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Does the size of the state matter?

Explain how the share of national income the state spends can help or harm growth, living standards and equality

Key terms
Size of the state
The size of the state is how much the public sector spends, on services, investment, transfers and debt interest, measured as a share of national income.
Budget deficit
A budget deficit is the amount by which government spending exceeds the money it receives in taxes in a given year.

The UK state spends over two-fifths of national income

In its March 2026 forecast the OBR expected the public sector to spend £1,368 billion in 2025-26, 44.8 per cent of national income, and to raise 40.4 per cent in receipts. On OECD figures for 2025, UK spending is slightly above the average of other industrial countries: more than the United States and Japan, much less than Italy or France.

The share grows when spending on pensions and health rises faster than the economy, and in recessions, when output falls while spending on benefits rises.