UK Public Spending Since 1900
Nobody, in 1900, speculating on the future of government, could have imagined the astonishing growth and scope of public services in the 20th century. Nor would they have imagined that, for many people, this gigantic state provision would seem the very essence of efficiency, compassion, and modernity. The era of the welfare state did not start, of course, in 1948 and the creation of the NHS. It started decades before. You can see how it all happened in the United Kingdom in the charts below.
A Century of Public Spending
Public spending in the United Kingdom has steadily increased from 12 percent of GDP in 1900 to 40 percent in the mid 1960s. Since then public spending has fluctuated around 40 percent of GDP.
Chart 2.21:
Public Spending 1900-2021
Public Spending in the 20th century is dominated by the great exertions of the world wars. But peacetime expenditures show clear trends.
Prior to World War I, public spending sat at about 15 percent of GDP. Then, after the war it emerged at about 27 to 30 percent of GDP, and remained at about that level, except for a surge at the start of the depression in the 1930s.
After World War II, public spending consumed about 35 percent of GDP, and this level continued through the 1950s. At about 1960 expenditures began a steady rise that peaked in the early 1980s at over 45 percent of GDP.
During the 1980s public spending was cut as a percent of GDP from about 45 percent down to 34 percent in 1989. But then, with the ERM sterling crisis and associated recession, it rose back to 40 percent of GDP before declining to 35 percent in 2000.
After 2000 public spending increased rapidly, with a peak of 44.9 percent of GDP in 2011 in the afermath of the financial crisis of 2008, followed by a slow decrease to 40.6 percent GDP in 2016 and a projected 38.8 percent GDP by 2020.
Defence Spending since 1900
Defence spending in the United Kingdom has fluctuated in the last century, starting at 6.5 percent of GDP during the Boer War, peaking at 46.4 percent in World War II, declining from 10 percent in the early years of the Cold War to under three percent today.
Chart 2.22:
UK Defence Spending 1900-2020
Defence began in 1900 at 3.69 percent of GDP but quickly expanded during the Boer War to 6.47 percent.
After the war it contracted down to about 3 percent of GDP.
World War I saw an extraordinary mobilisation of nation resources, beginning from a standing start of 3.15 percent of GDP spent on defence in 1914. Defence spending soared to 47 percent of GDP by
1919. But spending quickly contracted after the Great War, slipping below three percent of GDP by 1923, and staying below
three percent thereafter.
Defence spending began to increase well before World War II. Starting at 2.9 percent of GDP in 1936 it reached 3.75 percent in 1938, and 9 percent in 1939. Appeasement or no, Britain started to rearm as the storm gathered. After the start of World War II, Britain mobilised all its national resources for the war, spending over 40 percent of GDP on defence for five years, peaking at 52 percent of GDP in 1945.
In the late 1940s defence spending dropped all the way to 6 percent by 1950, and then rose over 11 percent in the
Korean War. But then defence spending began a long decline, passing through 7 percent GDP in 1959, 6 percent in 1968.
Defence spending dropped below 5 percent in 1987, and then held at about 4 percent in the late 1980s and early
1990s.
Defence spending declined to 3 percent in 1997 and has slowly declined ever since. Defense spending is
budgeted at 2.53 percent GDP in 2021.
The Growth of State Education
Public spending on education has expanded from about two percent of GDP
in 1900 to six percent in the second decade of the 21st century.
Chart 2.23:
Education Spending 1900-2020
State spending on education in Britain started out the 20th century at a little less than two percent of
GDP. Spending increased steadily, breaching three percent of GDP in 1946 and reaching 3.37 percent of GDP in 1955.
Starting in 1956 education spending increased rapidly, breaching four percent of GDP in 1960 and
peaking at 6.5 percent of GDP in 1975.
During the late 1970s and the 1980s education spending declined as a percent of GDP, reaching a
low of 4.19 percent in 1989. In the early 1990s education expanded, reaching 5 percent of GDP
in 1993. In the late 1990s education spending declined to 4.37 percent of GDP in 1999.
In the 2000s education spending increased rapidly, rising from 4.37 percent of GDP in 1999 to a peak of
5.79 percent of GDP in 2010 before declining significantly to 4.5 percent GDP in 2016 and 4.1 percent GDP
in 2020.
The Steady Growth of Health Expenditures
Public spending for health services increased steadily through most of the 20th century, from 0.3
percent of GDP to six percent of GDP by 1980. Following a mild decline in the
1980s and 1990s, health spending increased rapidly in the 2000s to a peak of 8 percent of GDP in 2009.
Chart 2.24:
Health Spending 1900-2020
At the beginning of the 20th century, government spent about 0.3 percent of GDP on health. But spending began
to increase in 1909 after passage of the National Insurance Act, reaching 0.93 percent of GDP in 1921.
Health spending increased steadily in the 1920s and 1930s reaching 1.76 percent of GDP at the start of World War II.
Spending kept steady during the war and then increased briskly after the war, breaching 2 percent just before
the National Health Service was set up in 1948.
Costs rose sharply in the early years of the NHS, reaching 3.4 percent of GDP by 1951 and then dropping to 3.0 percent
of GDP by 1955. Spending increased steadily after the mid 1950s, running at about 3.5 percent of GDP in the early 1960s and increasing to 4.0 percent of GDP by 1970 and peaking at 4.94 percent of GDP in 1975.
Health spending declined in the late 1970s, down to 4.6 percent of GDP in 1979 and increased thereafter, reaching 5.24
percent of GDP in 1981 before beginning a decline to 4.28 percent in 1988. Then spending began increased to 5.35 percent of GDP in 1993 and declined to 5.05 percent of GDP by 1998.
Spending began increasing sharply after 1999, and topped out at 7.65 percent of GDP in 2010. Then a decline set in, down
to 7.29 percent GDP in 2015 and 7.4 percent GDP in 2020.
In the COVID year of 2021 health care expenditure exploded to 10.4 percent GDP.
The Huge Growth of 20th Century Social Spending
Public spending for “Social Protection” started at 0.7 percent of GDP in 1900 and has now reached
over 15 percent of GDP.
Chart 2.25:
Social Spending 1900-2020
At the beginning of the 20th century, government spent about 0.7 percent of GDP on social protection,
almost entirely social assistance or welfare, slowly increasing
spending to 1.38 percent of GDP at the outbreak of war in 1914.
Social spending exploded after World War I, peaking at 2.2 percent of GDP on welfare in 1922 and 2.25 percent on pensions in 1921. Pensions slowly decreased over the next 20 years to 0.4 percent of GDP by the end of
World War II. But welfare payments declined only to 1.9 percent of GDP in the mid 1920s before
jumping up to 2.4 percent of GDP after the General Strike in 1926. The Great Depression provoked
a further increase in welfare payments, up to 3.66 percent of GDP in 1933. Thereafter, welfare
payments declined to about 1.5 percent of GDP in the middle of World War II.
After World War II welfare payments jumped sharply to 3.2 percent of GDP in 1948 before declining back
to about 3 percent of GDP for most of the 1950s. But welfare started increasing by the late 1950s reaching 4.0
percent of GDP by 1962. Pensions hit 2.2 percent of GDP right after World War II and slowly increased in the 1950s, reaching 3.1 percent of GDP in 1961.
Welfare payments grew steadily throughout the 1960s, breaching 5 percent in 1966, and 5.4 percent in 1968.
Pensions continued a steady growth, reching 3.9 percent of GDP by 1968.
Welfare started out the 1970s at at 5.35 percent of GDP in 1970 and then hit 6 percent of GDP in 1974 and continued
to increase through the inflation and strikes of the late 1970s hitting 7 percent of GDP in the recession of 1981.
Pensions started out the 1970s at 3.8 percent of GDP and steadily increased thereafter, hitting 4 percent
of GDP in 1973 and 5 percent of GDP in 1981.
In the Thatcher years of the 1980s welfare increased by the mid 1980s to 7.4 percent of GDP by 1984 before
declining to 6.4 percent of GDP by 1989. Pensions peaked at 5.05 percent of GDP before declining
steadily to 4.2 percent of GDP by 1990.
Starting in 1993 with the new HM Treasury PESA, welfare, including unemployment, social security, incapacity and housing allowances, pegged at 8.25 percent of GDP; pensions came in at 5.28 percent of GDP.
Following 1993, welfare started a decline, reaching down to a low of
5.5 percent of GDP in 2002. In the financial crisis of 2008 it increased, reaching 7.24 percent of GDP in 2010.
Welfare declined to 6.2 percent of GDP by the mid 2010s.
Following 1993, pensions began a steady increase, reaching just under 6 percent of GDP in 1998, breaching 7 percent
of GDP in 2001 to peak at 7.28 percent of GDP in 2002. In the mid 2000s pensions modestly declined down
to 6.68 percent of GDP in 2007. But the financial crisis boosted pension costs up to 7.6 percent of GDP in 2010
and 8.2 percent of GDP for 2016.
The Growth of Major Spending Programs
Defence spending, after the World Wars has declined; social spending is up.
Chart 2.26:
Major Spending Programs
At the start of the 20th century the largest spending program was defence, at under 4 percent of GDP. Next came
education at 1.4 percent GDP. All other public spending in the UK was about 8 percent of GDP.
After the huge bulge in defence spending in World War I when it peaked at 47 percent GDP, defence settled down to
about 2.5 percent GDP between the wars. But education spending now stood at 3 to 3.5 percent GDP, health care spending
increased from 0.4 percent GDP in 1920 to 1.75 percent GDP in 1939; pensions went down from 2.25 percent GDP in 1921
to 0.7 in 1939. Welfare, the dole, chugged along at about 2 percent GDP in the 1920s, surged to 3.66 percent GDP
in 1933 before slowly declining to 2.75 percent GDP by 1939.
In World War II defence spending in the UK surged to a peak of 52 percent GDP in 1945 and then began a long
decline after the Korean War peak of 11 percent GDP in 1952. By 1960 defense spending was down below 7 percent GDP; by 1970 below 5.5 percent GDP. From 1970 to the early 1980s defence spending fluctuated around 5.5 percent GDP, but then began a steady decline, going below 5 percent GDP in 1987, 4 percent GDP in 1993, below 3 percent GDP after 1997, below
2.5 percent GDP in 2013.
The post World War II era saw the full flowering of the welfare state in Britain, starting with the nationalization of health care in 1948. In 1950, in descending order, education was 4.24 of GDP, welfare was 3.02 percent GDP,
health care was 2.65 percent of GDP, and pensions were 2.07 percent of GDP.
In 1960, in descending order, education was 4.06 percent GDP, welfare was 3.63 percent GDP,
health care was 3.36 percent GDP, pensions were 2.87 percent GDP.
In 1970, in descending order, education was 5.39 percent GDP, welfare was 5.35 percent GDP, health care was 4.02 percent GDP, and pensions were 3.83 percent GDP.
In 1980, in descending order, welfare was 6.50 precent GDP, education was 5.33 percent GDP, health care was 5.05 percent GDP, and pensions were 4.68 percent GDP.
In 1990, in descending order, welfare was 6.43 precent GDP, education was 4.31 percent GDP, health care was 4.30 percent GDP, and pensions were 4.20 percent GDP.
In 2000, in descending order, pensions were 6.73 percent GDP, welfare was 6.05 percent GDP, health care was 5.08 percent GDP, and education was 4.37 percent GDP.
In 2010, in descending order, health care was 7.65 percent GDP, pensions were 7.62 percent GDP, welfare was 7.24 percent GDP, and education was 5.79 percent GDP.
