1. Homepage
  2. What we publish
  3. All publications

Overview

For a remarkably long time, the UK state remained at around the same size. Government spending outside of economic crises hovered around 40% of national income between the mid 1950s and the COVID-19 pandemic. This has been in spite of large, epochal changes to what the state does. Persistent rises in spending on social security benefits, state pensions and health and social care through this period were largely offset by a large reduction in spending on defence and a more recent fall in debt interest spending.

Since 2019, the size of the state has grown considerably, not only reaching historic heights during the pandemic but lingering at a higher level thereafter. It seems unlikely – though not impossible – that we will return to the size of the state that we had been used to seeing pre-pandemic, at least without cutting the scope of what the state provides.

In this piece, we will seek to answer three key questions. First, how did the size of the state remain so constant for so long between the Second World War and the COVID-19 pandemic? Second, what has happened to the size of the state over the 2019–24 parliament, and why? Third, what can these developments tell us about the future, and the choices faced by both main parties?

Key findings

1. Government spending as a proportion of national income – a measure of the size of the state – stayed roughly stable between the mid 1950s and the COVID-19 pandemic, outside of major crises. Spending has fluctuated around 40% of national income.

2. This stability masks considerable changes in the composition of spending before the pandemic. Health spending rose enormously from 2.8% of national income in 1955–56 to 7.3% in 2019–20, a rise of £126 billion in this year’s terms. The ‘peace dividend’ is a key reason why this has been possible without increases to total spending: defence spending fell sharply from 7.6% of national income in 1955–56 to 1.9% immediately pre-pandemic, or by £160 billion in this year’s terms. Even before the pandemic, it was clear that the declines in defence spending – and more recent declines in debt interest spending – could not continue.

3. The state was the same size in 2019–20 as it was in 2007–08, on the eve of the financial crisis. There have been changes in the composition of spending over this period, too. Health spending rose by nearly 1% of national income, while spending on education fell by a similar amount. Spending on social security also dropped as significant cuts to working-age welfare benefits were implemented.

4. Over this parliament, spending has grown by 4.5% of national income (£124 billion in today’s terms), or by 0.9 percentage points on average each year. This is significantly higher growth than under any other post-war Conservative parliament, and is the fourth-fastest growth in the size of the state under any parliament in the post-war era.

5. The rise in the size of the state during this parliament was also much larger than anticipated before the pandemic. Four-fifths of the rise in spending as a share of GDP was not forecast before the pandemic. Both faster-than-anticipated spending growth and slower-than-forecast GDP growth have played a role.

6. Both debt interest and spending on social security benefits and the state pension have grown significantly faster than was expected in March 2020. Before the pandemic, these areas of spending were expected to remain stable – or fall – as a share of GDP during the parliament. Instead, debt interest spending has risen by 1.5% (£41 billion), and social security spending 1.2% (£33 billion), of national income between 2019–20 and 2024–25. In both cases, it seems unlikely that the rise in spending will prove to be an entirely transitory feature of the pandemic.

7. On current plans, the size of the state is set to fall slightly after this parliament, but remain at levels higher than its pre-pandemic level or the long-run average. In 2028–29, spending is forecast to be 42.5% of national income, 2.9% of national income (£80 billion) above pre-pandemic levels. Debt interest payments will account for around three-fifths of that increase, but even spending excluding debt interest payments spending is forecast to be 1.2% of national income (£33 billion) above pre-pandemic levels.

8. A combination of struggling public services, demographic pressures and geopolitical uncertainty would make it hard to cut the size of the state further. Indeed, there does not seem to be ambition from either main party to cut the scope of the state. In this parliament, new childcare and social care policies have added to what the state does.

9. Spending plans currently pencilled in could be described as unrealistically tight. If all departmental spending were to be protected from real-terms cuts, then this would require a top-up to current plans of around £30 billion in cash terms, and in 2028–29 spending would be closer to 43.4% of national income, 3.8% of national income (£107 billion) higher than before the pandemic.

10. Parties have a choice. They can cut the scope of what the state provides, perhaps in an attempt to return the state closer in size to its post-war average. They can raise taxes perhaps to maintain real-terms levels of departmental funding. Or they can borrow more – temporarily postponing tax rises or spending cuts, which would fall on future generations – in order to increase spending, relying on luck to avoid breaching fiscal rules to which both have committed, and increasing fiscal risks in the process. Both main parties should be clear on which of these three options they intend to take.