How public spending rose under Thatcher

Thatcher squeezed public services but high unemployment meant spending rose by an average of 1.1% a year.

Despite the rhetoric of "rolling back the state", Margaret Thatcher was less successful in cutting public spending than many of her supporters (and opponents) like to believe. As the IFS graph below shows, real-terms spending rose in every year of her premiership apart from two. Only in 1985-86 and 1989-90 did spending fall, by 1.1 per cent in the former and 2.3 per cent in the latter. On average, it increased by 1.1 per cent a year. Under the coalition, by contrast, it is forecast to fall by an average of 0.4% a year in real terms (departmental spending is being cut by 11% but debt interest and high unemployment mean the total reduction is far smaller). 

While Thatcher squeezed spending on public services such as health and education, mass unemployment and the consequent increase in spending on benefits (which, unlike the current government, she allowed to rise with inflation) ensured that total expenditure remained high. 

But while spending generally kept pace with inflation, it did fall dramatically as a share of GDP. When Thatcher entered office, total expenditure stood at 45.1%. It was briefly reduced - to 44.6% - in her first year before rising every year until 1982-83 when it peaked at 48.1%. Spending then fell in every remaining year, totalling just 39.2% in 1989-90 after the economy grew by an average of 4.7% between  1984 and 1988. 

Spending under Thatcher as a percentage of GDP

  • 1979-80 44.6%
  • 1980-81 47%
  • 1981-82 47.7% 
  • 1982-83 48.1% 
  • 1983-84 47.8% 
  • 1984-85 47.5% 
  • 1985-86 45%
  • 1986-87 43.6%
  • 1987-88 41.6%
  • 1988-89 38.9% 
  • 1989-90 39.2% 

Source: HM Treasury

Public spending then rose under John Major, largely as a result of the 1991-92 recession, peaking at 43.7% of GDP in 1992-93. It later fell to a modern low of 34.5% under Labour in 2000-01 before rising in every subsequent year until it reached 47.7% in 2009-10 (the surge was largely a result of the recession, which saw spending rise by 3.2% compared with 2008-09). Osborne's axe will see it fall to 44% in 2014-15 and, if the election goes the Tories' way, to 40.5% in 2017-18. 

Margaret Thatcher making a speech, 22nd May 1980. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Cabinet audit: what does the appointment of Liam Fox as International Trade Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for International Trade.

Only Nixon, it is said, could have gone to China. Only a politician with the impeccable Commie-bashing credentials of the 37th President had the political capital necessary to strike a deal with the People’s Republic of China.

Theresa May’s great hope is that only Liam Fox, the newly-installed Secretary of State for International Trade, has the Euro-bashing credentials to break the news to the Brexiteers that a deal between a post-Leave United Kingdom and China might be somewhat harder to negotiate than Vote Leave suggested.

The biggest item on the agenda: striking a deal that allows Britain to stay in the single market. Elsewhere, Fox should use his political capital with the Conservative right to wait longer to sign deals than a Remainer would have to, to avoid the United Kingdom being caught in a series of bad deals. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.