IFS Working Papers, Institute for Fiscal Studies (IFS) 01/04
In 1974 Britain elected a Labour government pledged to expand public spending significantly. Labour followed its programme for two years, but after that began to cut both government spending and taxation, anticipating the post-1979 Conservative agenda. This paper examines the history of this government, using it as a test-case for various 'New Right' economic and political theories that suggest that government expansion eventually hits structural limits. Such theoretical accounts prove unsatisfactory. By contrast, several short-term factors seem to have played an important constraining role. But an examination of the political thinking within the 1970s Labour Party suggests that autonomous ideological changes were the most crucial determinant of the policy reversal.