The Myth of Spendthrift Labour & Frugal Conservatives – UK government deficits 1961-2015

In the last two elections, the Conservative party has been incredibly successful at stating as fact the idea that the Labour party is inherently wasteful in spending, whereas the Conservatives are naturally better at holding the nation’s pursestrings – an idea that Labour did very little to challenge. However, the graph below shows that this idea has little truth to it.

Graph showing governmental deficit in billions of pounds Sterling, 1961 – 2015. 

There are a number of points to note from this chart. Before any analysis, it must be noted that the numbers are as they were at the time, and thus not adjusted for inflation. This explains why the numbers get exponentially bigger as time goes on. With that in mind, let’s compare some numbers. Firstly, under MacMillan, Douglas-Home and Wilson’s first period in office, the deficit remained exceptionally small, with both Conservatives and Labour. Heath then takes office, and running a small deficit becomes the norm. As seen in the chart below, this was most  likely caused by a drop in tax receipts during a period of economic trouble. During Wilson’s 2nd office and Callaghan, the deficit more or less stays stable, although factoring in inflation perhaps a slight decrease in real terms, but not much movement regardless. The switch from Callaghan to Thatcher again takes place with a period of economic trouble, and Thatcher spends the first two thirds of her time in power running the same size of deficit, although again with inflation, her £8.5bn deficit in 1979 was in real terms larger than her £8.4bn deficit in 1986, but like Callaghan, not much movement overall. In 1988 and 1989 Thatcher has surpluses of £6bn and £0.6bn – the first surpluses since Wilson’s (Labour) surpluses of £0.9bn and £0.3bn in ’69 and ’70. At this point it is useful to look at a chart of GDP.

You’ll notice that so far we have had two dips – 1974 and 1979 – the first was absorbed by a Labour government with little effect on the deficit, and the second also absorbed softly, but this time by a Conservative government. Come the 1990 crash, this ability to protect government deficit levels is greatly reduced, likely due to the shift in the UK economy away from primary and secondary industries, towards tertiary ones. Major proceeds to run a series of sizeable deficits, although readers are again reminded that inflation is a key factor in these deficits appearing larger than those before. Enter Blair in 1997, and for the only time since WWII, the UK enjoys three years in a row of surpluses. A change in policy leads to a significant increase in spending, mainly on health and education, and once again a reasonably sized permanent deficit appears, although marginally smaller than Major’s. The economic crash of 2008 causes an enormous jump to £100bn in 2008, and ~£150bn in 2009. It is useful for readers to note that in the large spending jumps, both under Brown and under Major, are not in fact caused by an increase in spending: the deficit is caused by the spending being higher than tax receipts, and in both these cases the economic difficulties resulted in a sharp drop in tax receipts, thus increasing the gap between income and expenditure. A final point to note is the incredibly slow recovery from 2010 onwards. The national debt in 2010 stood at £0.76tn, and treasury estimates put the 2015 figure at ~£1.4tn, a little shy of doubling the national debt.

So when all is compared the idea of either party being spendthrift or frugal compared to the other holds little truth. Each government is largely the same as the government that preceded it, and in the past 54 years, there have been only 7 years of surplus: two with Wilson, two with Thatcher, and three with Blair. However, in politics facts matter a lot less than opinion, and unless Labour can convince the public that their ability to manage public finances is no worse than the Conservatives’, they will be at a great disadvantage in 2020.