Labour leader Ed Miliband is expected to commit to tougher controls on the amount spent on welfare payments in a speech later. But is it fair to claim that such spending has got out of hand?
If you take the cash totals, it is easy to see why people think there is a problem, writes Channel 4 News Economics Producer Neil MacDonald.
In Labour’s first full year of office (1997/98), the UK spent £93.3bn on benefits. By the last year before recession hit (2007/08), that total had risen to £156.5bn. A whopping 67 per cent increase. In cash terms, the UK was spending two thirds more on welfare.
But when you have a big bill, its also important consider what’s happening to the income you have available to pay that bill. And if you do that for the UK, a different picture emerges.
In 1997/98, our welfare bill was equal to 11 per cent of GDP. So welfare payments accounted for 11 per cent of our national income. By 2007/08, this share had gone up to … 10.9 per cent. So we were devoting no more of our national income to welfare in 07/08 than we were a decade earlier.
Of course, it would be perfectly reasonable for someone to argue that this is still too much. There are many people who believe that we shouldn’t be devoting this amount of national income to welfare. But the point is that the problem – if you view it that way – did not get any worse under Labour.
In fact, what’s striking is how the share of national income devoted to welfare spending has not moved consistently upwards for nearly three decades – it was 11.5 per cent of national income in 2003/04.
The share then falls during the Lawson boom of the late eighties, rises again when the UK goes into recession at the start of the nineties and falls again as the economy recovers in the mid-nineties. For the full picture, see Figure 4.1 in these figures from the Institute for Fiscal Studies.
Now, it is true that the share of welfare spending has gone up after 2007/08 – to 13.3 per cent in 2012/13. But this has happened for two reasons.
First, the recession has caused unemployment to go up. Second, the recession has caused national income to shrink. It’s not obvious that either of these things constitute welfare spending going out of control. They are a result of the fact that the UK has experienced its sharpest post-war recession.