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.
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.
30 Responses to “Did the welfare bill really get out of control under Labour?”
LB
I am not trolling.
I know it may be difficult for you to accept, but the pensions debts have been hidden off the accounts.
By excluding the pensions debts, you can come to all sorts of conclusions, but you might as well be in the land of far away.
What’s interesting is that all the political class refuse to discuss it. Just like with Stafford with only one question in parliament asked about a hospital that killed 1,200.
So perhaps you can answer a simple question.
Why would you ignore the pensions debts in your analysis?
The reason it matters, is that its pretty clear that when you look at the numbers, the state cannot pay its side of the contract going forward. Hence we have Ed Balls saying that welfare will be capped, and pensions are defined as welfare.
That’s a direct consequence of ignoring the debts.
Now I think that’s particularly serious and evil. The reason is that far from it being a case that the rich get targeted, or even the rich or the middle class pay, its going to be the poorest who are the ones who get done.
They are reliant on the state, because the state has taken their money and said will will pay a pension. However, now they are going to cut and cut the payouts.
bisousbisous
Tax credits was paid by HMRC not the DWP so are the ‘true’ figures included?
Gareth Millward
Tax credits aren’t in the graph, but they are in the Excel file linked to at the top of the article.
Mick Hall
“can’t afford to dish out 10% of GDP in welfare”
I find this type of language offensive some of the other word used are even worse. Decent pensions and social security are what makes society bearable. If as some people claim we are unable to provide them then we should raise tax, although before that happens perhaps it might be a good idea to shut down the tax havens and make illegal tax avoidance schemes which have enriched a minority and the expense of the majority.
True we do pay to much out on certain benefits, BUT, much of it goes to blood sucking landlords and employers which subsidise their wage bills with tax payers coin.
Both of these problems could be solved quickly, first with a fair rent act, and then a massive house building programe which would be dominated by homes for rent, ie council or housing association. Secondly by making it illegal to pay less than the living wage.
As things stand businesses which make millions, in some cases billions in profits have employees working for them, either directly or sub contracted who are receiving benefits, if that is not perverse I do not know what is.
To back this up, no national or local government contracts should be awarded to any company which does not pay the living wage.
OAPensions have been mentioned, they should be and must stay universal, anyone who is lucky enough to find themselves well off in retirement and they are a minority, it is for the tax system to deal with it. Have we really become such a nasty, spiteful, tight lipped little nation that we begrudge a seventy five year old a free TV licence.
I read somewhere “Milton Friedman’s misfortune was that his economic policies have been tried.”
Well, we all fall into that category now, and our misfortune is the political and business elites refuse to face up to the fact that the neo liberal world which Friedman dreamed of is a totally busted flush as far as the overwhelming majority of the worlds population is concerned.
We all have a choice to make, do we place ourselves in the same trench as the exploiters or the exploited majority? (which these days stretches across from the working and middle classes)
Those who continue to blow the austerity bugle have made their choice, we need to recognise that fact, black spot them and move on, be part of the solution not the problem.
LB
Personally, I find the debt even more offensive, particularly because its been hidden. 7 trillion can’t be paid.
So no decent pensions. If you had been allowed to invest NI, a median wage earner would be on 19K a year, joint life, from 65, linked to RPI. Not the cut down state pension at 5K, from 67, linked to CPI. Even that is under threat and will be cut.
7,000 bn plus. 5 times GDP. 12 times tax revenues. Rising at 850 bn a year. [That’s the true debt, not the debt owed to the market, it includes pensions]
Living wage? How about not taxing the poor? Simple solution, all in the control of government. Ah yes, that debt again.
Of course politicians begrudge the TV license. It’s that debt again.
Austerity? Its that debt again.
Millions in profits? How’s that going to pay trillions of pounds of debts.
It’s the welfare state that’s the busted flush. It’s that debt again. Not only has a median wage earner lost 475K that they would have got if they had invested the cash, (after charges), but they won’t get the 152K’s worth of state pension.
Massive building schemes? Will that work. Do we have an example of where building lots of houses works? Try Spain, or Ireland. They built lots. Must be an economic heaven. Or railways. Spain built lots of railways. France ditto. Unemployment must be low.
Its the debts. That’s the problem. The solution is dire. Its default.