chapter  11
19 Pages

The Private Finance Initiative: a critical assessment: Malcolm Sawyer

ByMALCOLM SAWYER

Governments have long borrowed from the private sector to finance their expenditure: this borrowing has sometimes taken the form of ‘printing money’ but predominantly has been through the sale of bonds and bills to the private sector. Governments have typically run budget deficits: for example, in the late twentieth century, in the UK there were only six years in the last three decades when tax revenue more than covered public expenditure.The ‘printing of money’ (more accurately the increase of notes, coins and bank reserves with the Central Bank) is linked with an expansion of the monetary system.The budget deficits add to the national debt, which has thereby tended to grow over time as budgets have typically been in deficit.However,when the economy is growing, the national debt may increase in absolute terms but decline relative to the level of national income, and this has been the broad trend in the post-war period as the national debt declined from 300 per cent of Gross Domestic Product (GDP) to under 40 per cent at the present time.