Public Revenue 1938–2005

By the First World War, direct taxation of incomes was established as the principal source of revenue for central government, while the rates retained primacy as the major source of local government finance. The growth of net public revenue between 1938 and 2005, net of transfer payments from Central to Local Government, is shown in Figure 6.1 and clearly indicates the much higher level of public revenue in this period compared to the levels attained in the first half of the twentieth century and the final three decades of the nineteenth century. In reality the decades following the end of the Second World War represented the high point of the public sector in the United Kingdom. Total Net Public Sector Revenue (TNPSR) was particularly high during the war, rising to almost 70 per cent of GDP, after which it fell to assume peacetime levels although, when the Labour party was in power between 1945 and 1951, it remained above 40 per cent of GDP. By the later 1950s, the Conservative government had managed to reduce the TNPSR to below 40 per cent although a new Labour administration pushed the rate of TNPSR above 40 per cent again in the later 1960s. This undulating pattern of the TNPSR continued with a decline in the early 1970s before rising in the later part of the decade before reaching another peak in the early 1980s as very high unemployment exerted a powerful demand for social security benefits. But from about 1983 the TNPSR declined continuously until the early 1990s when recession followed by economic recovery, reversed the decline and started a period of growth, a trend which began to move sharply upward towards the end of the century when a Labour government committed to expanding the scope and quality of public sector provision was elected to office.