TNAG-2472-FCO40-3599-Confidential-talks-between-the-UK-and-China-regarding-financ-1992 — Page 17

14-OCT-1992

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PUBLIC EXPENDITURE : DEFINITIONAL PROBLEMS

Paper 4 (P. 1 of 5)

Introduction

1.

The most important guideline used for determining acceptable levels of expenditure is that, taking a number of years together, the growth rate of public expenditure should not exceed the assumed trend growth rate of the economy (measured by Gross Domestic Product).

2.

In seeking to keep the growth rate of public expenditure under control so that it would not outpace the trend growth rate of the economy the aim is to ensure that the public sector would not crowd out the private sector in terms of

competition for resources.

3.

an

office block

What represents the consumption of resources is a matter for debate. Economists would argue, for example, that

buying

already completed would not be consumption of resources but that building a new block would be, and that the payment of social welfare benefits would not be consumption but that paying pensions to former civil servants would. In applying our budgetary policy we have avoided these issues and retained a simple definition of public expenditure.

4.

It has been argued that, provided this definition is known and understood, its precise constitution is relatively unimportant. What is important is that we follow a consistent definition and that we do not make ad hoc changes to it for the sake of expediency. This has been valid. Current developments, whether this consistency can be however, bring into question whether

maintained.