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”
Simon Lewis
RT @leftfootfwd: New Labour taxed and spent much less than Thatcher http://t.co/Pwvguzd
Jill Rutter
RT @leftfootfwd: Tory v Labour spending – ignore bizarre claim showing no ideas on averages vs trends – good graph: http://bit.ly/jqR6nZ
Luke Place
New Labour taxed and spent much less than Thatcher: http://bit.ly/jqR6nZ writes Michael Burke, @SocEconB
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)?
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.