UK: LESS WAR BUT MORE TIME-BOMBS. - In the past the level of public spending was determined by a monarch's extravagance and wars. Now it is set to be influenced by the "demographic time bomb.

by Rhymer Rigby.
Last Updated: 31 Aug 2010

In the past the level of public spending was determined by a monarch's extravagance and wars. Now it is set to be influenced by the "demographic time bomb.

Faced with the byzantine complexity of today's budgets, modern chancellors must look back on their predecessors' lot with envy. Public expenditure is now of a scale and structure unimaginable for most of Britain's history.

Prior to the Roman conquest, public spending was a simple affair. Social organisation extended little beyond tribal units in which chiefs collected 'tributes' from individuals and families and then spent them as they saw fit. As might be expected in such an economy, budgets neatly corresponded to monies available.

It was only with the Roman invasion of the first century AD that systematic taxation and formalised public expenditure came to a previously anarchic land. As a newly annexed and undeveloped corner of a great empire, Britain initially benefited from expenditure far in excess of any taxes levied by Rome. Its investment, mostly in roads and public buildings, clearly paid off. Toward the end of Roman rule, Britain provided substantially more tax revenue than it consumed.

Significant public spending is next mentioned in Saxon times. Under the enlightened rule of Alfred the Great, up to a third of the monarch's income went to the poor. Although the Norman conquest brought a higher degree of organisation, expenditure until the late 17th century was largely governed by two factors: the extravagance of the reigning monarch and the aggressiveness of his or her foreign policy.

Greater accountability came in the wake of the English Civil War and, subsequently, the Restoration, when much of the monarch's powers - including the control of expenditure - were ceded to parliament. It was not until the late 18th century, however, with the arrival of Pitt, that the nation's finances were comprehensively overhauled. His most notable innovation was the introduction of a recognisably modern system of taxation.

True to the popular image of austerity and self-reliance, central government expenditure during Victorian times remained uniformly low, only disrupted by brief upswings during the Crimean and Boer wars. These were as nothing, however, to the surge in expenditure seen during the first world war. After the lull of the inter-war years, the cost of the following conflict surpassed even that of its predecessor; public expenditure during the second world war rose to an all-time high of over 70% of GDP.

Even though post-war spending inevitably fell, the government's increased social commitments - particularly in the form of the newly-assembled welfare state - ensured that it remained at an historically high level. It then rose under Harold Wilson's first administration, levelled out under Edward Heath and hit a post-war peak of nearly 50% of GDP during Wilson's second spell in office.

Despite the curb on public expenditure promised by the incoming Conservative government of 1979, soaring unemployment in the early Thatcher years led to a steep rise in spending. It fell sharply as the economy boomed in the late '80s yet rose a few years later with recession and, again, the increased burden of welfare payments.

Government predictions for the short term show a slight fall as the recovery gains pace, but the longer term is a source of increasing concern. Foremost among these is the increasingly loud tick of the 'demographic time bomb'. If pension and healthcare costs soar as some predict, the next few generations may come to look back on the mid-'70s and wonder what all the fuss was about.

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