The Cambridge Economic History of Modern Britain

INTRODUCTION

During the twentieth century, the dividing line between the private and public sectors became hotly disputed territory. It was the source of more economic debate than any other topic apart from the state of the macroeconomy. The origins of that debate and of the rise of the public sector are to be found in the mid-nineteenth century. From modest beginnings in the 1870s, the public sector grew fairly consistently in peacetime periods with noticeable spurts immediately after each of the two World Wars. Expressions of ideological commitments often took the headlines – Margaret Thatcher and Michael Foot in the 1980s, or the 1920s debates about proposals for new government housing estates – though never approaching the revolutionary tendencies in Germany and Russia.

Practical action in fact often revealed a common commitment to the mixed economy. It was under a Conservative Party government that the BBC and the Central Electricity Board were established in 1926 and that Rolls Royce and the Rover Car group were rescued in the early 1970s, whilst the privatisation of the water industry and the private finance initiatives for hospitals took place under the Blair/Brown Labour partnership of the 1990s–2000s. Indeed there were several important driving forces over which the politicians had little control. National defence, reconstruction after the wars, internal unification were of vital concern whilst technological change and externally imposed political changes (the microchip for outsourcing, loss of colonies for airlines) fundamentally changed the parameters of the debates and government policies.

The size of the public sector can be measured in different ways. Production of goods and services (like health, armaments) can be measured by the value added or by incomes generated (wages, profits, rent) but public spending on goods and services is the most common; this is because of its ease of measurement, because it complements the government cash transfers on pensions, child benefit etc. and because it corresponds to the monitoring and control mechanisms used by national Treasuries (www.ons.gov.uk/ons; www.imf.org; www.epp.eurostat.ec.europa.eu).