Key Questions

What does the government spend money on?

On the eve of the COVID-19 pandemic, government spending was almost £890 billion, or around 40% of GDP. Health spending is a growing share of the total.

The government spends huge amounts of money each year on our behalf. In 201920, on the eve of the COVID-19 pandemic, UK government spending was almost £890 billion, or around £13,200 per person. This was equivalent to about 40% of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more – around the average for the post-war period. Following the onset of the pandemic, spending spiked sharply, rising to its highest level as a share of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more since the First and Second World Wars.

Two-thirds of spending is on public services

The total amount of money that the government spends each year is called total managed expenditure (TME). This can be broken down into a number of broad components. Around two-thirds of the total is ‘day-to-day’ spending on public services, such as the NHS, schools and prisons. Around a quarter of all spending is on social security, such as universal credit and the state pension. The remainder can be split into government investment (around 5% of the total) and (net) interest costs on government debt (around 3% of the total). The chart below shows how spending on each of these components has changed over time. One notable trend is a more than doubling of social security spending as a share of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more. Another is the steady reduction in net debt interest costs as a share of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more over the past 40 years.

Components of spending

Another way to break down overall spending is into areas, or ‘functions’, of government. This is done in the pie chart below. Health spending is the largest single area of government spending, representing almost £1 in every £5 spent. The next-largest areas are social security spending on pensioners (largely the state pension), social security spending on working-age adults and children (including universal credit and disability benefits) and spending on education. Together, health, social security and education account for more than half of all spending.

Health spending is growing

The major trend of the past 70 years has been a steady increase in the share of government spending devoted to health and a corresponding decrease in the share devoted to defence. Between 195556 and 201920, health increased from 7.7% to 18.5% of total spending. This rise was more than offset by a fall in defence spending from 20.9% to 4.8% of the total (shown in the chart below). In contrast, spending on education was largely stable.

We see similar trends if we instead look at spending as a share of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more, as in the table below. Health spending has grown steadily to account for an ever-increasing share of GDPGross domestic product (GDP) is a measure of an economy’s size. It is the monetary value of all market production in a particular area (usually a country) in a given period (usually a year).Read more, while education spending has been relatively stable. At the same time, the share devoted to spending on defence has fallen, as has the share devoted to spending on a number of other areas (notably housing and net debt interest costs). The broad picture is that of a state increasingly focused on providing healthcare, long-term (social) care and pensions to the elderly – a trend that is likely to continue as the population ages.