INTRODUCTION

This chapter covers the two distinct areas of public policy that can be described as ‘fiscal’. It begins by looking at ‘tax and spend’, examining issues such as the proportion of the nation’s output controlled by government, the evolution of the tax system and public expenditure trends over the period. It then considers the macroeconomic issue of government borrowing.

In spite of the apparent intellectual distinctiveness of these two aspects of policy, our chapter will reveal parallels in their histories. In particular, after the Second World War both ‘tax and spend’ and macroeconomic fiscal policies evolved fairly smoothly until the 1970s, when in both fields there was a significant change of direction. In the case of ‘tax and spend’, the trend in the first twenty-five years after the end of the Second World War was for growing government, and growing discretionary expenditure on the welfare state in particular. After the mid-1970s growth in state spending in the economy was checked, and ultimately partially reversed. Macroeconomic fiscal policy proceeded smoothly in the first half of the post-war period, being based on the view that discretion in setting the government’s borrowing was invaluable in regulating economic demand. But it, too, changed course in the mid-1970s, and discretion was jettisoned in favour of a rules-based approach. In the final sections of the chapter, therefore, we try and analyse why it was that these changes were in parallel, and argue that it was more than a coincidence.