“[Labour] still spent a proportion of GDP less than Mrs Thatcher did so it’s not as if the spending was wild in terms of GDP,” Polly Toynbee, Daily Politics BBC2, 7 October 2010

Background

In a debate over Labour’s record in Government Ms Toynbee made the point that though public spending in real and nominal terms had shot up under Labour, when put into the context of the size of the economy, the amounts spent looked more modest.

So is this accurate and how much does it tell us about public spending under Thatcher, Blair and Brown?

Analysis

The historic figures for public spending as a proportion of GDP bear the Guardian columnist out – but only to an extent.

When Mrs Thatcher came to power in 1979, public spending as a proportion of GDP was 42.75 per cent, and by 1982 this had risen to 45.56 per cent.

As the graph below shows, spending under Labour never quite reached this high watermark. The largest proportion of GDP accounted for was 45.23 in the last full year of the Labour Government.

But what is true for one of the Iron Lady’s Prime Ministerial years is not necessarily true for the rest.

The graph below shows how spending as a proportion of GDP fell steadily during her time leading the country.

Taking a simple average for the percentage of GDP spent for each year of Margaret Thatcher’s premiership then for each year of the Labour Government, it can be seen that Labour did outspend her.

From 1979 to 1990 an average of 40.88 per cent was spent by the Government compared to 41.29 per cent from 1997-2010.

So while Labour never spent more of GDP than Mrs Thatcher did in one year, in more general terms spending was higher.

The other important point of course is that figures for percentage of GDP spent are determined by more than the contents of the Chancellor’s red box. Equally, if not more important are changes in economic growth,  meaning expenditure is being measured as a proportion of something that also varies year on year.

Clearly, if the economy goes into recession, GDP shrinks, spending does not have to change to account for a larger slice of GDP – the reverse being true during periods of growth.

So as the graph shows, the periods of growth in the 1980s and 1990s were both times when spending as a proportion of GDP came down – although this trend is much less pronounced for the years of growth in the 2000s.

Likewise the rises in spending as a proportion of GDP correspond to three main recessions experienced during this time frame, with a particularly sharp jump in spending in the most recent recession.

Looking at this graph of real terms spending against spending as a percentage of GDP, it can be seen how much the economic cycle plays a part.

Therefore it shows that while Ms Toynbee’s statement is not factually wrong, comparison based on spending as a percentage of GDP is a problematic measure of a Government’s fiscal policies.

Conclusion

The debate over spending, one likely to intensify as we near the Comprehensive Spending Review, is peppered with competing claims about how much is being spent, or how much is being cut, relative to past administrations.

As this analysis shows, given various means of analysing and comparing the data, two claims used to back up differing view points, may be based on equally valid takes on the data.

So in this case, while Labour never spent a higher proportion of GDP than Mrs Thatcher did in 1982, the average and general trend of these two periods, not to mention the different economic circumstances, paint an alternative picture of the public spending in these years.