Public finances: two parliaments of pain
Carl Emmerson
© Institute for Fiscal Studies
Summary
• Sh
Sharp increase
i
in
i public
bli spending
di and
d fall
f ll in
i tax
t b
burden
d lleading
di tto
biggest level of borrowing since World War II
– debt to remain high
g for a generation
g
– burden of debt likely to remain low
• Budget aims to raise 3.7% of national income on top of the 2.6%
in the
h 2008 PBR
– larger than the gap we forecast earlier this month
• This 6.3%
6 3% of national income is to be filled by:
– announced tax rises (10%)
– announced spending
p
g cuts ((40%))
– things yet to be announced but to come into force in Parliament after
next (50%)
© Institute for Fiscal Studies
Hi h spending
High
di and
d a llow tax b
burden…
d
Total Managed Expenditure - out-turn
T t lM
Total
Managed
dE
Expenditure
dit
- projection
j ti
Current receipts - out-turn
Current receipts - projection
50
45
40
35
© Institute for Fiscal Studies
Source: HM Treasury.
2013-14
8-09
2008
2003-04
8-99
1998
1993-94
1988
8-89
1983-84
8-79
1978
1973-74
8-69
1968
1963-64
8-59
1958
1953-54
30
1948
8-49
entage of national in
ncome
Perce
55
P bli sector borrowing
Public
b
i to hi
hit post-war peak
k
Percentage o
P
of national iincome
-2
0
2
4
6
8
10
Budget 2008
12
Outturns
© Institute for Fiscal Studies
Note: Excludes unrealised losses on financial interventions.
Source: HM Treasury.
2010-11
1
2005-06
6
2000-01
1
1995-96
6
1990-91
1
1985-86
6
1980-81
1
1975-76
6
14
P bli sector borrowing
Public
b
i to hi
hit post-war peak
k
Percentage o
P
of national iincome
-2
0
2
4
6
8
Budget 2009
10
PBR 2008 forecast
12
Outturns
© Institute for Fiscal Studies
Note: Excludes unrealised losses on financial interventions.
Source: HM Treasury.
2010-11
1
2005-06
6
2000-01
1
1995-96
6
1990-91
1
1985-86
6
1980-81
1
1975-76
6
14
P bli sector net debt
Public
d b to exceed
d mid-90s
id 90 peak
k
90
Budget 2008 forecast
Percentage of national income
P
80
Outturns
70
60
50
40
30
20
10
© Institute for Fiscal Studies
Note: Excludes unrealised losses on financial interventions.
Source: HM Treasury.
2010-11
2005-06
2000-01
1995-96
1990-91
1985-86
1980-81
1975-76
0
Percentage of national income
P
P bli sector net debt
Public
d b to exceed
d mid-90s
id 90 peak
k
90
Budget 2009
80
PBR 2008 forecast
70
Outturns
60
50
40
30
20
10
© Institute for Fiscal Studies
Note: Excludes unrealised losses on financial interventions.
Source: HM Treasury.
2010-11
2005-06
2000-01
1995-96
1990-91
1985-86
1980-81
1975-76
0
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
Percentage of national income
P
F lli public
Falling
bli sector net worth
h
90
80
70
© Institute for Fiscal Studies
Budget 2009
Outturns
60
50
40
30
20
10
0
-10
Note: Excludes unrealised losses on financial interventions.
Source: HM Treasury.
D bt to
Debt
t remain
i high
hi h ffor a generation
ti
40% ceiling
Outturns
80
Budget forecast
IFS extrapolation
60
40
20
© Institute for Fiscal Studies
Note: Excludes unrealised losses on financial interventions.
Sources: HM Treasury; IFS calculations.
2040--41
2035--36
2030--31
2025--26
2020--21
2015--16
2010--11
2005--06
2000--01
1995--96
1990--91
1985--86
1980--81
0
1975--76
entage of national income
Perce
100
But burden of high debt low
Outturns
Budget forecast
IFS extrapolation – PBR fiscal plans & current interest rates
IFS extrapolation – PBR fiscal plans & 1ppt rise in interest rates
Perce
entage of n
national in
ncome
6
5
4
3
2
1
© Institute for Fiscal Studies
Note: Excludes unrealised losses on financial interventions.
Sources: HM Treasury; IFS calculations.
2040-41
1
2035-36
6
2030-31
1
2025-26
6
2020-21
1
2015-16
6
2010-11
1
2005-06
6
2000-01
1
1995-96
6
1990-91
1
1985-86
6
1980-81
1
1975-76
6
0
Ch
Changes
tto b
borrowing
i since
i
PBR 2008
Public sector net borrowing, £ billion
2008–09
2009–10
2010–11
2011–12
2012–13
2013–14
PBR 2008
77.6
118
105
87
70
54
Revisions
+12.3
+49.5
+67
+61½
+65
+69½
PBR 2008, no
discretionary
changes
89.9
168
172
149
135
124
Discretionary
changes
0
+7
+½
–8½
–17½
–26½
Budget 2009
90.0
175
173
140
118
97
Sources: HM Treasury; IFS calculations.
Ch
Changes
tto b
borrowing
i since
i
PBR 2008
Public sector net borrowing, £ billion
2008–09
2009–10
2010–11
2011–12
2012–13
2013–14
PBR 2008
77.6
118
105
87
70
54
Revisions
+12.3
+49.5
+67
+61½
+65
+69½
PBR 2008, no
discretionary
changes
89.9
168
172
149
135
124
Discretionary
changes
0
+7
+½
–8½
–17½
–26½
Budget 2009
90.0
175
173
140
118
97
Sources: HM Treasury; IFS calculations.
Bi
Bigger
permanent hit
hi and
dad
deeper recession
i
Budget 2008 output gap
PBR 2008 output gap (assuming Budget 2008 potential)
Percen
ntage of trrend outpu
ut
8%
PBR 2008 trend output
6%
Budget 2009 (assuming Budget 2008 potential)
4%
Budget 2009 trend output
2%
0%
-2%
-4%
-6%
-8%
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2010
2006
2002
1998
1994
1990
1986
1982
1978
-10%
10%
Wh the
Why
h large
l
downwards
d
d revision
i i to borrowing?
b
i ?
U d l i revisions
Underlying
i i
to
t borrowing,
b
i
2013–14
2013 14
Loss of 1% of
potential output,
12
Unexplained
forecasting
changes, 30
Extra cyclical
borrowing, 14
Audited: Oil
prices, 2
Housing &
financial sector Audited: VAT Audited: Interest
rates, 2
receipts, 4
gap, 4
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Ch
Changes
tto b
borrowing
i since
i
PBR 2008
Public sector net borrowing, £ billion
2008–09
2009–10
2010–11
2011–12
2012–13
2013–14
PBR 2008
77.6
118
105
87
70
54
Revisions
+12.3
+49.5
+67
+61½
+65
+69½
PBR 2008, no
discretionary
changes
89.9
168
172
149
135
124
Discretionary
changes
0
+7
+½
–8½
–17½
–26½
Budget 2009
90.0
175
173
140
118
97
Sources: HM Treasury; IFS calculations.
M
Measures:
giveaway
i
then
th takeaway
t k
£ billion
2009–10
2010–11
2011–12
2012–13
2013–14
Tax giveaway
–2.6
–0.5
–0.4
–0.4
–0.4
Tax takeaway
+1.0
+3.4
+5.6
+7.6
+8.1
Spending giveaway
–3.6
–3.1
0
0
0
Spending takeaway
+0
+0.2
+3.3
+10.2
+18.8
Net tax increase
–1.6
+2.8
+5.2
+7.3
+7.7
Net spending cut
–3.6
–2.9
+3.3
+10.2
+18.8
Net takeaway
–7.6
–0.6
+8.5
+17.5
+26.5
Sources: HM Treasury; IFS calculations.
M
Measures:
giveaway
i
then
th takeaway
t k
£ billion
2009–10
2010–11
2011–12
2012–13
2013–14
Tax giveaway
–2.6
–0.5
–0.4
–0.4
–0.4
Tax takeaway
+1.0
+3.4
+5.6
+7.6
+8.1
Spending giveaway
–6.0
–3.6
0
0
0
Spending takeaway
+0
+0.2
+3.3
+10.2
+18.8
Net tax increase
–1.6
+2.8
+5.2
+7.3
+7.7
Net spending cut
–6.0
–3.4
+3.3
+10.2
+18.8
Net takeaway
–7.6
–0.6
+8.5
+17.5
+26.5
Note: Actual numbers may differ due to rounding.
Sources: HM Treasury; IFS calculations.
Fi l tightening:
Fiscal
i h i
two parliaments
li
off pain
i
Percen
ntage of national inccome
7
6
5
PBR
Budget
4
3
2
1
0
-1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2017-18
8
2016-17
7
2015-16
6
2014-15
5
2013-14
4
2012-13
3
2
2011-12
2010-11
2009-10
0
2008-09
9
-2
Fi l tightening,
Fiscal
i h i
by
b type off measure
Percen
ntage of national inccome
7
6
5
4
Unknown or tax or current spending
Investment changes
Current spending changes
Tax changes
3
2
1
0
-1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2017-18
8
2016-17
7
2015-16
6
2014-15
5
2013-14
4
2012-13
3
2
2011-12
2010-11
2009-10
0
2008-09
9
-2
Fi l tightening:
Fiscal
i h i
PBR 2008 & B
Budget
d
2009
• Total
T t l ti
tightening
ht i off 6.4%
6 4% off national
ti
l income
i
required
i d
– £2,840 per family in the UK
• Tax increase of 0
0.7%
7% of national income
– £300 per family
• Current spending cut of 1.5% of national income
– £690 per family
• Investment spending cut of 1.0% of national income
– £425 per family
• Yet to be announced increase in tax or cut to current spending of
3 2% off national
3.2%
ti
l income,
i
to
t come into
i t force
f
in
i parliament
li
t after
ft nextt
– £1,430 per family
© Institute for Fiscal Studies
T
Tough
h choices
h i
ffor th
the Parliament
P li
t after
ft nextt
Tax and current spending trade off to deliver a 3.2% of national income
fiscal tightening between April 2014 to March 2018
Required tax incre
ease (£ per
y, 2009–10 terms)
family
2,000
Spending constant
as a share
h
off trend
t d
GDP
1,500
1,000
500
No further tax rise
0
-500
Budget constraint to
deliver a 3.2% of
national income current
budget tightening
-1,000
-1,500
-2,000
2 000
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Real growth rate in current spending (%)
© Institute for Fiscal Studies
2.5
3.0
Summary
• Sh
Sharp increase
i
in
i public
bli spending
di and
d fall
f ll in
i tax
t burden
b d lleading
di tto
biggest level of borrowing since World War II
– debt to remain high
g for a g
generation
– burden of debt likely to remain low
• Budget aims to raise 3.7% of national income on top of the 2.6%
in the
h 2008 PBR
– larger than the gap we forecast earlier this month
• This 6.3%
6 3% of national income is to be filled by:
– announced tax rises (10%)
– announced spending
p
g cuts ((40%))
– things yet to be announced but to come into force in Parliament after
next (50%)
© Institute for Fiscal Studies