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The self-financing state: an institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom

Berkeley, Andrew; Ryan-Collins, Josh; Tye, Richard; Voldsgaard, Asker; Wilson, Neil; (2025) The self-financing state: an institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom. Journal of Economic Issues (JEI) (In press).

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Abstract

This paper provides the first detailed institutional analysis of the UK Government’s expenditure, revenue collection and debt issuance processes. We show that public expenditure is always financed through money creation rather than taxation or debt issuance. Spending involves the government drawing on a sovereign line of credit from a core legal and accounting structure known as the Consolidated Fund. The Bank of England then debits the Consolidated Fund's account at the Bank and credits other government accounts held at the Bank; a practice mandated in law. This creates new public deposits which are used to settle spending by government departments into the economy via the commercial banking sector. Only the UK parliament can mandate expenditures from the Consolidated Fund. Revenue collection, including taxation, involves the reverse process, crediting the Consolidated Fund’s account at the Bank, thereby offsetting past injections. Similarly, gilts have been issued to temporarily withdraw money to assist in achieving the monetary policy interest rate target. Under the current conditions of excess reserve liquidity, however, the function of debt issuance is best understood as a way of providing safe assets and a reliable source of collateral to the non-bank private sector. The findings support neo-Chartalist accounts of the workings of sovereign currency-issuing nations and provide additional institutional detail regarding the apex of the monetary hierarchy in the UK case.

Type: Article
Title: The self-financing state: an institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom
Publisher version: https://www.tandfonline.com/loi/mjei20
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Monetary systems, macroeconomic policy, fiscal policy, monetary policy, modern monetary theory, public debt management
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Inst for Innovation and Public Purpose
URI: https://discovery.ucl.ac.uk/id/eprint/10187444
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