Unsustainable welfare spending?

Writing, however implausibly, in the Guardian, George Osborne appeals to Labour MPs to support his welfare reform, and offers up some statistics as evidence.

We have to control the costs of a welfare system that has become unsustainable and risks crowding out other areas of government spending. In 1980, working-age welfare accounted for 8% of all public spending, but by 2010 it had risen to nearly 13%. While this country has just 1% of the world’s population and produces 4% of its wealth, it accounts for 7% of global welfare spending.

I’ve answered the third of these points before.  The UK’s public spending on social protection is at most around the average for the OECD, and spending on cash benefits is below average – 10.5% of GDP by comparison with the OECD’s 12.4%.

The second point is misleading – it compares the proportion of public spending rather than the proportion of national income.  For example, the proportion of public spending on housing has fallen, to be replaced by Housing Benefit – so one figure goes down while another goes up.  This is hardly ‘crowding out’ expenditure – it’s a deliberate shift of priorities from direct provision to providing cash .  It’s more pertinent to ask how much is being spent on benefits for people of working age.   In 1980-81 it was 3.7% of GDP, and by 2010-11 it was 5.7%.  That’s certainly an increase, but the comparison is somewhat  selective.  If Osborne had looked at figures for 1984, 1985 or 1986 he’d have started at 4.9% instead of 3.7%, and the increase to 5.7% doesn’t look quite so great.

The main argument Osborne makes is that welfare has become ‘unsustainable’.  That seems to me to suggest that it’s become much more burdensome than it used to be.  Welfare spending on people of working age in 1992-96 was 5.2-5.4% of GDP; it hit 5.7% during the slump after 2008, but it was below 5% for three years before that.   There has been a marginal increase, then, but this doesn’t look much like a budget that’s run wild.    The benefits do cost more during a slump – but that’s what they’re supposed to do.


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