Understanding the Public Services Industy

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Public Services Industry Review Figure 2.2: The PSI in the context of Total Government Expenditure, 2007/08 9 Total Managed Expenditure £586bn Consumer spending on services £512bn Capital spending £47bn Accounting adjustments £28bn Pay £159bn Gross procurement £141bn Social benefits £187bn Subsidies £13bn Services £79bn Source: Oxford Economics, based on PESA table 5.3 Goods £67bn Debt interest £31bn Income from goods and services £18bn Box 2.1: Methodology to estimate Government purchase of services The data used for the analysis comes from the Public Expenditure Statistical Accounts (PESA). 10 However PESA does not provide a split of procurement into goods and services so this has been estimated using ONS National Accounts Supply-Use Tables (SUT). The SUTs gives information on goods and services for a number of key spending areas including public administration, defence, local government, education, health and social activities. The proportion spent on services for each of these categories was applied to the PESA data. HMT only publish consistent PESA time-series back 5 years. As a result any changes in scope which may be introduced in a given year are not reflected in earlier years. For example, in the 2007 and 2008 PESA publications improvements were made to the treatment of NHS procurement but these have not been reported for years prior to 2002/03. From previous PESA publications Oxford Economics derived a time series from 1995/96 and included some key adjustments to improve the consistency of the procurement data before 2002/03. These issues mean that the data included here are best estimates and would be improved if the actual split of goods and services procured were provided by all government departments. 9 Notes: i) the procurement figures include purchases by central and local government ii) Pay and procurement totals are adjusted for estimated GPs’ salaries (£5bn in 2007/8). The final £79bn figure excludes GPs’ salaries. 10 PESA : Public Expenditure Statistical Analyses published by HMT. 12
Public Services Industry Review 2.7 Figure 2.3 shows how the PSI has grown since 1995/96 - from £31bn to £79bn at nominal prices and from £42bn to £79bn at real prices. Over the first 8 years of the period the PSI grew by 7 per cent per year in real terms, but since 2003/4 growth has fallen to an annual average of 3 per cent. This fall partly reflects the slower growth of total government expenditure, but it also indicates a slowdown in the rate at which government is contracting with the PSI. Figure 2.3: Growth of the UK PSI since 1995/6 80 70 60 50 £billion 40 30 20 Nominal prices Real prices 10 0 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Source: Oxford Economics 2.8 Another way to view this is to calculate the share of total public services (i.e. current spending excluding transfer payments, debt interest and procurement of goods) provided by the PSI (see Figure 2.4). This peaked at 33.6 per cent in 2003/04 and has since fluctuated around 32.6 per cent. 13
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