Commentary – Big Government?

The size of the public sector is a continuing source of economic debate from a number of perspectives. At home there is widespread concern that the increase in public spending in the United Kingdom has not delivered 'value for money' but has instead been absorbed in large pay increases.

There are three key mechanisms by which a large public sector might be thought to depress economic performance. First of all there is the question of taxation. Secondly, there is the argument that public spending is inevitably associated with an increase in the share of activities in the economy where measured productivity growth is slow. And thirdly, there is the argument that the public sector is inherently inefficient because it is not subject to the same sort of incentives as the market sector.

In the debate on public sector spending, which is underway ahead of the Comprehensive Spending Review due in 2007, there is bound to be substantial discussion of whether the size of the public sector should be allowed to increase further, be held at its present size or be reduced.