September 27, 2012 • 3:18 pm

“One of the things about governing is it forces you to confront the inconvenient truths oppositions choose to ignore. Like the fact that, over the last 50 years, our economy has grown threefold, but our welfare spending is up sevenfold.”

Nick Clegg, Liberal Democrat Conference, 26 September 2012

 

Deputy Prime Minister Nick Clegg used his showpiece speech at the Liberal Democrat conference to reassure the party faithful that they were doing the right thing in facing up to the “difficult decisions” forced upon them by government.

Among the things that the Lib Dem leader claimed came with the pressures of power was the need to face up to ‘inconvenient truths’. By way of example, he listed three ‘facts’ that made his job in Whitehall trickier.

The first of these related to the growth in the welfare budget – something which his Government has grappled with through its controversial Welfare Reforms. So does his claim stack up?

Analysis

The Department for Work and Pensions (DWP) helpfully publish benefit expenditure details going back to 1948.

Looking at the half century between 1961 and 2011 (the last year for which there is solid data, rather than projections), we can see that the amounts of money paid out by the Department and its predecessors in wefare has grown six fold in real terms, from £27.7 billion (2011/12 prices) to £162.8 billion.

While this is a large increase, it isn’t quite of the magnitude cited by Mr Clegg.

However the DWP data isn’t complete, as it only covers those payments administered by the Department itself, and not those paid out by other organisations, such as HMRC. For this reason, some commentators – the Institute for Fiscal Studies among them – prefer to use Office for National Statistics (ONS) data on ‘social benefits’ taken from its Public Sector Finance series.

This charts a steeper rise in welfare spending, from £25.6 billion in 1961 (2011 prices) to over £203 billion in 2011. That’s nearly an eight fold increase.

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What does this actually tell us?

While Nick Clegg seems to be in the right ballpark in terms of the scale of the growth, it is revealing to look in detail at where this growth is coming from.

Since 1978, the DWP has broken down its benefit spending into those payments aimed at children, working-age adults and pensioners. Looking at these, figures, we can see the biggest increase over this period has been in those made to older people.

In 1978, £41.2 billion (2011/12 prices) was spent on pensioners, compared to £107 billion in 2011/12. Similarly, the state pension is the single benefit that has seen the largest rise in the sums paid out.

This isn’t actually very surprising: as the DWP itself has discovered, life expectancy has been steadily increasing for the past half century, which for DWP accountants means that state pensions are being claimed for longer.

According to a Departmental analysis, a man reaching retirement age (65) in 1961 could on average expect to live for another 12.2 years, while a woman of the same age would live for 16.3 year more.

In 2011, newly-retired men and women could expect to enjoy another 21.6 and 24.1 years of life respectively.

In fact, when taken as a share of GDP, the sums spent on working age benefits have changed very little. The DWP expenditure tables calculate that in 2011/12, working age benefits cost 3.5% of GDP, approximately the same proportion that was being spent in 1982/83, and actually a smaller share than was being spent throughout most of the 1990s, where it hit 4.6% of GDP at one point.

Conclusion

Nick Clegg is correct that the welfare budget has grown approximately seven times over during the past half century, although the rise could be as little as six fold or as large as eight depending upon which data is used.

However this doesn’t necessarily mean that the benefits bill has risen as a result of government policy, or that the ‘tough decisions’ taken by the Lib Dems in Government will necessarily reverse this. The largest increases in recent decades have been in spending directed at pensioners – and on the state pension in particular – as life expectancies have increased.

The spectre of means-tested benefits for richer pensioners has of course been raised during the Lib Dem conference (and was subject to a Full Fact factcheck), but on this evidence there is good reason to believe that demographics are as much of a driver of this rise as policy has been.

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