Readers Question: What does the Government spend its money on?
The government spends money for a variety of reasons:
- Reduce inequality (welfare payments like unemployment benefit).
- Provide public goods (fire, police, national defence)
- Provide important public services like education and health (merit goods)
- Debt interest payments.
- Military spending
In the UK, the biggest department for public money is social security. This takes almost a quarter of all public spending. It goes on financing a variety of benefits (Unemployment, housing benefit, child support, pensions).
Government spending as % of GDP
Main Areas of Government Spending 2013
[+] Pensions (old age and sickness) £138.1bn
[+] Health Care £125.9bn
[+] Education £34.2bn + £59.1bn (local) total education = £97.2bn
[+] Defence £46.4bn
[+] Social Welfare (income support, unemployment benefits) £117bn
[+] Protection (police, law, courts, fire) £33.4bn
[+] Transport £18.5bn
[+] General Government (e.g. civil service) £17.9bn
[+] Other Spending (mainly local, e.g. waste management, sports and leisure) – £48.6bn
[+] Interest payments on Government debt – £45.1bn
[+] Total Spending £683.bn
[+] Public Net Debt £1,159)
- Foreign Aid £7.8 billion or 0.7% of GDP 2011/12 (Cost of Foreign aid)
Total Government Spending
Government Spending as % of GDP
In 2010, the government embarked on tough spending cuts to try and reduce the budget deficit. However, spending on debt interest payments rose to £48bn. Also, spending on welfare benefits rose because of the increase in unemployment. Overall the government plan to keep spending static in real terms (adjusted for inflation)
See also: Total UK government spending
Changes in UK government spending
source: HM Treasury
In the past 20 years, in real terms, the biggest increase in government spending has been in the area of health care.
The welfare budget includes spending on unemployment, income support (universal credit), housing benefit and disability allowances. It increased to £105bn in 2011-12
As a percentage of GDP, welfare spending is just over 7% of GDP.
Total Benefit Spending
Total benefit spending includes the welfare budget, plus also the total spending on pensions. The total benefit bill for the UK was £200bn in 2012. See growing size of welfare state