If public spending was £100, how would it be split?

By Dharshini David
Business correspondent

Man holding notes

image copyrightGetty Images

Along with the keys to No 11 Downing Street, the chancellor is given the job of doling out hundreds of billions of pounds of taxpayer money every year.

In fact, for the first time this year, government spending will top a massive £1 trillion. But where does it actually go?

1. How is Rishi Sunak spending our money?

Like most of us, the chancellor has priorities, necessities, a wishlist – and unforeseen bills

For every £100 the central government spends next year, the biggest slice – more than £20 – will go on welfare payments such as pensions and universal credit. Much of that is dictated by factors such as an ageing population or unemployment. These fluctuate and so are hard for the government to control.

The next biggest chunk – £17.50 – goes on health. Education accounts for a further £7, while defence covers £4.50.

We’ve heard a lot about how the government has to borrow to help fund the spending bill this year. But as part of that debt has been picked up by the Bank of England, and interest rates are so low, that slice accounts for just £2 of every £100 – the smallest in decades.

That interest too is hard to predict. And with spending already sketched out for some big departments, such as health and defence, the chancellor’s announcement only revealed plans for about £35 of every £100 the government will be spending in the next year.

Foreign aid has grabbed headlines but accounts for just 70p; the cuts announced now reduces that to 50p.

2. Is austerity over?

Be it fixing potholes or extra cash for the armed forces, government departments have to plead their case with the chancellor. And there are always winners and losers.

In the past couple of years, the government has claimed that austerity is over, the spending tap has been reopened and every department has been bestowed with more cash.

But over the past decade or so, the cost of living has risen and the population has grown. So money has to stretch further. And that money is split between day-to-day spending – from salaries to operations – and investment in the likes of roads, or capital investment.

Strip out that investment spending, and allow for inflation and the growing population, and while the health service will be better off in the next few years, defence actually won’t be. In other words, it is more of a stretch to maintain day-to-day public services

3. What about public sector pay?

One in every £4 the government spends, goes towards paying our 5.5 million public sector workers.

Frontline staff from nurses to police officers were awarded inflation-busting pay rises in the summer as they battled in the face of the virus.

But they were also warned not to expect more. Now 1.3 million people will have their pay rises “paused” for a year, saving the chancellor a billion or two.

His argument is that it’s not fair to give wholesale rises when so many private sector workers have seen their incomes shrink or been laid off – and it is they who foot some of the public sector pay bill.

Exempt from the freeze will be the 31% who work in the health service – and anyone whose pay is under £24,000.

Also exempt will be those employed by local government and the devolved administrations, whose pay will be determined there. But the employers of those two groups could decide to impose curbs themselves.

4. How much is the war on Covid costing?

The curb on public sector pay may feel like that Rishi Sunak is playing Scrooge.

But the cost of fighting the spread of coronavirus, and limiting the economic fallout has soared. It has now hit £280bn for this year – accounting for about £25 in every £100 the government is spending.

Much of that has gone on health and other services. About £40bn has gone on test and trace, PPE and vaccine implementation – the equivalent of more than £1,500 per household. Questions are already being asked if those sums have been spent wisely or effectively.

And then there’s the support to the economy. The bill for furlough is expected to reach almost twice as much, at £70bn, with a further £20bn going to help the self-employed.

Most of such schemes will end come next March. But the health response won’t – Mr Sunak expects that he’ll have to fork out another £55bn, over 5% of the spending pot, on that in the next financial year.

5. How are we paying for all this?

In normal years, the government covers the vast majority of its spending through the tax it takes in – from income tax to VAT to Air Passenger Duty – around £94 of every 100 last year.

But this year those sources of income have suffered – just as outgoings have soared. For the first time, government spending will top £1 trillion.

This year the government will only fund about two-thirds of spending through taxation. That’s equal to the biggest shortfall since World War Two.

At present, the government can borrow cheaply to plug the gap. But not forever. Rishi Sunak has already indicated he’ll be looking to raise taxes – not yet, (for it’s more than the economy could stand ) but in the years ahead.

The chancellor may still be doling out cash – but payback is coming.

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