Does Europe account for half of the world's welfare spending?

"Europe accounts for just over 7% of the world's population, 25% of its economy, and 50% of global social welfare spending."

George Osborne, 15 January 2014

With European elections four months away, Chancellor George Osborne outlined the economic and political challenges he felt were facing the EU, and how Britain might respond to them.

One statistic that caught the eye of many newspaper editors was the Chancellor's claim that, despite accounting for little more than 7% of the world's population, the nations of Europe spent half of the planet's welfare budget.

The first set of claims are easy enough to track down. According to Eurostat, the 27 nations that make up the EU account for around 7.2% of the world's population, although this rises to 10.5% if you factor in other European nations that aren't part of the EU.

Eurostat also confirms that the 27 EU nations make up 25.8% of world GDP, although this again rises to around 30% if you include non-EU economies in Europe.

However things get trickier when we turn to welfare spending. Mr Osborne credits German Chancellor Angela Merkel for the claim in his speech, and the Treasury also directed us towards the German Chancellor's office when we got in touch.

While we haven't yet got a definitive answer from Berlin as to where the data for this claim is drawn from, we can highlight a few possibilities.

The World Bank published a report in 2012 titled 'Golden Growth: Restoring the Lustre of the European Economic Model' which used a very similar statistic, claiming that Europe accounted for 58% of world social protection spending.

The researchers reach this number by averaging government social protection budgets in 96 countries (36 of which were considered to be European) for the years 2004-2009. 

We also know that the calculations made use of a number of different sources, drawing data from the IMF, the WDI and the World Bank itself, among others, and that the researchers tried to include spending by local government as well as national government where possible, although conceded that they weren't always able to.

A number of important questions are left unanswered however. Most fundamentally, we don't know how which countries are included in the analysis.

36 European countries were included in the analysis, which is clearly more than the 27 EU states that were the cohort for Mr Osborne's claim about the size of Europe's population and economy. However 58% is also larger than the half of welfare spending the Chancellor attributes to Europe, which may leave some margin for error.

Similarly we don't know which non-European countries' welfare budgets were factored into this calculation. We do know that data for 60 countries was included, meaning that this by no means represents the rest of the world.

The size of these non-European countries will also clearly be an important factor. The available data on social protection spending from the UN suggests that there might well be some sizeable omissions: the welfare spending of Brazil, Canada and mainland China are all conspicuous by their absence from the UN dataset. If the same is true for Mr Osborne's figure, it could give a very partial picture.

Conclusion

While the Chancellor's claims about the relative size of the European population and economy are accurate so long as we limit ourselves to the EU member states, the research we have seen suggests there could be some significant problems with his statistic on welfare spending. If George Osborne is planning to borrow this claim from Chancellor Merkel on a permanent basis, it is up to the Treasury to provide a fuller account of how it has been reached.

Update (17/1/2014): We've heard back from the authors of the World Bank report, who have very kindly provided us with a list of the countries used to reach the conclusion that Europe accounts for 58% of worldwide social protection spending. Some of the larger ommissions from the UN database are included - notably China and Brazil - although some other larger economies are still absent, including Canada and Mexico.

We can also use this data to limit the analysis to the 27 EU nations (minus Luxemborg, for which data isn't available) so that it is comparable to the first two statistics the Chancellor quotes. In these terms, 'Europe' accounts for 54% of global social protection spending. The full data is available here.