Did the welfare bill really get out of control under Labour?

The idea that social security spending got out of control under Labour isn’t really backed up by Department of Work and Pensions evidence.

Gareth Millward is a History PhD student at the London School of Hygiene and Tropical Medicine

In the light of the recent debate about social security spending, Gareth Millward has taken a look at a common myth: Did social security spending spiral out of control under the last Labour government?

The idea that social security spending got out of control under Labour isn’t really backed up by Department of Work and Pensions evidence.

As the following charts show, overall government expenditure rose consistently both in cash terms and as a percentage of Britain’s Gross Domestic Product (GDP) during the years of the ‘classic welfare state’.

Even after the crisis of the mid-1970s, it continued to eat up more and more of Britain’s GDP. Margaret Thatcher could only buck the trend late in her premiership with unemployment dropping and the economy growing.

The recession in the early 1990s saw expenditure rocket again, before levelling off later in the decade. Since then we have spent more on social security (in cash terms), but at a much gentler rate of increase than at any point since the 1960s. Indeed, as the economy grew during the boom of the early 2000s, expenditure as a percentage of GDP actually fell.

Welfare 1978 to 2012

The next increase, unsurprisingly, coincided with a new recession. If Labour wasted money on social security because they spent more in 2010 than in 1997 (in cash terms), what can we say about the Conservatives? Margaret Thatcher (first term, 1979-83) and John Major (1990-97) increased social security expenditure more rapidly than any other prime ministers in history.

By now there should be a key theme emerging – expenditure as a percentage of GDP increases significantly during recessions. We see ‘bulges’ in the early eighties, early nineties and late noughties. The key reasons? Higher unemployment and less growth to absorb the cost of those benefits.

Indeed, it is quite clear why New Labour was able to keep expenditure relatively flat over the early years of the millennium. Overall expenditure on key out-of-work benefits was kept under control in a time of relatively high employment.

Yes, the true scope of unemployment has been masked since the mid-1980s by disability pensions, but the fact remains that social security costs were kept steady despite a growing pensions bill.

The question of whether this is a ‘good thing’ remains in the eye of the beholder. Much like Conservative governments in the 1950s and 1970s maintained the new benefits created by Labour (even if they didn’t like the fact that they were created at all), New Labour continued the policies of its neo-liberal predecessors.

Thus, reforms made by the Thatcher and Major governments to restrict access to contributory Unemployment Benefit and Invalidity Benefit were tolerated and used as tools to keep spending down.

The worry must be, therefore, that the recent brutal cuts to Employment and Support Allowance (itself a New Labour invention) will be maintained by any post-2015 Labour government despite their clear negative impact on disabled people.

No doubt, once the economy recovers, social security expenditure will remain relatively flat. But that does not mean the welfare state will be adequately providing a safety net for those who suffer this misfortune of ill health and unemployment.

Welfare 1978 to 2012 2

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30 Responses to “Did the welfare bill really get out of control under Labour?”

  1. Dan Filson

    You state that “Margaret Thatcher could only buck the trend late in her premiership with unemployment dropping and the economy growing”. Fact: she inherited unemployment at 1.4 million in 1979. It then rose under Geoffrey Howe’s tight monetarist policy to 3.25 million by 1981, I.e. in just two years. The unemployment remained OVER 2.5 million for pretty well the rest of her premiership. By contrast unemployment inherited at a higher rate from the Tories in 1997 never rose ABOVE 2.5 million in it comparable first decade in power. Arguably successive governments have blurred the picture by massaging the figures, e.g. by getting people to claim benefits other than unemployment benefit. But I don’t think Mrs T should be credited with reducing unemployment; that was not her government’s style or ambition – to them, unemployment was an industrial unrest regulator (and it sort of worked at that).

  2. philjvtaylor

    Look at tax receipts. They have never exceeded 38% of GDP and have been as low as 32% of GDP since 1964. The average is 35%.

    http://www.guardian.co.uk/news/datablog/2010/apr/25/tax-receipts-1963

    We simply can’t afford to dish out 10% of GDP in welfare. It doesn’t matter who let it grow, it needs to be cut back.

  3. Gareth Millward

    I agree with you. I didn’t intend to give her “credit”, merely saying that this is what happened. The reasons for declining unemployment or economic growth can be debated. Clearly, reducing unemployment is the surest way of reducing social security expenditure. That is the central issue.

  4. Gareth Millward

    Very possibly, but you do that by creating jobs, surely. When austerity contributes to unemployment, governments who practice it can only blame themselves when expenditure goes above 10% (that arbitrary figure above which we cannot afford?).

    It would stand to reason that either a) the government has to do something to bring economic inactivity and underemployment (low wages, short hours) down; or b) the government has to stomach a large welfare bill in the short-medium term.

  5. philjvtaylor

    Gareth,

    Do the math. The NHS consumes 10% of GDP. Welfare 10%. Etc. We only ever collect 35% in taxes. There are too many calls on limited state funds. They will have to be curtailed. It will be difficult and it will last a long time.

    I wasn’t suggesting that 10% was a target. We probably need to work out how to get down to 5%.

    The government cannot create jobs and it will certainly stifle the private sector if it tries to take more resources from it. There is not much choice about spending less.

    You might like the world to be different. It is not. It is just a question of how much you want to borrow from your children. We are borrowing at a rate of £120 billion per annum right now.

Comments are closed.