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.

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