A small state is smaller than a big state, right?
But now bear with me.
Take a glance at the heated rhetoric coming from Labour ranks about how the coalition government is hell bent on a right wing crusade to slash the size of the state.
Then consider this. The coalition’s spending plans will see public spending in 2015-16 at a fraction under 40% of GDP.
And you know what? That’s higher than it was under Labour in 1997-98 and in all the intervening years through to, and including, 2003-04. (See the graph here from Peter Hoskin.)
So the horrible dreadful right-wing small state still ends up actually bigger than seven complete financial years of a Labour Party government. That’d be the same Labour Party that talks about how it believes in a bigger state than nasty right wing extremist coalition government.
So smaller is bigger than big it would seem. It’s a bit like the higher point being lower than the lower point as in Escher’s famous picture.
Trust that’s all clear.
Footnote: having poked fun at Labour before for their silence over their own plans to cut public spending, it’s only fair to point out that Hopi Sen is an honourable exception as this excellent post shows.
5 Comments
One of the unexpected downsides of the Lb Dems being a part of government is the sudden propensity of Lib Dem bloggers to start playing the ‘old politics’ game of one-upmanship with the opposition party.
I thought the Lib Dems generally preferred sensible and meaningful debate. I honestly fail to see the benefit in responding in kind to the deconstructive and baseless attacks of the Labour opposition.
I gather there has been some confusion over this. If I understand correctly, what is planned to fall below late 90s levels as a share of GDP is the total departmental expenditure limits. But total government spending also includes other contributions that don’t fall within these limits (annually managed expenditure), which is what makes the difference.
Another factor that may be worth bearing in mind when making comparisons like this is the growth in NHS spending, which is projected to be about 19% of all public spending in 2015-6, compared with about 13% when Labour came to power.
http://www.ifs.org.uk/budgets/budgetjune2010/crawford.pdf
Labour’s view is that greater spending by the state is automatically more egalitarian.
This is a nonsense.
Would reintroducing national service and expanding the size of the army to half a million soldiers, spending extra billions of £s in the process be an egalitarian step?
Victorian radicals like Cobden and Bright would not have thought so. Their experience was all too often that higher taxation was used for patronage and rewarding the friends of the government – scanning who got appointed to senior quango positions under the last lot is always instructive.
Consider instead a government that spent nothing on services at all but reduced the point at which 40% and 50% income tax started to bite and introduced a new 60% top tier coupled with a mansion tax [or better still land value taxation]. Now suppose the only thing the government did with the money it raised – apart from paying its tax collectors – was to pass on the funds to those who are poorest . Imagine the howls in the Daily Mail and the tory back benches. Would such a government be a right wing government?
@Richard A: A very interesting comment, and a perspective that we would to well to remember.
I actually saw a more striking graph in the FT’s budget issue, which showed government spending as a share of GDP. As Mark points out, the target of 40% of GDP is higher than it was in many years of Blair-Brown government. While there is a legitimate argument over whether it is wise to cut so fast, it is not at all true that we will end up with a significantly “smaller state” on that measure than we had immediately before the financial crisis. And to address Alex’s complaint, I don’t see how pointing this out is “deconstructive and baseless”.
The reason that this Parliament will be fiscally painful for the whole country is that we will finally be raising the money we need to spend through taxes rather than borrowing, creative accounting (e.g. PFIs and National Rail) or privatisations (Thatcher was as fiscally irresponsible as Brown became in his later years). This has not really happened over a whole Parliament since Margaret Thatcher entered No. 10, which is rather depressing.
Countries like Sweden and Denmark manage to maintain public spending of about half of national income by taking about half of national income in taxes. Thanks to fairly recent fiscal crises (1980s and early 1990s) politicians and public in both countries understand that if you want higher spending you have to vote for taxes to pay for it. When British politicians and the public accept this we can have more serious arguments about the size of the state than Labour has currently been presenting.
A word to “progressives” who bemoan both spending cuts and the rise in VAT: high-spending but fiscally responsible countries always have to use regressive taxes to help pay for that spending. In Denmark and Sweden VAT is 25% (public spending c. 50% of GDP); in the UK it will soon be 20% (public spending aimed at 40% of GDP) – isn’t the symmetry striking? And in Sweden the highest rate of total income tax is about 55% (for average local income tax rates), capital gains are taxed at 30% and a low- to middle-earning worker gets only half of what his or her employer pays out (a combination of 30% local income tax and high employers’ social security contributions). In other words, if you want to spend more you have to tax people who are not well off.
Surely however it’s not higher than it was between 1997 and 2008 if you a) exclude debt interest, b) exclude the financial stability expenditure, and c) adjust for the economic cycle? There are some counter factors – defence spending is perhaps lower? But it’s important to compare apples with apples.
On the % of GDP, it’s important to understand what this is. It means gross expenditure by government as a % of a net measure, GDP. Public spending can therefore vary quite a lot without actually implying much for the government’s share of the economy -in fact it could be over 100% of GDP. The measure which says how important government is in economy activity is Govt final consumption, and this tends to be about 20-25% of GDP.