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The public finances: a historical overview

Published Tuesday, March 20, 2018

The past 300 years have seen major changes in the way Britain handles its public finances. This briefing paper looks at trends in public income, spending and debts during this time, and comments on how the money was raised, spent and scrutinised by Parliament.

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Between the revolutions of 1688-89 and the Great Recession of the late 2000s, the amount of money both collected and spent by the government increased dramatically, from less than 10% of GDP to well over 30%.

Much of the government’s money was raised and spent on the wars it fought during this period. The Napoleonic Wars in particular cost an immense amount of money, and military spending still made up the majority of all government spending right into the mid-nineteenth century.

An increasing proportion of spending also went on the civil service, poverty relief, and a number of other areas. Total civil spending in 1692 came to a modern-day equivalent of around £90 million, roughly equivalent now to the spending of public bodies like Historic England. Spending on all of these areas began to accelerate in the nineteenth century, but only started to approach modern levels with the establishment of the welfare state after the Second World War.

Money was raised to support this spending through two major streams: taxation and debt. Both saw temporary increases in times of war, with large step changes after the two World Wars of the twentieth century. The makeup of taxes has also changed, with taxes on products and production making up the vast majority of tax income over the last three centuries, only being overtaken by taxes on income and wealth in the twentieth century.

Debt has also increased, although its current level (as a percentage of GDP) is well below where it was during both the Napoleonic Wars and the World Wars. Both the national debt and the deficit are at levels that are not historically unusual, although recent years have seen economic shocks making impacts previously only seen in times of war.

The government has tried other ways of raising money over the years, through annuities, lotteries, and other more esoteric methods. Some of these are still in existence, although some (such as the Post Office) no longer contribute to the public finances.

Parliamentary scrutiny of the public finances has ebbed and flowed in its intensity, with a general trend for more scrutiny over the years. Some recent changes look to be improving this even further.

Commons Briefing papers CBP-8265

Authors: Philip Brien; Matthew Keep

Topics: Public administration, Public expenditure, Taxation

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