How Should Britain's Government Spending and Tax Burdens be Measured?

A Historic Perspective on the 2009 Budget forecasts

In the 24th IEA Discussion Paper, David B. Smith takes an historical perspective on the 2009 Budget forecasts. His analysis concludes that the budget deficit will reach levels that are unprecedented in peacetime.

Executive summary

• The government’s preferred market-price GDP measure overstates national output because it is reported gross of indirect taxes and subsidies. Factor-cost GDP, which excludes all indirect taxes and subsidies, is a far better measure for analysing the government spending burden.

• Using this better measure of national income, the 2009 Budget projections imply that the ratio of general government expenditure to national income will rise to 53.4% in 2010, the highest ratio since World War II and 6.9% above the peak recorded in