For the purposes of this report, UK public expenditure, which covers the government’s spending on public services, has been segmented into:

• central government own expenditure

• local government expenditure

• public corporation expenditure

Each of these can be further segmented into the service function:

• general public services, which is defined as executive and legislative organs, financial and fiscal affairs, external affairs, foreign economic aid; general services; basic research; R&D general public services; general public services not elsewhere classified, public debt transactions and transfers of a general character between different levels of government

• defence, which includes military defence, civil defence, foreign military aid and R&D defence

• public order and safety, which covers police services, fireprotection services, law courts, prisons, R&D public order and safety

• economic affairs, which includes general economic, commercial and labour affairs, agriculture, forestry, fishing and hunting, fuel and energy, mining, manufacturing and construction, transport, communication, other industries, and R&D economic affairs

• environment protection, which includes waste management, waste water management, pollution abatement, protection of biodiversity and landscape, and R&D environmental protection

• housing and community amenities covers housing development, community development, water supply, street lighting, and R&D housing and community amenities

• health, which includes medical products, appliances and equipment, outpatient services, hospital services, public health services, and R&D health

• recreation, culture and religion, which includes recreational and sporting services, cultural services, broadcasting and publishing services, religious and other community services, and R&D recreation, culture and religion

• education, which covers preprimary and primary education, secondary education, postsecondary nontertiary education, tertiary education, education not definable by level, subsidiary services to education, and R&D education

• social protection, which is defined as help given to those in need or at risk of hardship and includes: sickness and disability, old age, survivors, family and children, unemployment, housing, social exclusion and, R&D social protection

Expenditure can be further segmented into:

• current expenditure on services

• capital expenditure

For forecasting and planning Total Managed Expenditure (TME) is segmented into Departmental Expenditure Limits (DEL) and Annually Managed Expenditure (AME). Departments are given firm three-year spending limits, within which they prioritise resources and plan ahead. Spending that cannot reasonably be subject to firm multi-year limits, typically because it is large, potentially volatile and demand-led, is included in AME. Lower levels of AME expenditure release extra spending for public services in DEL.

DEL consists of resource budget for resource consumption and capital budget for new investment, less depreciation. AME mainly consists of departmental AME, such as social security benefits and various allowances and subsidies.

Years quoted in this report are government fiscal years, ending in March of the identified year.

All values quoted in this report are at current prices unless otherwise specified. The term billion denotes one thousand million.

Some numbers in tables do not add exactly due to rounding.

Reports are researched and written by MBD’s in-house, specialist business-to-business consultants. Research is based on both an analysis of official information and on original, trade research, providing both a quantitative and qualitative view of the market. MBD’s unique range of frequently updated reports provide an integrated body of ongoing research, enabling deep understanding of the prevailing trends and of the drivers of these trends based on trade opinion.

One of the issues in analysing public expenditure, is that the sheer size of the expenditure and the significant complications in when it is spent, combined with government changes in accounting practices, means that gaining consistency in the numbers is a major challenge.

The following abbreviations appear in this report:

From healthcare and education to welfare and policing, good public services are essential to the economic and social wellbeing of the UK.

The UK faces significant financial constraints not just today, but in the longer term, as a result of social, demographic and global pressures. In 2010, the government inherited the largest deficit since the Second World War and 25% of government spending was borrowed. In the period to 2013, the government reduced the deficit by 33%.

A major contribution to a reduction in spending can be derived from the efficient running of services. Public services operate in a different fashion to private sector business and have to take account of broader policy objectives, such as the need to provide fair and free access to services. Opening up services to new approaches from other (both private and voluntary) providers has played an increasingly important role in challenging existing ways of operating and encouraging providers to invest in new ways to operate key services.

This report addresses the following key questions concerning public sector expenditure:

• How will expenditure evolve over the next few years?

• Which sectors are being targeted for further reductions?

• With the UK economy growing, where are financial restrictions likely to be relaxed?

• How are the changes affecting the respective roles of services and capital expenditure?

• Where are private sector opportunities the strongest?