Andrew Willshire is founder of the independent strategic analytics consultancy Diametrical Ltd.
Before Rachel Reeves stood up last Wednesday, I’ll confess to feeling slightly sorry for her. But my sympathy evaporated when she had the temerity to attack the previous government for doubling the national debt, as though this demonstrated the financial probity of Labour governments.
Let’s look at the last 75 years of public spending and tax receipts, indexed to the present day.
Now, it’s usual practice for the government to describe borrowing in terms of percentage of GDP, partly for the good reason that as the economy grows it can support more spending, but also because it tends to be a smaller, more abstract number, and harder for the public to grasp.
However, for this piece, I want to focus on real numbers, so all figures below have been converted to their 2025 equivalent using the GDP deflator (ONS series IHYS). As an example, £1bn in 2000 is roughly the equivalent of £1.83bn today. I’m also choosing to compare spending (KX5Q) with current tax receipts (JW2O).
One thing that is immediately apparent is the growth in the size of the state: it is now more than six times bigger than it was in the post-war period. But, for most of that period, tax receipts grew at a similar rate to spending.
Clearly there were recessions and shocks; the attempt by the Labour government to spend its way out of a hole in 1974-75 is one, while the Conservatives’ 1990-91 recession is another. However, it is notable that in both cases, the gap was closed and the budget was balanced again over the following decade or so.
The next time that the gap between spending and revenues opened up was in 2001. That seems like an odd time for that to happen. There was a global economic boom underway, and the British economy was in rude health, with tax revenues growing strongly.
However, Labour had just won their second landslide general election victory, and Gordon Brown was no longer constrained by the Conservative spending plans that he had pledged to follow in 1997.
What followed was little short of a catastrophe. In the period from 2001-2007, annual government spending increased by £228bn (31 per cent), while tax revenues only rose by £156bn (21 per cent). By way of comparison, it had taken the 22 years from 1979-2001 for spending to increase by the same amount, while revenues rose by 50 per cent in the same period.
Unforgivably, Brown set public spending off on a whole new trajectory, increasing it much faster than the economy could support. In the period from 2001-2007, the British government spent £427bn more than it raised in tax receipts.
Consider that that the upper estimate for additional government spending for Covid is around £410bn. Therefore, the deficit run in the seven years prior to the Great Financial Crash (GFC) in 2008 was in itself a Covid-level event for government finances – during a boom.
Following the crash, from 2008-2010, the combined deficits were £593bn; a second Covid-level event. In today’s money, New Labour spent a trillion pounds more than it raised in tax receipts.
It’s worth remembering that this data doesn’t include the capital costs of new schools and hospitals, as those were purposefully kept “off-balance sheet” via ruinous PFI contracts. Most of the increase was in current spending: increasing the number of public sector employees, increasing their salaries, and creating expansive (and expensive) new welfare programmes, such as child tax credits.
But these are the very things that are hardest to cut if economic circumstances change. What government could, even in an emergency, survive cutting the salaries of teachers and nurses, or disability benefits? Add to that the fact that the cost of welfare increases during a recession as people lose their jobs, and it is revealed that the state has massive, permanent spending commitments and no way to meet them.
In 2009, the gap between expenditure and receipts was £241bn at today’s prices. Despite his claim to “have abolished boom and bust”, Brown instead utterly destroyed the UK’s public finances.
The Coalition and Conservative governments basically held spending steady for a decade (meaning sharp real-terms cuts for departments outside of health and education). Yet there was still, pre-Covid, a deficit of £65bn. From 2011-2019, another trillion more was spent than was raised in taxes, all of it on legacy commitments from Brown’s splurge.
Although critics (fairly) point to the lack of growth in that period, tax revenues increased substantially. The Tories did not have a problem raising revenue – they were crippled by the spending demands that Brown had created during his period in office.
The legacy of this £2 trillion debt is the £105bn of interest payments which Reeves has the temerity to complain about. This figure should also put into context the trifling sums of money that the Chancellor has been scrabbling around to find through such wheezes as imposing inheritance tax on farmers and family businesses, estimated to raise around £500m. It doesn’t even touch the sides of what is needed.
The UK has a structural spending problem. Entitlements for both pensioners and working-age welfare recipients are too high, there are too many public servants, and their salaries are too high compared to the average salary in the country (without even getting onto their absurdly generous pensions).
But the prospect of being able to cut significantly any of those expenditures is remote in the extreme. This can only mean that taxes must rise, for everybody.
There’s an additional damning factor regarding Brown’s time in office. That was when the ratio of house prices to full-time earnings doubled, locking millions of people out of the housing market and draining disposable income from the productive economy:
It’s also notable that, in real terms, full-time earnings are essentially unchanged since 2003. On the assumption that higher salaries predominately come from increased productivity, it could be argued that this country’s chronic productivity problems pre-date the GFC, so-called austerity, and Covid – and instead start squarely during Brown’s chancellorship.
Despite her chutzpah, I actually do feel sorry for the Chancellor. She’s obviously played a poor hand badly, but you can’t blame her for (all) the cards she’s holding. But neither can you really blame Jeremy Hunt, Kwasi Kwarteng, Nadhim Zahawi, Rishi Sunak, Sajid Javid, Phillip Hammond, George Osborne, or indeed Alastair Darling, all of whom were also dealt dreadful cards.
If it seems that the deck is stacked against the chancellor of the exchequer, no matter who it is, then there is one key culprit. In little over a decade, Brown bequeathed a toxic legacy that will haunt his successors for generations to come.
Andrew Willshire is founder of the independent strategic analytics consultancy Diametrical Ltd.
Before Rachel Reeves stood up last Wednesday, I’ll confess to feeling slightly sorry for her. But my sympathy evaporated when she had the temerity to attack the previous government for doubling the national debt, as though this demonstrated the financial probity of Labour governments.
Let’s look at the last 75 years of public spending and tax receipts, indexed to the present day.
Now, it’s usual practice for the government to describe borrowing in terms of percentage of GDP, partly for the good reason that as the economy grows it can support more spending, but also because it tends to be a smaller, more abstract number, and harder for the public to grasp.
However, for this piece, I want to focus on real numbers, so all figures below have been converted to their 2025 equivalent using the GDP deflator (ONS series IHYS). As an example, £1bn in 2000 is roughly the equivalent of £1.83bn today. I’m also choosing to compare spending (KX5Q) with current tax receipts (JW2O).
One thing that is immediately apparent is the growth in the size of the state: it is now more than six times bigger than it was in the post-war period. But, for most of that period, tax receipts grew at a similar rate to spending.
Clearly there were recessions and shocks; the attempt by the Labour government to spend its way out of a hole in 1974-75 is one, while the Conservatives’ 1990-91 recession is another. However, it is notable that in both cases, the gap was closed and the budget was balanced again over the following decade or so.
The next time that the gap between spending and revenues opened up was in 2001. That seems like an odd time for that to happen. There was a global economic boom underway, and the British economy was in rude health, with tax revenues growing strongly.
However, Labour had just won their second landslide general election victory, and Gordon Brown was no longer constrained by the Conservative spending plans that he had pledged to follow in 1997.
What followed was little short of a catastrophe. In the period from 2001-2007, annual government spending increased by £228bn (31 per cent), while tax revenues only rose by £156bn (21 per cent). By way of comparison, it had taken the 22 years from 1979-2001 for spending to increase by the same amount, while revenues rose by 50 per cent in the same period.
Unforgivably, Brown set public spending off on a whole new trajectory, increasing it much faster than the economy could support. In the period from 2001-2007, the British government spent £427bn more than it raised in tax receipts.
Consider that that the upper estimate for additional government spending for Covid is around £410bn. Therefore, the deficit run in the seven years prior to the Great Financial Crash (GFC) in 2008 was in itself a Covid-level event for government finances – during a boom.
Following the crash, from 2008-2010, the combined deficits were £593bn; a second Covid-level event. In today’s money, New Labour spent a trillion pounds more than it raised in tax receipts.
It’s worth remembering that this data doesn’t include the capital costs of new schools and hospitals, as those were purposefully kept “off-balance sheet” via ruinous PFI contracts. Most of the increase was in current spending: increasing the number of public sector employees, increasing their salaries, and creating expansive (and expensive) new welfare programmes, such as child tax credits.
But these are the very things that are hardest to cut if economic circumstances change. What government could, even in an emergency, survive cutting the salaries of teachers and nurses, or disability benefits? Add to that the fact that the cost of welfare increases during a recession as people lose their jobs, and it is revealed that the state has massive, permanent spending commitments and no way to meet them.
In 2009, the gap between expenditure and receipts was £241bn at today’s prices. Despite his claim to “have abolished boom and bust”, Brown instead utterly destroyed the UK’s public finances.
The Coalition and Conservative governments basically held spending steady for a decade (meaning sharp real-terms cuts for departments outside of health and education). Yet there was still, pre-Covid, a deficit of £65bn. From 2011-2019, another trillion more was spent than was raised in taxes, all of it on legacy commitments from Brown’s splurge.
Although critics (fairly) point to the lack of growth in that period, tax revenues increased substantially. The Tories did not have a problem raising revenue – they were crippled by the spending demands that Brown had created during his period in office.
The legacy of this £2 trillion debt is the £105bn of interest payments which Reeves has the temerity to complain about. This figure should also put into context the trifling sums of money that the Chancellor has been scrabbling around to find through such wheezes as imposing inheritance tax on farmers and family businesses, estimated to raise around £500m. It doesn’t even touch the sides of what is needed.
The UK has a structural spending problem. Entitlements for both pensioners and working-age welfare recipients are too high, there are too many public servants, and their salaries are too high compared to the average salary in the country (without even getting onto their absurdly generous pensions).
But the prospect of being able to cut significantly any of those expenditures is remote in the extreme. This can only mean that taxes must rise, for everybody.
There’s an additional damning factor regarding Brown’s time in office. That was when the ratio of house prices to full-time earnings doubled, locking millions of people out of the housing market and draining disposable income from the productive economy:
It’s also notable that, in real terms, full-time earnings are essentially unchanged since 2003. On the assumption that higher salaries predominately come from increased productivity, it could be argued that this country’s chronic productivity problems pre-date the GFC, so-called austerity, and Covid – and instead start squarely during Brown’s chancellorship.
Despite her chutzpah, I actually do feel sorry for the Chancellor. She’s obviously played a poor hand badly, but you can’t blame her for (all) the cards she’s holding. But neither can you really blame Jeremy Hunt, Kwasi Kwarteng, Nadhim Zahawi, Rishi Sunak, Sajid Javid, Phillip Hammond, George Osborne, or indeed Alastair Darling, all of whom were also dealt dreadful cards.
If it seems that the deck is stacked against the chancellor of the exchequer, no matter who it is, then there is one key culprit. In little over a decade, Brown bequeathed a toxic legacy that will haunt his successors for generations to come.