Letter: Don't blame the welfare state: it's cheap

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YOUR editorial is right to query Mr Clarke's assertion that "the share of national income taken by the state in public expenditure must be reduced to below 40 per cent if we are to remain competitive in today's world" ("Voters want fair taxes", 3 December).

The state in fact only absorbs 23 per cent of national income. More than half of public expenditure is not part of national income at all. The 40 per cent is a ratio to GDP, not a share of GDP. In Italy, where for years the ratio has been more than 100 per cent, GDP growth is often higher than the UK's.

In the hungry 1930s, public expenditure was 10 per cent of national expenditure. When the welfare state was founded after the Second World War, it rose to 15 per cent, and it has since risen very little to the present level of 17 per cent. Nor should we forget that government taxes its own expenditure. If we account for what the government spends with the one hand and takes away in taxes on public sector wages and salaries, the state share of national expenditure is under 14 per cent.

Public expenditure is mainly about recycling money so that vitally important services are provided and so that the needy can continue to trade with the less needy. Some areas of public expenditure generate profits for the taxpayer. Cutting public expenditure without consideration for tax efficiency runs the risk of making false economies and may make us all much poorer.

But, since 1979, Cabinet has consistently refused to consider the net cost of any item of public expenditure, compared to the budget figure. To have done so would have hobbled their ideological commitment to cutting the welfare state. Conservative governments in these years were not the "good housekeepers" that they claimed to be.

Robert McDowell

Cambridge

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