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