Economics - Public sector spending spree.

(From Financial Director)

Byline: Dennis Turner, chief economist at HSBC.

After years of neglect, the public sector is back in the spotlight.

Mrs Thatcher's first electoral victory in 1979 marked the start of a reduction in the role of government in the economy, largely through privatisation.

A second strand of policy was the reform of services such as health and education, aimed at getting better value for taxpayers. During the Major years, the policy was continued, with more privatisations and, after a marked deterioration in public finances in the early 1990s, the introduction of tight controls on public spending.

The Labour administration has accepted much of what its predecessors did. There have been no renationalisations (Railtrack is an exception) and both the Prime Minister and Chancellor have been pressing for reform across large areas of the public sector. With their commitment to the private finance initiative, this government has extended the concept of privatisation into new territory. Yet this does not mean they have abandoned the public sector to market forces. Services such as healthcare are higher on the agenda than they have been at any time since 1979.

There are several strands to the argument about the role of the government in the economy. At the highest level of aggregation, it is true that public sector spending is rising faster than expected tax revenues and the economy as a whole. This has led to fears of a return to the tax-and-spend policies of the Labour governments of the 1960s and 1970s. From a macroeconomic perspective, funding implications of the ambitious spending plans should not be a problem if Brown's forecasts for activity are born out.