£1.4 trillion in public spending won’t make Britain a better country
Following the government’s U-tun on welfare reform, Labour’s spending plans simply don’t add up, says Karl Williams
After the government’s latest U-turn, the question on many lips is: how long can Keir Starmer and Rachel Reeves go on like this? But a more pertinent question might be: how long can the country go on like this?
Ever since Labour came to power, they have told us they were doing the tough, fiscally disciplined thing. But the climbdowns first on winter fuel payments, and now on welfare reform, blow multi-billion-pound holes in those numbers. Indeed, it can’t be said often enough that these welfare “cuts” were merely shaving £4bn off a predicted £30bn rise in the national incapacity bill.
So how to make the numbers add up? More borrowing can be an option – until the bond markets suddenly decide it isn’t (see Truss, Liz). So further tax rises are almost certainly on the cards for the autumn Budget, despite Labour’s pre-election pledges. Yet the tax burden is already on course to hit a post-war high of 37 per cent of GDP in 2027/28, with government spending swallowing up almost 45 per cent of the economy (compared to 39.5 per cent pre-Covid).
It would be one thing if all that money were going on first-rate public services, but clearly that’s not the case. Public sector productivity cratered during the pandemic and has barely recovered since: from the police and courts through the Whitehall bureaucracies to the NHS, the British state just feels broken.
Indeed, with public spending soon set to be £280bn higher (in 2025/26 prices) than in 2019/20, at around £1.4 trillion, we might very well ask what our tax money is being spent on.
Well, the third largest item is the cost of servicing the national debt, to the tune of over £110bn a year – representing 8.3 per cent of government day-to-day spending. Translation: we have been living beyond our means for decades, and now interest rates have risen, the chickens have come home to roost.
The NHS isn’t well
Second is healthcare, eating up 16 per cent of government spending. NHS spending is £1bn higher in real terms per week than it was a decade ago, but outcomes are still shockingly poor relative to our European neighbours. Obviously we have an ageing population – but so do they. The problem is not in the population, but the NHS.
Welfare spending is £326bn a year or 24 per cent of public spending
However, the biggest item by far is the welfare bill: £326bn, or 24 per cent of public spending. Pensioner benefits account for a little over half of this. The rest is spending on working-age people and children, which has grown at an extraordinary rate in recent years.
The general explanation for this is ill-health. But while incapacity benefits and economic inactivity have surged, non-fiscal metrics – such as the official Health Survey for England – show a working-age population that’s about as healthy as 10 years ago. In other words, rather than greater illness, we have a welfare system that better rewards people for pulling a sickie.
The numbers underlying the massive increase in child welfare spending are similarly striking. Almost the entirety of the increase of 388,000 children on Disability Living Allowance (DLA) has been driven by learning difficulties and behavioural disorders, rather than physical needs. A similar pattern is visible in Special Educational Needs (SEN) spending. Much of this could be down to improved diagnosis, or the malign effects of smartphones. But at least some is surely down to parents learning how to better game the system.
All this spending might seem like a sign of a moral, decent nation. But in many cases, it locks people into a life of dependency. And it’s also brutal for working-age taxpayers footing the bill, who feel like they’re putting more and more in and getting less and less out. No wonder aspirational, industrious young workers increasingly talk about emigrating from Britain – the government’s spending plans would really be in trouble then.
Karl Williams is research director at the Centre for Policy Studies