IFS
CSR 2007: Not the final settlement?
Carl Emmerson
Institute for Fiscal Studies
Presentation to LGA Conference, “the comprehensive spending review”,
Tuesday 23rd October 2007
www.ifs.org.uk/budgets/pbr2007/index.php
45
44
43
Labour I
Labour II
42
41
40
39
38
Borrowing = 2.7%
of GDP
Total expenditure
37
36
35
12–13
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
Current receipts
96–97
Percentage of national income
The big picture: Labour’s record
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
45
44
43
Labour I
Labour II
42
41
40
39
38
Total expenditure
37
36
35
12–13
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
Current receipts
96–97
Percentage of national income
The big picture: going forwards
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
A challenging spending review
Av. annual increase (%)
2007 CSR
© Institute for Fiscal Studies, 2007
Current
Capital
Total
+1.9
+4.4
+2.1
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
A challenging spending review
Av. annual increase (%)
Current
Capital
Total
+1.9
+4.4
+2.1
April 1999 to March 2008
+3.6
+15.7
+4.0
April 1997 to March 1999
–0.3
+6.8
–0.2
2007 CSR
Labour
© Institute for Fiscal Studies, 2007
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
A challenging spending review
Av. annual increase (%)
Current
Capital
Total
+1.9
+4.4
+2.1
April 1999 to March 2008
+3.6
+15.7
+4.0
April 1997 to March 1999
–0.3
+6.8
–0.2
+1.7
–5.0
+1.5
2007 CSR
Labour
Conservatives
April 1979 to March 1997
© Institute for Fiscal Studies, 2007
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
What is a spending cut?
© Institute for Fiscal Studies, 2007
What is a spending cut?
“The Conservative Party is committed to making cash cuts of
£35 billion from Labour's public spending plans – cuts so large
they could only be found from cutting deep into front-line public
services, including schools, hospitals and the police.”
(Alistair Darling, 17 March 2005)
© Institute for Fiscal Studies, 2007
Breakdown of spending growth
Spending
review years to
date (April
1999 to March
2008)
4.0
TME
AME
DEL
CSR 2007
plans
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
6.0
© Institute for Fiscal Studies, 2007
Source: HM Treasury; IFS calculations
Breakdown of spending growth
Spending
review years to
date (April
1999 to March
2008)
4.0
2.8
TME
4.9
AME
DEL
CSR 2007
plans
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
6.0
© Institute for Fiscal Studies, 2007
Source: HM Treasury; IFS calculations
Breakdown of spending growth
Spending
review years to
date (April
1999 to March
2008)
4.0
2.8
TME
4.9
AME
DEL
2.1
CSR 2007
plans
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
6.0
© Institute for Fiscal Studies, 2007
Source: HM Treasury; IFS calculations
Breakdown of spending growth
Spending
review years to
date (April
1999 to March
2008)
4.0
2.8
TME
4.9
AME
DEL
2.1
CSR 2007
plans
2.1
2.1
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
6.0
© Institute for Fiscal Studies, 2007
Source: HM Treasury; IFS calculations
Relative winners?
Average DEL increase = 2.1 per cent
Overseas Aid
16.8%
Culture, Media & Sport (incl.
Olympics)
6.5%
Health (UK)
3.7%
Transport (UK)
3.0%
Education (UK)
3.0%
Science (UK)
-8%
2.5%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10% 12% 14% 16% 18%
Average annual real increase 2007–08 to 2010–11
© Institute for Fiscal Studies, 2007
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
Relative losers?
Average DEL increase = 2.1 per cent
1.8%
Housing (UK)
Defence
1.5%
Environment, Food and Rural Affairs
1.4%
1.1%
Home Office
Local Government
0.8%
Culture, Media and Sport (excl. Olympics)
0.0%
Foreign Office
Business, Ent. & Reg. Reform
-0.2%
-2.6%
Work and Pensions -5.6%
-8% -6% -4% -2% 0% 2%
4%
6%
8% 10% 12% 14% 16% 18%
Average annual real increase 2007–08 to 2010–11
© Institute for Fiscal Studies, 2007
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
Winners and losers?
TME
2.1%
DEL
2.1%
4.0%
4.9%
Labour spending reviews to date (April
1999 to March 2008)
CSR07 plans (April 2008 to March 2011)
Transport (UK)
Health (UK)
Home office
Housing (UK)
Education (UK)
Defence
Overseas Aid
0.0%
© Institute for Fiscal Studies, 2007
5.0%
10.0%
15.0%
Average annual real increase
20.0%
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
Winners and losers?
TME
2.1%
DEL
2.1%
Transport (UK)
Housing (UK)
Education (UK)
4.9%
CSR07 plans (April 2008 to March 2011)
8.4%
3.0%
Health (UK)
Home office
Labour spending reviews to date (April
1999 to March 2008)
4.0%
6.9%
3.7%
4.8%
1.1%
1.8%
4.3%
3.0%
5.4%
Defence
Overseas Aid
0.0%
© Institute for Fiscal Studies, 2007
5.0%
10.0%
15.0%
Average annual real increase
20.0%
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
Winners and losers?
TME
2.1%
DEL
2.1%
Transport (UK)
Housing (UK)
Overseas Aid
0.0%
© Institute for Fiscal Studies, 2007
CSR07 plans (April 2008 to March 2011)
8.4%
6.9%
3.7%
4.8%
1.1%
1.8%
Education (UK)
Defence
4.9%
3.0%
Health (UK)
Home office
Labour spending reviews to date (April
1999 to March 2008)
4.0%
4.3%
3.0%
5.4%
1.4%
1.5%
8.9%
5.0%
10.0%
15.0%
Average annual real increase
16.8%
20.0%
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
Local government settlement?
Communities: Local Government
DEL
Average = 0.8%
2008–09
2009–10
2010–11
Average increase in total CG support
1996-97 to 2006-07
Average increase in Band D council
tax 1996-97 to 2006-07
Stated maximum desired increase in
council tax over CSR2007 period
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; Department for Communities and Local Government; IFS calculations
© Institute for Fiscal Studies, 2007
Local government settlement?
Communities: Local Government
DEL
2008–09
1.2
2009–10
1.0
2010–11
0.3
Average increase in total CG support
1996-97 to 2006-07
Average increase in Band D council
tax 1996-97 to 2006-07
Stated maximum desired increase in
council tax over CSR2007 period
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; Department for Communities and Local Government; IFS calculations
© Institute for Fiscal Studies, 2007
Local government settlement?
Communities: Local Government
DEL
2008–09
1.2
2009–10
1.0
2010–11
0.3
Average increase in total CG support
1996-97 to 2006-07
Average increase in Band D council
tax 1996-97 to 2006-07
Stated maximum desired increase in
council tax over CSR2007 period
3.6
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; Department for Communities and Local Government; IFS calculations
© Institute for Fiscal Studies, 2007
Local government settlement?
Communities: Local Government
DEL
2008–09
1.2
2009–10
1.0
2010–11
0.3
Average increase in total CG support
1996-97 to 2006-07
Average increase in Band D council
tax 1996-97 to 2006-07
Stated maximum desired increase in
council tax over CSR2007 period
3.6
4.4
2.3
0.0
1.0
2.0
3.0
4.0
5.0
Average annual real increase
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; Department for Communities and Local Government; IFS calculations
© Institute for Fiscal Studies, 2007
UK health spending
April 2003 to March 2008
Wanless 2002
7.1%
Latest estimate
7.2%
April 2008 to March 2011
Wanless 2002 "fully engaged"
Wanless 2002 "solid progress"
4.4%
4.7%
Wanless 2002 "slow uptake"
CSR 2007 award
5.6%
3.7%
0% 1% 2% 3% 4% 5% 6% 7% 8%
Average annual real increase
© Institute for Fiscal Studies, 2007
Note: Assumes GDP deflator of 2.7% per year going forwards
Source: HM Treasury; IFS calculations
Health spending shortfall?
• CSR 2007 settlement below Wanless 2002
recommendations for 2010–11
– £2bn under “fully engaged” scenario
– £3bn under “solid progress” scenario
– £6bn under “slow uptake” scenario
Wanless (2007) “neither the assumed rate of productivity
improvement nor the changes in personal behaviour that
the more optimistic scenarios in the 2002 review
envisaged have been achieved”
© Institute for Fiscal Studies, 2007
But plans could be topped up?
Departmental Expenditure Limits
Real growth in spending (%)
5.9
5.6
6
5.0
5.2
Latest estimate
5
4
Original plan
5.5
4.2 4.3
3.8
3
2.0 2.1
2
1
0
CSR 98
© Institute for Fiscal Studies, 2007
SR 00
SR 02
SR 04
CSR 07
Note: Initial plans adjusted for subsequent inflation
Source: HM Treasury
The 2010 child poverty target
30%
Child poverty rate
25%
20%
15%
Actual
10%
Estimated path
Target
5%
© Institute for Fiscal Studies, 2007
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
0%
Conclusions
• Spending growth considerably slower than
Labour’s spending reviews to date
– growth in DELs planned to slow from 4.9% p.a. to
2.1% p.a.
• Might prove incompatible with aspirations for
public services and child poverty
• Plans could be topped up
– higher spending likely to require greater tax revenues
© Institute for Fiscal Studies, 2007
IFS
CSR 2007: Not the final settlement?
Carl Emmerson
Institute for Fiscal Studies
Presentation to LGA Conference, “the comprehensive spending review”,
Tuesday 23rd October 2007
www.ifs.org.uk/budgets/pbr2007/index.php