Monday, 21 September 2015

Government Spending

The Treasury has produced a brief guide to Government Expenditure, explaining the key terms used. In coming weeks, I'll be looking in detail at how Government money (that's the money provided by you and me) is spent. This is a useful primer on the terms used (from https://www.gov.uk/government/publications/how-to-understand-public-sector-spending/how-to-understand-public-sector-spending)

1. An overview

Public sector spending, also referred to as government spending or public expenditure, refers to the money that the government spends. It can be spent on a range of different things – from central and local government, to public sector pensions and welfare.
Government expenditure can be broken down and understood in different ways. This guide outlines the basics behind the breakdown of public spending, and explains some of the terms that you may have heard used to describe different areas of the government’s budget.

2. Total government spending

The total amount that the government spends is also known as Total Managed Expenditure (TME). This is split up in to:
  • departmental budgets – the amount that government departments have been allocated to spend; this is known as Departmental Expenditure Limits, or DEL.
  • money spent in areas outside budgetary control – this is all spending that is not controlled by a government department and includes welfare, pensions and things such as debt interest payments.; this known as Annually Managed Expenditure, or AME.

3. Departmental Expenditure Limits (DEL)

The government budget that is allocated to and spent by government departments is known as the Departmental Expenditure Limit, or DEL. This amount, and how it is split between government departments, is set at Spending Reviews.
Things that departmental budgets can be spent on include the running of the services that they oversee such as schools or hospital, and the everyday cost of resources such as staff.
The government controls DEL by deciding how much each department gets.

4. Annually managed expenditure (AME)

Annually managed expenditure, or AME, is more difficult to explain or control as it is spent on programmes which are demand-led – such as welfare, tax credits or public sector pensions.
It is spent on items that may be unpredictable or not easily controlled by departments, and are relatively large in comparison to other government departments.

5. Resource and capital spending

Money within both Departmental Expenditure Limits (DEL) and Annually Managed Expenditure (AME) can be further split into resource spending and capital spending.
Resource spending is money that is spent on day to day resources and administration costs. Capital spending is money that is spent on investment and things that will create growth in the future.
The breakdown of both DEL and AME in to resource and capital spending means that sometimes people may refer to ‘resource Departmental Expenditure Limit ‘resource DEL’ or ‘RDEL’, for example.
The setting of resource and capital budgets within DEL and AME is also sometimes known as Resource Accounting and Budgeting, or RAB.

6. The role of the Treasury in controlling public spending

HM Treasury has a constitutional role in controlling public expenditure. Government departments need Treasury consent before undertaking expenditure or committing to spending.
All legislation that affects spending must have the support of the Treasury before it is introduced. Policy decisions with financial implications must be cleared with the Treasury before they gain approval by the Cabinet.