerrate (reduced rateto 1969/70), S = Standard rate (basic rate from 1973/4), H = top tax rate on earned income, VAT = value added tax at standard rates. d Increase in income, wealth, and taxes on profits relative to GDP as a proportion ofoverall percentage point increase in revenue/GDP.

Sources: Spending derived from TableA5. Revenue derived from TableA6 and data used in FigureA1.

On the face of it, this change might appear to reflect a move away from sacrificing capital or 'seed-corn' spending, so often highlighted in the past by critics of spending cuts (Dunsire and Hood 1989: 37 and 47-8). But it also reflects some long-term changes in the organization of capital spending over the later part of our period. Gross capital spending in the sense recorded in Table 2.2 declined as a category of reported public spending after the mid- 1970s, at first because of transfer of large amounts of local authority public housing to private ownership and the decline in the building of new social housing by local authorities, then because of wholesale privatization of former nationalized industries in the 1980s, and further in the 1990s as a result of a major reduction in central government investment at that time (Crawford, Emmerson, andTetlow 2009: 37).

That fall in the proportion of spending cuts accounted for by reductions in gross investment spending might be also be explained by a new way of financing capital expenditure (such as new schools, hospitals and public buildings) that developed in the 1990s. It took the form of long-term contracts with private firms which both raised the necessary capital on the financial markets and built and operated the relevant facilities. That arrangement contrasted with an older pattern in which government raised the funds and then organized and managed the construction and operation of the facilities. That meant older accounting distinctions between 'capital' and 'current' expenditure became harder to draw: in principle the ONS data from which the column in Table 2.3 is taken corrects for such effects, but the changing accounting conventions surrounding the treatment of capital spending over the period makes the consistency of such time-series data quite problematic. As we shall see in later chapters, capital spending did not disappear as a target in expenditure squeezes, but the change in the organization of such spending meant that would-be spending squeezers in the later period found themselves locked into long-term construction and supply contracts that would need to be renegotiated or abrogated for costs to be cut, in contrast to traditional ways of cutting costs in public organizations (including such familiar standbys as no-replacement hiring policies, pay freezes, or cuts in maintenance and repair budgets).

The other long-term change in the composition of public spending affecting spending squeezes is the changing distribution of public spending across different policy domains, as indicated in Figure 2.1. The steep decline in defence spending relative to GDP and the marked proportional increase in social security spending means that the kind of spending cuts applied after the two world wars, in which huge sums were taken from defence (involving mobile people, some below voting age, and a classic 'public good' in economic terms) were much less of an option for governments by the end of our period.

It is true that absolute sums spent on defence remained significant and defence continued to figure in some later spending squeezes, but by that

Trends in selected disaggregated expenditure categories as a percentage of GDP

Figure 2.1. Trends in selected disaggregated expenditure categories as a percentage of GDP

Sources: Health (1900-79) Social Security (1900-49) Education, Defence (1900-52) derived from Mitchell (1988), Chapter XI, Tables 4, 12, 13, 15, and 16. Health (1980-2013);Social Security (1950-2013), Education, Defence (1953-2013) compiled from IFS (2014). Defence costs after 1998 include non-cash costs.

time really substantial spending cuts could only be achieved by cuts in 'welfare state' spending of one kind or another, for which one of the biggest beneficiary groups, the over-sixty-fives, was both growing in numbers and highly electorally significant because of relatively high turnout rates.

Both of these changes in the composition of public spending over time might help to explain and predict why there might be longer periods of shallower spending cuts than in earlier decades, as discussed in the previous section, though they do not obviously explain the apparent demise of the revenue-only squeeze.

 
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