New Labour taxed and spent much less than Thatcher

Until the recession New Labour spent less as a proportion of GDP than Thatcher - any deficit was a result of taxing at a much lower rate than Thatcher did.

Now that government cuts have produced a widening in the deficit, it is worth examining the main myth of the Tory-led coalition – the myth that Labour’s profligate spending caused the deficit; Michael Burke investigates

Backers of the coalition often say that New Labour taxed and spent profligately, however the chart below, using Treasury data, shows this assertion to be factually incorrect. Until the ‘Great Recession’ New Labour spent less as a proportion of GDP than Thatcher did. The cause of any deficits over New Labour’s terms of office was a result of taxing at a much lower rate than Thatcher did.


As the chart clearly shows both spending and taxation were lower under the New Labour years than under Thatcher. The table below shows the average spending and taxation receipts over the period, as a proportion of GDP:


Average expenditure and taxation receipts, % GDP, 1978/79-2009/10

 

Average expenditure, % GDP

Average taxation receipts, % GDP
Callaghan
1978/79*
45.6 41.3
Thatcher
1979/80-1990/91
44.2 42.0
Major
1991/92-1996/97
42.1 36.6
Blair
1997/98-2006/07
38.7 37.5
Brown
2007/08-2009/10
44.2 37.4

Source: UK Treasury, Public Finances Databank (Tables B2 & C1); * Last year only

Before the ‘Great Recession’, New Labour had by some margin the lowest level of public spending of any of the governments identified. Even during the Brown premiership – which coincided with the deepest recession in the post-WWII period – spending only rose to the same average level as under Thatcher. Taxation receipts were also considerably lower.

Of course under Mr Brown the sharp decline in the level of GDP produces a declining denominator which magnifies both tax and spending as a proportion, while the economic effects automatically reinforce that effect – spending rises (welfare, etc) and tax revenues fall. New Labour taxed and spent much less than Thatcher.

83 Responses to “New Labour taxed and spent much less than Thatcher”

  1. robert woodland

    New Labour taxed and spent much less than Thatcher: http://bit.ly/jqR6nZ writes Michael Burke, @SocEconB

  2. Realitycheck

    Why is LFF still a Nu-Labour apologist. Accept the errors, talk about the mistakes, become reborn in the public’s eyes.

    Continual rants about how it wasn’t actually as bad as everyone thought it was, attempting to convince us that we must have “mis-remembered”. Gosh, you sound almost as bad as Pravda. It does nothing for your credibility.

  3. Anon E Mouse

    Fat Bloke On Tour – Although you haven’t been around these parts for a while (and our lives have been lessened during that period – nice to see you back) I must say you surprise me at not knowing all this.

    I have been banging on now since the last election saying just this – the government is simply not cutting the way it says it is – just like Thatcher did.

    The author is right and your mention of the North Sea oil completely misses the point.

    The fact is Labour ordered PFI projects – a shameful Tory invention that they felt fit to continue to line the pockets of their big business buddy’s. Bit like knighting the bankers.

    And despite Labour being lead by a tax avoiding multimillionaire who hasn’t done a single days work in his life and being deputised by a countess toff, here’s me thinking you were in support of the working man FBOT.

    How wrong it appears I am. Now I’m afraid….

  4. michael burke

    Q: Who spent more Thatcher or New Labour?
    A: Thatcher http://t.co/H6vlHzW Piece by me on Leftfootforward (corrected tweet!)

  5. Cahal

    Major had a bit of a spending binge didn’t he?? Was actually higher than Brown’s.

  6. Andrew Hall

    This is weak analysis. Firstly, it is too convenient to start at 1978-9. If you look at the figures in the mid 1970s tax and spending as a % of GDP was even higher. So Thatcher was cutting from a higher base. The nadir of public spending in 1999 came at the end of a long downward trend that had been in progress almost 20 years – well before Labour entered office in 1997.

    Secondly, he uses the recession of 2010 to explain that tax and spending is magnified because the demoninator (GDP) is decreasing. But he fails to mention this can also be applied to Thatcher in 1980-2. There is a spike in the graph at the time due to the recession in that period. Applying his “magnifying effect” rationale to the Brown recession but not the Thatcher one is either intellectual dishonesty or him not being very clever.

    Thirdly, between 1999 and 2008 government spending rose considerably but tax receipts were broadly static. In other words, the Labour government were running a large budget deficit at a time of boom. That is what was stupid. And that’s why we’re in the mess we’re in now.

  7. Gareth Jones

    The important thing is the rate of change of spending not the absolute value. I’m sure if you look at current government taxatation/spending it’ll be high as a %, but the point is they’re aiming to decrease it over time. I.e. rate of change is relevant.

  8. Michael Burke

    5. Factually incorrect. The average spending level under Wilson/Callaghan was 41.8% of GDP, lower than Thatcher’s 44.2%. The Tories widened the deficit, as they are beginning to now as the cuts take effect.

    If by sane levels of public spending 20 years later you mean the debacles of the Lawson boom and the ERM membership under Major, this is a strange definition of sanity.

  9. Michael Burke

    10. If both the 80/81 and 2008/09 recessions are excluded:

    *Thatcher’s public spending average (ex-recession) was 43.5% of GDP, and her taxation was 41.8%.

    *New Labour’s public spending avge. (ex-recession) was 38.9% of GDP, and its taxation 37.7%

    Like with like, New Labour still spent less than Thatcher did (and the avge deficit was lower too).

    I’m not sure why you think this is an apology for New Labour.

  10. Meg Lustman

    Q: Who spent more Thatcher or New Labour?
    A: Thatcher http://t.co/H6vlHzW Piece by me on Leftfootforward (corrected tweet!)

  11. Simon Lewis

    RT @leftfootfwd: New Labour taxed and spent much less than Thatcher http://t.co/Pwvguzd

  12. Jill Rutter

    RT @leftfootfwd: Tory v Labour spending – ignore bizarre claim showing no ideas on averages vs trends – good graph: http://bit.ly/jqR6nZ

  13. Luke Place

    New Labour taxed and spent much less than Thatcher: http://bit.ly/jqR6nZ writes Michael Burke, @SocEconB

  14. 13eastie

    @12

    Michael – these average levels of absolute spending that you keep crowing about tell us nothing whatsoever about the deficit and it does you no credit to appear to obviously to be confused between the two.

    For the sake of completion, perhaps you could look at the data you used to make your chart and tell us all:

    a) the extent of the deficit in 1979
    b) the extent of the deficit in 1997
    c) the extent of the deficit in 2010

    (CLUE: SUBTRACT THE RED LINE FROM THE BLUE LINE)

    Sane levels of public spending might be expected (for starters) to be matched over the economic cycle by the sum of income and revenues and assets acquired by investment.

    This is essentially to paraphrase Brown’s “Golden Rule” which he inexplicably abandoned in 2002, starting a massive expansion in and a structural basis to the deficit.

    If you are trying to make an argument about spending, why are you conflating this with Lawson’s boom (triggered by a tax increase) and Black Wednesday (a collision between monetary and exchange-rate policy)?

  15. Charles

    You’ve completely ignored the trends in favour of averages. Thatcher inherited rising taxation and spending but quickly turned it around and the trend of less taxation and less spending (as a proportion of GDP) continued until the end of her premiership.

    Brown however continually increased spending without increasing taxation, overcooking our economy, building a substantial deficit and resulting in an unstable financial position when the bubble he helped inflate finally burst.

    The Keynesian economics he and the Labour party adhere too actually predicts that kind of behaviour worsens economic slumps.

  16. Andrew Hall

    “Like with like, New Labour still spent less than Thatcher did (and the avge deficit was lower too).”

    You are still missing the obvious point here about “direction of travel”. The Tories were clearly trying to reduce public expenditure over their time in office whilst Labour were clearly trying to increase it. By mixing absolutes with trends you are a committing a fundamental error.

  17. Michael Burke

    16. The purpose of taking the average for the whole period is to eliminate the cycical fluctuations in the fiscal aggregates. It answers the question what did Thatcher/New Labour do over their entire period of office?

    Of course, New Labour’s time in office ended with severe recession, so both taxes fell and spending rose as a proportion of GDP.

    As for trends, in the first 6 years of office New Labour’s spending was below the level it inherited. For Thatcher’s first 6 years it was higher than she inherited. So you might say under Thatcher spending rose then fell, while under New Labour, it fell then rose. Not one trend, but several.

    For the Tory supporters here there is an innate belief that lower public spending is good. I make no such claim, merely pointing out that the avge spending of New Labour was lower than Thatcher.

    The two major European economies with the strongest growth this year are Germany and Sweden, expected to growth by Eurostat by 3.6% and 5.5% (compared to 1.7% for Britain). German govt spending was 46.6% of GDP and Sweden’s was 52.7% last year, somewhat more than either Thatcher or New Labour.

  18. Richard

    “The fact is Labour ordered PFI projects – a shameful Tory invention that they felt fit to continue to line the pockets of their big business buddy’s.”

    The fact is that Osborne has just ordered more PFI projects than Brown ever did during his premiership. with all the time of a benefit scrounger that you have, surely you must have got round to finding that out.

  19. Ben Thomas

    That’s a gross wrangling of statistics. I’m no Tory, not by a million miles, but you have to admit they do spend and tax less. And that’s a BAD thing. Let’s focus on winning the argument that taxing and spending more is BETTER. If we start trying to use horrendously bad statistical reasoning to somehow prove that we spend and tax LESS than they do, then surely we’re implicitly admitting that spending and taxing LESS is BETTER (otherwise why would we try to prove that we did so?) If we then do that, we can have no opposition to government cuts. We can’t one minute say the cuts are wrong because we should be spending more and then try to turn around and say that actually we spend less than them. Those are two conflicting arguments.

    The reason, of course, that the statistical argument is flawed is that it is the DIRECTION OF CHANGE that reveals the intent of a government. When Thatcher came into power she clearly wanted to cut, and cut she did, but she didn’t ram it straight down to her ideal levels straight away, that would have been ridiculous, it was LOWERED over the course of the government. Then when Blair came to power it was RAISED, but again, over time, not ramming straight up to his ideal levels. The timed averages show absolutely nothing, especially as the point in the economic cycle at which the reigns changed hands would totally distort the figures anyway.

    Let’s actually try and ARGUE FOR a left-wing approach, rather than implicitly admitting that a right-wing approach is better and then somehow try to show that we were more right-wing than the Tories, as this article tries to do.

  20. simon tyszko

    New Labour taxed and spent much less than Thatcher: http://bit.ly/jqR6nZ writes Michael Burke, @SocEconB

  21. Anon E Mouse

    Richard – The PFI is the point you idiot.

    A Tory invention is bound to used by the Tories. I expected my party, Labour, to behave differently in government – especially with the huge majority they commanded.

    Do you really not see the point or are you just being rude in public forums? Don’t worry though Richard it’s half term now so no school for a fortnight.

    PS. The only benefits I have ever received were child benefit and WFTC – never unemployment benefit. On the odd period I have been unemployed I worked as a volunteer at a local day care centre teaching IT to the disabled and elderly.

  22. FatBloke on Tour

    Mr Mouse

    It is you that just doesn’t get it.

    What did TB / GB inherit in 97?

    Screwdriver / low wage economy based on an unsustainable low pound.
    Interest rates that had been kept low for 2 years due to politics not economics, do you remember the “Ken and Eddie” show?
    Criminally low levels of public sector investment.
    A deficit so large that KC was borrowing money to pay the wages.

    In that context together with the shocking state of the public sector capital stock PPP / PFI was the right thing to do.

    As for it being “your party” – I think not.
    You are at best a TB fanboy at worst a Tory troll at the wind up.
    Jog on as they say in WCS / Glesga.

  23. Gramsci

    New Labour taxed and spent much less than Thatcher http://t.co/Bn6hKcL

  24. Robert

    Add to that the PFI bill this country now has and Brown looks like a bloke who enjoyed spending to gain votes either that or he is rotten at maths after all

  25. Mr. Right

    Technologies such as Blogs and computers only exist because of low tax, small government, right-wing conservative policies in the USA. Of course, 100 years of hard evidence that socialist economies do badly (USSR, Britain in the 1970s) is not enough to convince the left wing person of anything. The left wing person self-labels as “progressive” and “liberal” even though their policies destroy economic progress and liberty. Quite insulting really.

    Well, I suppose the whole reason the left decided to transform into pro-business New Labour was because they finally realised that they needed to live in the real world, where wealth must be nurtured and where throwing money at problems often makes them worse or encourages dependency. They probably also figured that most of the population are actually at the centre of political opinion rather than the left, and that appealing to the dwindling minority of marxists was never a recipe for winning an election. Let that be a forewarning for Red Ed.

  26. Jo Harrison

    The main result of Labour’s increase in spending in the later years was a result of buying not one but two banks – as a result of a global recession NOT caused by UK expenditure. Gordon Brown buying the banks at a cut down rate meant that A) Half of the UK popoulation did not go bankrupt B)If we sold these shares back into the private sector today they would be worth double what they were when bought thus placing the UK VERY much in the green.

  27. neilrfoster

    @lukebozier Absolutely fucking bollock bullshit.Labour did not put an 'unsustainable burden on the public finances' >>> http://t.co/eFi1ZRj

  28. neilrfoster

    Fact of the day: New Labour taxed & spent less than Margaret Thatcher's government. http://t.co/PGd8VaW9 by @menburke

  29. Alan

    1979 – 2000 saw debt & expenditure as %GDP fall across the breadth of the economic cycle; both figures, as we might expect, show upward spikes during periods of recession, but this is more than offset by the extent to which they were run down during periods of growth. 2000-2008 shows a different trend, the downward trend in debt & expenditure as %GDP reversing, albeit into only modest growth (but still a big change from a downward trend,) while the economy is still growing robustly.
    By all means promote the government of 2000 – 2008 as one making strenuous efforts to reverse a long period of under-investment; but it is disingenuous to present them as an example of fiscal prudence superior to their predecessors.

  30. stupidlefties

    It does not mean they taxed less, it means they received less tax. There is a major difference. Recieving less tax could mean they taxed less, but taxes were not reduced, so actually the less tax recieved must be because people earnt less money due to low employment

  31. Jboy

    I’m assuming these figures take into context the much higher rate of nationally owned industries that used to suck British tax revenue dry? Lies and damn statistics.

  32. Kaiser Of Crisps

    And yet you would doubtless be happy to use any statistics that bolster your view that Labour was profligate – lies, damned lies, and lying twats…

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