Geeks bearing graphs?
IFS
Economists and economics at the IFS
Robert Chote, Director, Institute for Fiscal Studies
Outline
• Welcome
• About the IFS
• Goals
• Activities
• People
• Programme
• The Budget
“Readers, a reality check. Beware geeks bearing graphs. They’re just economists guessing. And
be honest: how interested are you in fiscal studies?”
(Greg Hurst, The Times)
© Institute for Fiscal Studies, 2007
What is the IFS?
•
An independent research institute – a charity.
•
Our mission: “To contribute to better economic and social policies
through rigorous analysis of their impact on the behaviour of
individuals, families, firms and the government’s finances.”
•
50 people. £4.5m turnover. Funded by Economic and Social
Research Council, charitable foundations, government departments,
international organisations & members. No paid consultancy.
•
“Think Tank of the Year 2005” – Prospect Magazine
•
Most respected think-tank among MPs – Communicate Research
“Its criticism is measured but firm where it believes the government is in error. It
doesn’t allow governments to get away with sham policies.”
(Polly Toynbee, The Guardian)
© Institute for Fiscal Studies, 2007
Why was the IFS created?
• “The IFS came into existence because four professional
people from the world of finance were appalled by the
way in which the 1965 Finance Act, introducing capital
gains tax, reached the Statute Book.”
Bill Robinson (Director, 1986-91)
• “…never again should a government, regardless of its
political colour and intentions, introduce far-reaching tax
legislation without the benefit of deep and thorough
analysis of its second- and third-order effects.”
John Chown (Co-founder)
“The IFS is studiously neutral when it comes to politics, which lends it extra value when
the Government has swapped analysis for spin.”
(City Comment, Daily Telegraph)
© Institute for Fiscal Studies, 2007
What do we work on?
•
•
•
•
•
•
•
•
Tax system and the welfare state
Government finances and fiscal management
Productivity and innovation
Inequality and poverty
Education and human capital
Saving and consumption
Development micro-economics
Micro-econometrics: theory and practice
“All the parties treat the Institute for Fiscal Studies as if it were the Bible”.
(Jonathan Dimbleby, Any Questions)
© Institute for Fiscal Studies, 2007
Who uses our research?
•
•
•
•
•
•
•
Policymakers
Parliamentarians
Media and general public
Advocacy groups
International organisations
Academics
Businesspeople
“The independent IFS provides evidence and facts that are essential for others to
use for informed lobbying and campaigning. It speaks with authority and clarity.”
(Martin Barnes, former Director, Child Poverty Action Group)
© Institute for Fiscal Studies, 2007
What do we try to achieve?
•
•
•
•
•
•
Policy relevance
Analytical rigour
Best-practice use of quantitative evidence
Effective communication
Independence
Transparency
© Institute for Fiscal Studies, 2007
What sort of people work for us?
• Seeking policy influence, academic rigour and communication
• Most from universities, some from gov’t, central banks etc
• Gender:
50%
50%
Women
Men
Nationality:
55%
30%
10%
5%
British
Rest of Europe
Latin America / USA
Asia
• Qualifications:
55%
90%
PhD (complete or in progress)
MSc (complete or in progress)
“The Institute’s success is also in its way simple. First, it hires the brightest and the best…”
© Institute for Fiscal Studies, 2007
(Lord David Lipsey)
What do IFS alumni do?
• Civil service
–
–
–
Dep Head, Govt Economic Service
Dep Head, Econ Policy Dept, FCO
Head of Health Team, HM Treasury
• Media
–
–
–
–
Economics Editor, BBC
Economics Editor, Newsnight
Economics Editor, Financial Times
Social policy leader writer, Guardian
• Global organisations
–
–
Head of Tax Policy, OECD
Chief, Tax Policy Division, IMF
• Academia
–
–
–
Professors: UCL, Surrey, Bristol, Warwick
Principal, St Hugh’s College, Oxford
Dir, Centre for Econ Performance, LSE
• Private sector
–
–
Chief UK Business Economist,
PriceWaterhouseCoopers
Director, Frontier Economics
• Politics / think tanks
–
–
–
Special advisor, Shadow Chancellor
Shadow Health Secretary, Lib Dems
Research Director, IPPR
“Politicians, journalists, business people and the City, not to mention the Treasury
itself, look to the IFS to judge the Government’s conduct of budgetary policy.”
(David Smith, Economics Editor, Sunday Times)
© Institute for Fiscal Studies, 2007
IFS
Programme
Programme
10.45 – 11.30 The public finances, Christine Frayne (IFS)
11.30 – 11.45 Break
11.45 – 12.30 Productivity & innovation, Laura Abramovsky (IFS)
12.30 – 1.15 Lunch
1.15 – 2.00 Higher education funding, Emla Fitzsimons (IFS)
2.00 – 2.45 Pensions, Matthew Wakefield (IFS)
2.45 – 3.15 Break
3.15 – 4.00 Panel session on careers in economics:
Stephanie Flanders (BBC), Najma Rajah (Frontier Economics),
Tom Clark (The Guardian - formerly Special Advisor to Alan
Johnson MP) Mike Hawkins (HMRC)
4.00 – 4.45 The UK tax system, Stuart Adam (IFS)
4.45 – 5.30 Inequality and poverty, Luke Sibieta (IFS)
© Institute for Fiscal Studies, 2007
IFS
The Budget
44
Labour I
Labour II
42
40
38
Total expenditure
Receipts
Current expenditure
36
11–12
10–11
09–10
08–09
07–08
06–07
05–06
04–05
03–04
02–03
01–02
00–01
99–00
98–99
97–98
34
96–97
Percentage of national income
The big picture at PBR time
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
50
48
46
44
42
40
38
36
34
32
30
Real increase (LH axis)
11–12
10–11
09–10
08–09
07–08
06–07
05–06
04–05
03–04
02–03
01–02
00–01
99–00
98–99
97–98
Level (RH axis)
Percentage of national
income
8
7
6
5
4
3
2
1
0
-1
-2
96–97
Percentage real increase
Total Managed Expenditure
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
% of change in GDP
Sharing the proceeds of growth
II
100
90
80
70
60
50
40
30
20
10
0
30
46
Private
spending
70
54
Conservatives
© Institute for Fiscal Studies, 2007
34
Public
spending
Labour to date
66
Labour plans
What increases might we have?
If Treasury does not find £4.5bn to meet child poverty
target
Total Managed Expenditure
2.0
TME after refilling margin
1.8
Of which:
Home office
0.0
-5.0
9 smaller departments
-3.5
Department for Constitutional Affairs
Official Development Assistance
11.2
Debt interest
2.0
Social security and tax credits
Non NHS, non-education
1.6
0.0
NHS and education
-6 -5 -4 -3 -2 -1
4.1
0
1
2
3
4
5
6
7
8
9 10 11 12 13
Percentage real increase
© Institute for Fiscal Studies, 2007
Source: HM Treasury ; IFS
Gordon Brown’s fiscal rules
• Golden rule
–
–
–
–
only borrow to invest
receipts must cover current spending
implies surplus or balance on current budget
on average over economic cycle, not every year
• Sustainable investment rule
– keep debt at a “stable and prudent” level
– defined as below 40% of national income
– to be met every year in current economic cycle
© Institute for Fiscal Studies, 2007
Current budget balance: HMT
3
Budget 01
2
Budget 02
1
Budget 03
Budget 04
0
-1
99
–0
0
00
–0
1
01
–0
2
02
–0
3
03
–0
4
04
–0
5
05
–0
6
06
–0
7
07
–0
8
08
–0
9
09
–1
0
10
–1
1
11
–1
2
-2
© Institute for Fiscal Studies, 2007
Budget 05
Budget 06
PBR 2006
Rules on course to be met,
but…
• Golden rule to met over this cycle if current budget
deficit no more than £17.5bn this year
• Trend over first 10 months suggests £8.5bn
• Golden rule and sustainable investment rule more
likely than not to be met over next cycle too
• But credibility dented by ‘moving the goalposts’ and
‘delaying the inevitable’
© Institute for Fiscal Studies, 2007
‘Delaying the inevitable’
• Treasury revenue forecasts seen by us and others as
too optimistic post-2001 after stock market decline
• We argued through most of second term that
tightening of roughly £13bn would be necessary
• “People say that we won’t meet our fiscal rules. Once
again, with the public finances strong, we will prove
them wrong.” (Gordon Brown, April 2005)
• But once 2005 election safely won: £6bn tax increase
implemented and £10bn spending cut pencilled in
© Institute for Fiscal Studies, 2007
Real receipts (£bn)
© Institute for Fiscal Studies, 2007
Share of GDP (%)
2005
2003
2001
1999
1
0.5
0
1997
10
5
0
1995
3
2.5
2
1.5
1993
30
25
20
15
1991
4
3.5
1989
40
35
1987
Real Receipts (£bn)
Environmental tax receipts
As a share of GDP (%)
Sources: ONS Environmental Accounts, Autumn 2006;
Authors’ calculations
Rate increase needed to raise £1bn
Tax
Change
Illustrative Rate
Fuel Duty (+ VAT)
4%
50.28p/litre + VAT
VED
18%
£177 (petrol band E)
APD
50%
£15 (standard EEA)
Landfill Tax
100%
£42/tonne (standard rate)
CCL
200%
£1.29/100kWh electricity
Aggregates Levy
200%
£4.80/tonne
© Institute for Fiscal Studies, 2007
Sources: HM Treasury Tax Ready Reckoner; Authors’
calculations
EU corporate tax rates
UK 4th lowest of 15 in 1996
Germany
Italy
Luxembourg
Belgium
Greece
Portugal
France
Spain
Netherlands
Denmark
Austria
UK
Sweden
Finland
Ireland
0
© Institute for Fiscal Studies, 2007
10
20
30
40
50
60
EU corporate tax rates
UK 7th highest of 25 in 2006
Germany
Italy
Malta
Spain
France
Belgium
United Kingdom
Netherlands
Luxembourg
Greece
Sweden
Denmark
Portugal
Finland
Slovenia
Austria
Czech Republic
Estonia
Slovakia
Poland
Lithuania
Hungary
Latvia
Ireland
Cyprus
0
© Institute for Fiscal Studies, 2007
10
20
30
40
50
60