Public services spending
Soumaya Keynes
© Institute for Fiscal Studies
1949-50
1952-53
1955-56
1958-59
1961-62
1964-65
1967-68
1970-71
1973-74
1976-77
1979-80
1982-83
1985-86
1988-89
1991-92
1994-95
1997-98
2000-01
2003-04
2006-07
2009-10
2012-13
2015-16
2018-19
Percentage of national income (%)
The changing size of the state (coalition plans)
60
TME in 2019-20 at 2000-01 % GDP
50
40
30
20
10
TME (% GDP, LH axis)
0
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Percentage of national income (%)
The changing size of the state (coalition plans)
60
Public services spending in 2019-20 at 1998-99 % GDP
50
40
30
20
TME (% GDP, LH axis)
10
Public services spending (% GDP, LH axis)
1949-50
1952-53
1955-56
1958-59
1961-62
1964-65
1967-68
1970-71
1973-74
1976-77
1979-80
1982-83
1985-86
1988-89
1991-92
1994-95
1997-98
2000-01
2003-04
2006-07
2009-10
2012-13
2015-16
2018-19
0
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9.7% cut 2010-11 to 2015-16
AS2014: 14.1% cut 2015-16 to 2019-20
Departmental spending
B2014:
7.2% cut 2015-16 to 2019-20
Real departmental spending
(index 2015-16 = 100)
120
110
100
90
80
70
Outturn, plans up to 2015-16
60
Autumn Statement 2014
Budget 2015
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
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
50
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£30bn of cuts by 2017-18?
• Coalition plans imply a £30.5bn cut to TME less debt interest
between 2015-16 and 2017-18
• George Osborne has said that he would achieve this in a different
way to coalition plans
– £12bn/£5bn/£13bn of welfare cuts/tax avoidance measures/DEL cuts
• Coalition plans imply £34.6bn of DEL cuts up to 2017-18
– Other areas of spending are rising over the period
– So £12bn of welfare cuts and £5bn of tax avoidance would require
closer to £18bn of DEL cuts
• Liberal Democrats want £9bn smaller tightening, £12bn tax rises,
£3.5bn welfare cuts, leaving roughly £10bn of DEL cuts
• Labour: profile less clear, rolling mandate currently requires
current balance in 2017-18, but 2018-19 by post-election budget
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Departmental spending up to 2019-20
• Budget plans imply 0.3% GDP surplus and assume no further
tax/social security changes
– Assume implement Simon Stevens’ recommendations for NHS spend
– Assume ODA increases with GDP
– Assume protect cash schools spend per pupil (in line with
Conservative pledge)
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Departmental spending
+£4.7bn
Real change in departmental
spending since 2015-16 (%)
5
0
-5
-£26.0bn
-£39.5bn
-10
-£30.8bn
-15
-20
-25
2015-16
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Total DEL
Protected DEL
Unprotected DEL
2016-17
-£43.4bn
2017-18
Protected departments include NHS England,
schools and Official Development Assistance
2018-19
2019-20
Departmental spending 2015-16 to 2019-20
Total DEL
20
Real £bn change
2015-16 to 2019-20
10
4.7
0
-10
-20
-30
-26.0
-30.8
-40
-7.2% -15.7%
-50
Coalition policies
Total departments’ % change
Unprotected departments’ % change
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'Protected' areas
'Unprotected' areas
Cuts up to 2019-20?
• Budget plans imply 0.3% GDP surplus and assume no further
tax/social security changes
– Assume implement Simon Stevens’ recommendations for NHS spend
– Assume ODA increases with GDP
– Assume protect cash schools spend per pupil
• Conservatives committed to budget balance in next parliament
– Aspiration for £12bn social security cuts (largely unspecified)
– Proposed personal tax cuts of around £6bn
– Excluding £5bn of avoidance (no details given and other parties would
implement)
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Departmental spending 2015-16 to 2019-20
Total DEL
'Protected' areas
20
Real £bn change
2015-16 to 2019-20
10
'Unprotected' areas
13.0
4.7
4.7
0
-10
-13.6
-20
-30
-13.6
-18.3
-26.0
-26.6
-30.8
-40
-7.2% -15.7%
-3.7%
-9.4%
-3.7%
-16.3%
-50
Coalition policies Conservatives'
scenario
Total departments’ % change
Unprotected departments’ % change
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Conservatives'
scenario
+MOD 2% GDP
Policies beyond 2015-16
• Budget plans imply 0.3% GDP surplus and assume no further
tax/social security changes
– Assume implement Simon Stevens’ recommendations for NHS spend
– Assume ODA increases with GDP
– Assume protect cash schools spend per pupil
• Conservatives committed to budget balance in next parliament
– Aspiration for £12bn social security cuts (largely unspecified)
– Proposed personal tax cuts of around £6bn
• Labour committed to current budget balance by end of parliament
– Net tax and benefit takeaway £1.2bn (mansion tax)
– Protection for entire education budget
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Departmental spending 2015-16 to 2019-20
Total DEL
'Protected' areas
20
Real £bn change
2015-16 to 2019-20
10
'Unprotected' areas
13.0
4.7
4.7
9.2
5.0 4.3
0
-10
-13.6
-20
-30
-13.6
-18.3
-26.0
-26.6
-30.8
-40
-7.2% -15.7%
-3.7%
-9.4%
-3.7% -16.3%
+2.5% +2.4%
-50
Coalition policies Conservatives'
scenario
Total departments’ % change
Unprotected departments’ % change
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Conservatives' Labour scenario
scenario
+MOD 2% GDP
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
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
Real departmental spending
(index 2015-16 = 100)
Departmental spending
120
110
100
90
80
70
60
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Outturn
Allocated between departments
Budget 2015 forecasts
50
Pressures on departments
• Ending contracting out increases public sector employer NICs
(£3.7bn)
• Higher contributions to public service pension schemes (£1.1bn)
• Dilnot social care funding (£1.0bn)
• Tax-free childcare (£0.8bn)
• Mental health funding (£0.3bn)
• Public sector wage pressures as private sector wages start to
increase
• Pressures of a growing and ageing population on demand for
public services
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Summary
• Coalition plans imply £26bn cut from departments
– £40bn cut to 2018-19 followed by an increase
– Compares to £39.0bn 2010-11 to 2015-16
• Reversed plan to cut departmental spending in 2019-20, leading
to a ‘roller-coaster’ profile
– But real terms increases would always have started at some point
• Conservatives could cut by less: £13.6bn to 2019-20
• Labour could increase departmental spending by £9.2bn up to
2019-20
• Borrowing and therefore debt would fall by end of parliament
under all three main UK parties, but fastest under Conservatives
© Institute for Fiscal Studies
Public services spending
Soumaya Keynes
© Institute for Fiscal Studies