government expenditure - consists of the combined capital and current
spending of central government including debt interest.
government final consumption - is government expenditure on currently
provided goods and services excluding transfer payments.
Transfer payments are transfers
from tax-payers to benefit recipients through the working of the social
security system. The total welfare bill now exceeds £100 billion per year.
Why We Need Government
public and merit goods
See unit 2.
of income and wealth
One aim of
the social security system is to carry out a redistribution of income and to
reduce income inequalities by providing a basic minimum level of income for
those out of employment and income replacement for those who have recently
been made redundant. The
social security system also tries to provide a safety-net for those who
suffer unexpected falls in income arising from unemployment, separation and
bereavement. Progressive taxes
also have the effect of diminishing the gap between those on low and high
incomes although the tax and benefit system on its own can never hope (or
seek) to eliminate income disparities between individuals and groups.
of economic activities
government intervenes via enforcement agencies to ensure that economic
activities do not adversely affect the public interest. Examples include the
Office of Fair Trading and the Competition Commission (formerly the
Monopolies and Mergers Commission). In
recent years there has been a growth in the number of regulatory agencies
established. These include the regulatory bodies set up to monitor the
performance of the privatised utilities. Examples include Ofwat, Ofgem, Offer
(see unit 2 for more information).
resource allocation and industrial efficiency
achieved via regional policy which aims to reduce regional economic
disparities within the UK. The Department of Trade & Industry implements
policies to encourage the competitiveness and performance of the UK corporate
the level of macro- economic activity
spending has an important role to play in stabilising the level of aggregate
demand in the economy. Increases in government spending on state provided
goods and services add to total domestic demand and can have multiplier
effects on the final level of equilibrium national income. There is a debate
about how effectiveness this form of expansionary fiscal policy is in
stabilising the economy. When
the economy is growing, certain items of government spending will tend to
fall. These include social security payments. For example
when real GDP is rising and more people are finding work, the government will
not have to spend as much on the Job Seeker's Allowance and other benefits
such as income support and housing benefit.