Does Osborne have any right to get ruffled about comparisons with the 1930s?
Does Osborne have any right to get ruffled about comparisons with 1930s spending cuts?
In its report accompanying yesterday’s Autumn statement, the Office for Budget Responsibility predicted that spending on public services was headed for an 80-year low.
The report suggested that Osborne’s failure to cut the deficit has led to squeezes that mean central government spending on public services will fall to 12.6 per cent of GDP in 2019-20. In 2009-10 it was 21.2 per cent.
Several newspapers have this morning described the measures as taking public spending ‘to its lowest since 1930s’, prompting George Osborne to accuse the BBC of ‘hyperbolic coverage’.
Certainly it is unflattering for Osborne to have his policies compared to those of a decade that has become an icon of economic misery. But in the spirit of nostalgia, we’ve taken a look back in time to see if the comparison is justified.
Although the human misery it caused was far greater, the 1930s recession was shorter than the one in 2008. Relative to the rest of the world, the UK’s economic output declined between 1929 and 1934.
As with the current recession, the rest of Europe was heavily involved; in the thirties, many European countries had accumulated huge debts for their involvement in the war. The failure of the German and Austrian banks in 1931 posed a further threat.
So what did the government do?
In the 1931 budget, the chancellor Lord Snowden and prime minister Ramsay MacDonald accepted that they would have to make cuts. Unemployment benefits and public sector wages were cut by 10 per cent, and taxes were raised. This split the Labour party, and MacDonald formed a coalition of – interestingly – mostly Conservative MPs in order to pass the budget.
In 1931 the pound was devalued by 25 per cent, allowing exporters to make their products cheaper abroad and thus kickstarting the economic recovery.
If we are, as Osborne is adamant, over the worst, then we should look at how government spending in the mid-thirties helped to prop up the shaky economy
The rates of economic growth from 1934 onwards were relatively impressive. In 1936 unemployment fell to eight per cent. However, and again much like today, the depression was averted only in some parts of the UK.
Wales and the north remained badly affected until the end of the decade. Between 1932 and 1937 half of the new factories in the UK were built in Greater London.
And in 1937 unemployment in London, the South East and the Midlands was between six and seven per cent, whilst it was 22.3 per cent in Wales.
The government attempted to stimulate growth in these areas through projects including road building, but efforts were ultimately insufficient.
In 1935, total government spending on public services was £1,348 million. That included:
£46.8 million on pensions
£77.6 million on healthcare
£157.7 million on education
£121.9 million on defence
£157.9 million on welfare
Proportionally, this works out roughly the same as what the coalition is willing to spend, as set out yesterday. The thirties are remembered as a time of squalid deprivation. George Orwell famously described the slums of the north as blackened, freezing places where rats and disease were rife.
In one memorable episode in his book The Road to Wigan Pier Orwell describes seeing a woman in abject poverty and remarks: “It struck me then that we are mistaken when we say that ‘It isn’t the same for them as it would be for us,’ and that people bred in the slums can imagine nothing but the slums. For what I saw in her face was not the ignorant suffering of an animal.”
What changes were being made?
Health services in England followed the trend of the early part of the century and continued to be decentralised throughout the thirties. Local governments began to acquire health powers funded both by local taxation and by state subsidy.
Many had expected yesterday’s statement to include some mention of devolving health powers down to local government level, including measures to allow some types of chemotherapy and dialysis to take place in GP surgeries.
Reforms were being discussed around this time with a view to raise the school leaving age. Ministers were concerned about the financial cost of this, which they estimated at about £8,000,000 in 1935. Consequently the law was not changed until 1944.
The decade also saw big changes in the way benefits were paid; in August of 1931 the existing welfare scheme was replaced by a fully government-funded system of unemployment benefits.
This was the first system to pay according to need rather than level of contribution. It came too late for many – the main reason that the 1930s recession was so bleak was the lack of proper welfare infrastructure to help desperate people.
Anybody wanting to claim these benefits was first subject to a strict means test, amounting to a full inspection by a government official. This process was highly unpopular. Eighty years later, poor management means we still have a society with a huge amount of mistrust around benefit claimants, and where people have to ‘prove’ they are disabled.
The thirties was also a time of investment in the armed forces. German movements were arousing suspicion, and so in 1935 the government announced that it was increasing its defence spending. The plans were made ‘to demonstrate that Britain does not take lightly Germany’s continuing rearmament’.
The defence budget for 2014/15 is £36.43 billion.
The challenges facing Osborne may be on a lesser scale than those of the inter-war years, but Britain today increasingly has many of the same problems with inequality it had 80 years ago.
Ruby Stockham is a staff writer at Left Foot Forward. Follow her on Twitter
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13 Responses to “If Osborne takes us back to the thirties, how different will things look?”
swat
McDonald, probably the most underrated PM ever. He saw Btritain through its worst crisis in peacetime. Smaller Govt is the dogma of the Tory Party.
Keith M
McDonald sold out.
swat
Depends, whether you think he put Country before Party, and which you think is the more important.
JoeDM
GDP fell by 7% in the years following the Brown crash in 2007. It will take another decade for the real economy to recover. And even longer for wages as long as we continue to allow a free inflow of cheap labour.
Guest
GDP was recovering nicely before your Coalition turned things round into a depression.
And then you attack the real economy, attack workers, by repeating the same old lies about the Other, as you say wages are far too high because we allow trade. You are simply out to pay less in wages, as you refuse to admit it’s your right wing neoliberalism and austerity which is the problem.