The many ingredients of government spending

Published: 6th Mar 2017

Half of factchecking is understanding the detail. The other half is having a sense of the big picture.

We wanted to make a video that gives a sense of the scale of government spending and introduces some of the biggest spending categories. It’s short, lighthearted (we hope) and you can watch it above.

In brief: the government spent about £750 billion in 2015/16. It’s set to spend closer to £800 billion this year and next year, according to forecasts from the Office for Budget Responsibility.

The biggest spending categories were healthcare, benefits, pensions, and education.

So how do you slice up government spending?

It’s not an easy question to answer. Our video is based on a statistical table published by the government.

It could have been called Public Expenditure Statistical Analyses 2016, Table 5.2... The Movie.

As with all adaptations, we expect some fans will complain that the movie wasn’t faithful to its source or missed out their favourite bits from the original.

PESA 5.2 looks at spending using a UN system called the Classification of the Functions of Government (COFOG) which sorts government spending by what it does, under headings like “Education” or “Public Order and Safety”.

Using COFOG means that the statistics can easily be compared with other countries. But it doesn’t always present spending in a way that’s easy to understand.

So we had to make some decisions about how to represent spending in the video.

We’ve tried to be as transparent as possible with how we did this. If you have any feedback on the video, please email team@fullfact.org with your suggestions. We really want to learn how to do this kind of thing even better.

1. How to start...

There’s other ways to split up government spending than by looking at what kinds of things the government tries to do with it (i.e. the way COFOG does it).

For example, you could divide up government spending according to who benefits, like different social classes or age groups.

Or you could look as which department does the spending, like the Ministry of Justice or the Department of Health.

We decided that splitting up government spending by function was a good starting point.

That’s partly because COFOG is an internationally recognised reporting system for government. It’s also because it gives a sense of what the government is actually trying to do with taxpayers’ money. And it’s the source the government itself uses when it wants to suggest an overall picture of public spending.

It’s also partly because you have to start somewhere and PESA 5.2 is the closest thing we could find to a single-source overview of government spending, including both central and local government.

2. When to start

Using PESA figures for government spending by function meant that we were talking about “outturn” data for last year, in 2015/16.

An alternative would have been to use “nowcast” figures for 2016/17 or forecast figures for 2017/18.

Total government spending in this year and next will be closer to £800 billion, compared to £750 billion in 2015/16.

3. Benefits and tax credits

The benefits budget is a large part of government spending. It includes different types of payments aimed at different people.

Some benefits can have overlapping aims. For example, Universal Credit is in the process of being introduced to replace payments like housing benefit. It’s important to explain that ‘benefits spending’ is a complex area of spending.

But first we need to communicate that it’s a very big area of government spending.

We decided only to list the overall ‘benefits and tax credit’ spend to keep that message clear.

We also listed some of the different categories in COFOG to show how many different areas ‘benefits’ spending covered, including sickness and disability, housing and unemployment.

The Institute for Fiscal Studies has published a breakdown of welfare spending in a different way, according to who gets the benefit.

4. Personal Social Services

We decided to leave spending items listed as ‘personal social services’ in PESA 5.2 out of our total for benefits spending.

They are listed under the main heading of ‘Social protection’ in PESA 5.2 but we didn’t include them in the ‘benefits’ grouping because they include things like adult social care.

5. Pensions

We also listed pensions separately. That’s because they are a much bigger item of spending than anything else that PESA 5.2 lists under the heading ‘Social Protection’.

There is a £110 billion item for ‘pensions’ in PESA 5.2.  That includes about £90 billion on state pensions and about £10 billion of public sector pensions, according to figures from the Office for Budget Responsibility.

State pensions are available to a wide range of people who have made National Insurance Contributions.

Public sector pensions are only paid to ex-public sector employees. They’re part of the pay package for public sector workers.

The Treasury told us that the rest of the £110 billion was for things like pensions credits, winter fuel payments and Northern Ireland old age benefits.

In the video we gave the total £110 billion spend on pensions as it’s listed in PESA 5.2.

But we also gave a figure for the cost of state pensions. It’s the largest single item and it’s probably what many people think about in the context of government spending on pensions.

The Treasury lists state pensions separately as well.

6. Foreign Aid

The UK spent a bit over £12 billion on ‘overseas development assistance’ in 2015 as we’ve written about recently. That £12 billion is normally quoted as the size of our foreign aid budget.

But only £8 billion of UK government spending gets listed under ‘Foreign Economic Aid’ in PESA 5.2 for 2015/16.

That’s because there’s overlap between some of the spending which the UK counts as foreign aid and other COFOG categories. For example, some bits of foreign military aid could be counted towards our foreign aid budget but would be listed under ‘Defence’ in the COFOG accounting system.

A bigger example of a department’s spending that does count as overseas development assistance (ODA) but doesn’t count as foreign economic aid is the Home Office. It spent around £220 million on ODA in 2015, but PESA doesn’t count any Home Office spending in the foreign economic aid category for 2015/16. The Home Office spend made up 1.8% of ODA, while the Ministry of Defence’s spending made up 0.1%.

We listed overseas aid in the video because it’s an important and widely-debated item of government spending and quoted the figure so that it was consistent with PESA 5.2.

7. General Public Services

The Treasury calls everything listed under ‘General Public Services’ which isn’t Foreign Economic Aid or servicing debt the cost of ‘government administration’.

We called it ‘running government’.

8. Transport

The government also spends money on what PESA 5.2 calls ‘economic affairs’. That covers a whole range of industry and infrastructure spending.

We picked out Transport as an individual category, on the basis that it was substantially bigger than any other item of spending under that heading and left everything else in a group that was easier to explain. We grouped other ‘economic affairs’ into a category called ‘business and industry’.

9. EU payments

The UK pays money to the EU. It also gets money back in the form of grants.

The figure we gave for EU payments is the UK’s net contribution to the EU, rather than just what it pays into the EU budget. That's how PESA presents it. That means we’re presenting a smaller figure than we do in our article on the UK’s membership fee.

We included the figure for EU payments because it’s an important and widely debated item. We used the figure for net payments so that we were talking about it in a way that was consistent with the rest of our breakdown and our total figure for public spending in 2015/16.

10. Rounding it off…

To keep things clear we rounded any figure in the video that was over £10 billion to the nearest £5 billion. We rounded all percentages to the nearest 1%.

The pie chart at the end shows spending items as a percentage of ‘Total Managed Expenditure’ because that’s the bottom line of government spending.

Any category we mentioned that was worth over £25 billion is given its own category in the pie chart, except “accounting adjustments” which are put in with ‘other spending’.

That means our figures are slightly different from the ones in the Treasury’s tax summary. The Treasury gives spending as a percentage of government expenditure on services.

Our way of doing it makes ‘other spending’ seem larger relative to the biggest spending items, compared to the Treasury’s method.

But the biggest spending items are still pretty much the same. So the basic story we wanted to tell with the video doesn’t change.

There’s always a next time

As we say in the video and say again here: there’s lots of ways to slice up government spending.

What we want to do in this instance is just give more people a rough sense of scale.

Please email team@fullfact.org with your feedback.

 

How to get the figures we used

Our video

PESA 2016, Table 5.2

Health

Item 7

Education

Items 9.1-9.8

Pensions

Item 10.2, of which pensions; with outturn figures for state pensions from the OBR

Personal Social Services

Item 10, of which personal social services

Benefits and tax credits

Items 10.1-10.9, excluding items listed of which personal social services and 10.2 of which pensions

Interest on Debt

Item 1.7

Defence

Items 2.1-2.5

Public Order / Safety (e.g. Police, Fire services)

Items 3.1-3.6

Transport

Item 4.5

Business and Industry

Items 4.1-4.4, 4.6-4.9

Running government

Items 1.1, 1.3-1.6

Waste and environment

Items 5.1-5.6

Culture / Sport

Items 8.1-8.6

Housing and Streets

Items 6.1-6.6

Overseas aid

Item 1.2

EU payments

Total EU transactions

Accounting Adjustments

Accounting adjustments

Update 7 March 2017

We added in the example of Home Office spending into the section on foreign aid, and that overseas development assistance spending figures refer to 2015.

We also added an explanation that COFOG is internationally recognised and Table 5.2 includes both central and local government.

Update 10 March 2017

We updated the section on pensions to list some of the items it includes other than state and public sector pensions.


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