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How are hospitals, schools, GPs and social workers funded? How do the poor pay for their housing? Is the tax payer prepared to pay adequate pensions to the growing numbers of old people? Will we all have to work longer? Can western welfare states survive in an increasingly competitive world economy? These are some of the questions that the second edition of this best-selling textbook tries to answer. It begins by reviewing the range of ways in which basic human needs can be met and summarizes in an accessible way the economic literature on why markets and even governments can fail in this respect. In a series of chapters "Understanding the Finance of Welfare" describes and assesses in detail the ways in which health care, personal social services, education, housing, pensions and social security are funded in the UK. In each case what happens in the UK is compared with the means used in other countries. Since demand always outruns supply, the book considers how these services are rationed and concludes by asking what future there is for the funding of western welfare states. Much has happened to the funding of social policy and the economy since the first edition of this book, especially in pensions and social care. New devolved assemblies have taken responsibility for setting social policy and their funding has become an issue. In response, much of the book has been revised and all the figures and tables have been updated. "Understanding the Finance of Welfare" has been designed to fit the needs of social policy student syllabuses where it has become an essential text. It is also important to students of public policy and economics and those training as teachers, medical students and social workers. But it will also be of interest to the general public because there is no more important political topic today than how social services are funded.