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