Napoleon, Two World Wars, and the NHS
It is not 1945. I point out this very obvious fact as it seems that there are a lot of people out there who seem to wish that it was. I’m not talking about the Boomers who get very nostalgic for the War even though they didn’t live through it. Instead I’m talking about those who tend to be on the political Left. Their argument goes something along the lines of ‘Back in 1945 the UK had the largest debt to GDP ratio in history and we still managed to build the NHS, the Welfare State, and nationalise industries’. They then go on to use this as a justification as to why the current government shouldn’t be too worried about the national debt and should instead borrow even more money to fund whatever it is they’re passionate about (almost always the NHS).
This argument has been doing the rounds for as long as I’ve been interested in public policy. During my socialist student days I was fortunate enough to meet the great Tony Benn who made this very argument to attack the new Coalition Government and call for focussing on spending to boost economic growth during the Great Recession. Fast forward to the modern day and just yesterday we had a union baron making the same argument here.
While we probably should have been less concerned about dealing with the deficit during the Great Recession and its immediate aftermath, I find the 1945 argument unconvincing. This is because it is not 1945.
It is true that Clement Attlee’s Labour government did inherit an economy which was in a parlous state and then did go on to build the Welfare State while also reducing the national debt, the context was very different.
In 1945 the UK had just finished fighting the Second World War. Wars tend to be expensive and so they cost a lot of money for the belligerent nations and this is especially true if it is the largest war in the history of the world against an evil enemy who was intent on destroying your country. The very fact that the Axis Powers had now been defeated meant that the UK no longer had to fund the war and so public expenditure could start to fall and so could the borrowing used to finance it. Funny what can happen to public expenditure when you stop fighting an actual world war. Attlee’s government therefore had more room to spend money on things such as the Welfare State and reducing the national debt. The UK in 2024 has not just stopped paying for a world war and so does not have the luxury of a massive spending commitment no longer existing.
The end of the War also saw a return of men of working age to the labour market. Firms therefore had access to skilled people to work in their factories, stores, mills, docks, and the like. This was obviously good news for productivity and output. Unfortunately the UK today is not in such a situation.
What is more, fighting a world war means that pretty much the entirety of a nation’s economy is geared towards this effort. The UK was building really important stuff such as ammunition, bombs, tanks, planes, and everything else you need to fight a war. This is helpful for winning a war but isn’t necessarily good for anything else. The end of hostilities meant that the economy could be refocused to more normal activities and the country was in a position where it had all these new factories and skiller workers which could be repurposed into manufacturing other products. Again, the UK economy is not going to undergo such a restructuring.
Furthermore, the UK government received a lot of free money from the US as part of the Marshall Plan. This is money which did not need to be paid back and came in very handy when it came to creating the NHS and building the Welfare State. We obviously should not expect a sudden outpouring of affection from our American friends manifesting itself in a massive donation of money. I mean, it might happen, but I wouldn’t bet on it.
What is more, just because something happened at one point in history it does not mean that it will happen again, even under similar circumstances. Take the aftermath of the Napoleonic Wars which again were very expensive for the British State to fight (and win). The national debt was reduced but this came as subsequent governments had a commitment to running budget surpluses. I will probably write something at some point on why I don’t think governments should seek to run surpluses but whatever your thoughts on them they do tend to be difficult to achieve and often require unpopular methods which are almost certainly not as politically feasible today.
Or, take the aftermath of the First World War. Again, this was very expensive for the British State to fight (and, once again, win). This time the government really struggled to reduce the national debt despite introducing a number of policies to do so. Granted, some of these were a bit bonkers such as returning to the Gold Standard but the point stands.
Perhaps the more important lesson from the aftermath of the First World War is that unexpected bad things can happen. The country faced the Great Depression and then the Second World War which meant that the public finances took a hit and which meant that the national debt increased rather than decreased. Recent history shows us that weird and unexpected crises do have a nasty habit of popping up. The Global Financial Crisis meant that Gordon Brown’s government (rightly) had to borrow a lot of money in order to prop up the country’s financial sector. The Covid Pandemic meant that Boris Johnson’s government (rightly) had to borrow money in order to fund the Furlough Scheme and support firms. Russia’s invasion of Ukraine increased energy bills and exacerbated the cost of living crisis and so Rishi Sunak’s government (rightly) introduced financial support packages. Bad stuff happens which means that despite ambitions to reduce the national debt, it just isn’t possible.
Finally, there is no way that the people of the UK would be willing to accept the measures introduced to both allow for similar levels of public spending of Attlee’s government while also lowering the national debt. Attlee may have given us the NHS, the Welfare State, nationalised industries, and a falling national debt but he also gave us austerity and kept rationing. Attlee was a great man who was a true patriot who loved Britain and cared deeply about improving the lot of ordinary people and he tends to rank first or second in lists of greatest ever Prime Ministers. However, even at the time his policies clearly were not that popular and he was replaced by the other person ranked as first or second greatest Prime Minister, Winston Churchill.
Some people might come back and argue that we shouldn’t care about reducing the national debt so much of what I’ve said doesn’t really matter. As I wrote yesterday, while I don’t think reducing the national debt should be the government’s number one priority, it would be foolish to take a blase approach to it. Others might suggest that we should simply introduce a wealth tax to pay for it. I will finally get around to writing something on why I think wealth taxes are a bad idea, but at the moment I’d simply point out that these taxes do tend to bring in far less revenue than their advocates claim that they will.
Thanks as ever for reading!
Ben