Public Sector Spending: Is Labour really ‘not to blame for the deficit’?

In the Times newspaper Ed Miliband, leader of the Labour party, claims the Conservative’s argument that the budget deficit was caused by Labour’s chronic overspending is a deceit.  He argues passionately, using the word deceit five times in his article, concluding that Labour was ‘not to blame for the deficit’.

Instead, he asserts that it was the global credit crunch that caused deficits to rise on every continent.  He points to the fact that one pound in every five of corporation tax disappeared in 2009-10, causing a ‘calamitous collapse in tax revenues’.

Much of his article is about what to do next with the country’s economy – a political, as well as an economic judgment, no matter how it is presented.  But the basis of his article is built on the idea that it was not Labour’s over-spending that helped create the deficit.

Some hard facts might challenge this view.

Last year the Bureau undertook two major investigations into government spending. One looked at the high levels of senior public service pay, the other at fiscal profligacy amongst local councils.

In the first, we revealed that more than 38,000 government workers are paid over £100,000, and that 9,187 earn more than the Prime Minister (£142,500).  We also found that the scale and scope of public sector pay had risen remarkably since 1997, when Labour took over government. Then it employed 5.2 million people. Over the following 13 years this number jumped to 6.1 million.

Correspondingly, the government’s wage bill rose.  Between 2005 and 2010 it increased 29% to hit £157.7bn. At the top the figures were more dramatic. The pay for the highest three per cent of public sector jobs rose by 64% in a decade.

In our investigation into local government finances, we showed that between the financial years of 1998/99 and 2008/09 town hall spending also rose sharply, from £89bn to £164bn per year. This represents a 53% increase in real terms over the decade.

We also showed that this rise in spending failed to deliver significant improvement, with two thirds of English councils showing no advance in their government ratings for the period between 2005 and 2008.  In fact by 2008 more than one in ten were performing worse than when previously surveyed, despite the huge injection of finances.

It is clear, just from these two case studies, that Labour’s policy was predicated on a belief that Britain could afford significant injections of cash into our public services.  That the ‘end of boom and bust’ meant investment in local government and securing market wages for senior public servants was both possible and politically desirable.

Of course, when the markets faltered and tax revenues took a sharp downturn, the cost of this larger public service was thrown sharply into focus.  So for Mr Milliband to claim that Labour had nothing to do with the deficit is plainly wrong.  The public sector grew under Labour in a time of boom.  When the bust did come the true cost of this growth was sharply realised.

The solution to overcoming Britain’s debt is still very much open to debate. But to deny that Labour had any hand in creating the conditions whereby a decline in tax revenues would hit Britain’s ability to afford a public sector that had grown very large under their watch, is a deceit in itself.