New Labour taxed and spent much less than Thatcher

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The following blog has been put on Left Foot Forward. Written by Michael Burke it examines the myth that Labour's spending caused the financial crisis, and shows that was not the case. The blog was produced as a result of discussion at the New Political Economy Network on Monday. I am a member of that group.

"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
45.6 41.3
44.2 42.0
42.1 36.6
38.7 37.5
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."

I might add that this might, of course, precisely define the problem with New Labour. In particular, its tax cuts were profligate for no gain.