Public finances
Christine Frayne
Institute for Fiscal Studies
45
44
43
42
41
40
39
38
37
36
35
Labour I
Labour II
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
Total expenditure
Current expenditure
Receipts
96–97
Percentage of national income
The big picture
Financial year
Source: HM Treasury
Mr Brown’s fiscal record
1996-97
200708
Change
% GDP
Change
£bn
Receipts
37.3
40.1
2.9
39.6
Spending
40.8
42.0
1.8
25.0
Net borrowing
3.5
2.4
–1.1
–14.6
Net debt
43.6
38.2
–5.4
–74.4
Source: HM Treasury; IFS
Mr Brown’s fiscal record
1996-97
200708
Change
% GDP
Change
£bn
Receipts
37.3
40.1
2.9
39.6
Spending
40.8
42.0
1.8
25.0
Net borrowing
3.5
2.4
–1.1
–14.6
Net debt
43.6
38.2
–5.4
–74.4
Source: HM Treasury; IFS
Mr Brown’s fiscal record
1996-97
200708
Change
% GDP
Change
£bn
Receipts
37.3
40.1
2.9
39.6
Spending
40.8
42.0
1.8
25.0
Net borrowing
3.5
2.4
–1.1
–14.6
Net debt
43.6
38.2
–5.4
–74.4
Source: HM Treasury; IFS
Mr Brown’s fiscal record
1996-97
200708
Change
% GDP
Change
£bn
Receipts
37.3
40.1
2.9
39.6
Spending
40.8
42.0
1.8
25.0
Net borrowing
3.5
2.4
–1.1
–14.6
Net debt
43.6
38.2
–5.4
–74.4
Source: HM Treasury; IFS
Sharing the proceeds of growth
• In 2007-08 compared with 1996-97
• Families on average pay £5600 more tax in
real terms
• National income is higher by £356bn
• On average £11700 per family
• So once tax has been deducted
• Families on average still keep £6100 more
Current budget: total change
£billion
200607
200708
200809
200910
201011
2011-12
–7.9
–1.5
+4
+7
+10
+14
Discretionary
changes
0
–½
½
0
½
½
Of which: changes to
taxes
0
0
1½
1½
2
2
Revisions and
forecasting changes
–1.6
–2½
–1½
–1½
–1½
–2
Of which: North Sea
taxes
–1½
–2½
–2½
–2½
–2
–1½
Current budget
Budget 2007
–9.5
–4.3
+3
+6
+9
+13
Current budget
PBR 2006
Source: HM Treasury; IFS
Current budget: total change
£billion
200607
200708
200809
200910
201011
2011-12
–7.9
–1.5
+4
+7
+10
+14
Discretionary
changes
0
–½
½
0
½
½
Of which: changes to
taxes
0
0
1½
1½
2
2
Revisions and
forecasting changes
–1.6
–2½
–1½
–1½
–1½
–2
Of which: North Sea
taxes
–1½
–2½
–2½
–2½
–2
–1½
Current budget
Budget 2007
–9.5
–4.3
+3
+6
+9
+13
Current budget
PBR 2006
Source: HM Treasury; IFS
Current budget: total change
£billion
200607
200708
200809
200910
201011
2011-12
–7.9
–1.5
+4
+7
+10
+14
Discretionary
changes
0
–½
½
0
½
½
Of which: changes to
taxes
0
0
1½
1½
2
2
Revisions and
forecasting changes
–1.6
–2½
–1½
–1½
–1½
–2
Of which: North Sea
taxes
–1½
–2½
–2½
–2½
–2
–1½
Current budget
Budget 2007
–9.5
–4.3
+3
+6
+9
+13
Current budget
PBR 2006
Source: HM Treasury; IFS
Current budget: total change
£billion
200607
200708
200809
200910
201011
2011-12
–7.9
–1.5
+4
+7
+10
+14
Discretionary
changes
0
–½
½
0
½
½
Of which: changes to
taxes
0
0
1½
1½
2
2
Revisions and
forecasting changes
–1.6
–2½
–1½
–1½
–1½
–2
Of which: North Sea
taxes
–1½
–2½
–2½
–2½
–2
–1½
Current budget
Budget 2007
–9.5
–4.3
+3
+6
+9
+13
Current budget
PBR 2006
Source: HM Treasury; IFS
Current budget: total change
£billion
200607
200708
200809
200910
201011
2011-12
–7.9
–1.5
+4
+7
+10
+14
Discretionary
changes
0
–½
½
0
½
½
Of which: changes to
taxes
0
0
1½
1½
2
2
Revisions and
forecasting changes
–1.6
–2½
–1½
–1½
–1½
–2
Of which: North Sea
taxes
–1½
–2½
–2½
–2½
–2
–1½
Current budget
Budget 2007
–9.5
–4.3
+3
+6
+9
+13
Current budget
PBR 2006
Source: HM Treasury; IFS
Budget measures
£billion
2007–08 2008–09
2009–10
+0.0
–2.1
–2.5
+0.0
+0.0
+9.0
–11.1
+10.7
–13.2
–0.2
+0.1
–0.1
+0.0
–0.2
+2.0
–2.0
+3.6
–3.7
Green measures
+0.2
+0.3
+0.3
‘Avoidance’
–0.2
+0.8
+1.1
Empty properties etc
–0.4
+1.2
+1.3
Total
–0.5
+0.3
+0.1
Income tax & NICs
Positive
Negative
Corporate
Positive
Negative
Source: HM Treasury
Budget measures
£billion
2007–08 2008–09
2009–10
+0.0
–2.1
–2.5
+0.0
+0.0
+9.0
–11.1
+10.7
–13.2
–0.2
+0.1
–0.1
+0.0
–0.2
+2.0
–2.0
+3.6
–3.7
Green measures
+0.2
+0.3
+0.3
‘Avoidance’
–0.2
+0.8
+1.1
Empty properties etc
–0.4
+1.2
+1.3
Total
–0.5
+0.3
+0.1
Income tax & NICs
Exchequer gain
Exchequer loss
Corporate
Exchequer gain
Exchequer loss
Source: HM Treasury
The fiscal rules
• Golden Rule
• Borrow only to invest
• Current budget balance or surplus
• Judged over the economic cycle
• Sustainable Investment Rule
• Debt at a stable and prudent level
• This cycle: ≤40% of national income every
year
Current cycle total =
0.8% of GDP or £10.5bn
5.0
4.0
2.3 2.5
3.0
2.0
1.2
1.1
0.6 0.8
0.3
0.1
1.0
0.0
-0.1
-1.2
-0.3
Outturns
11–12
10–11
09–10
08–09
06–07
05–06
04–05
03–04
02–03
01–02
00–01
99–00
Budget 07 forecast
98–99
-4.0
-1.6 -1.6
-2.8
97–98
-3.0
-1.1
-0.7
07–08
-1.0
-2.0
96–97
Percentage of national income
Current budget balance
Source: HM Treasury
5.0
Next cycle
4.0
3.0
2.3 2.5
2.0
1.2
1.1
0.6 0.8
0.3
0.1
1.0
0.0
-0.1
-1.6 -1.6
-1.2
-0.3
Outturns
-2.8
11–12
10–11
09–10
08–09
06–07
05–06
04–05
03–04
02–03
01–02
00–01
99–00
Budget 07 forecast
98–99
-4.0
-1.1
97–98
-2.0
-3.0
-0.7
07–08
-1.0
96–97
Percentage of national income
Current budget balance
Source: HM Treasury
Structural current budget balances
Budget 02
Budget 03
Budget 04
Budget 05
Budget 06
Budget 07
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
11–12
10–11
09–10
08–09
07–08
06–07
05–06
04–05
03–04
02–03
01–02
00–01
-2.5
99–00
Percentage of national income
2.5
Source: HM Treasury
The fiscal rules
• Golden Rule
• Borrow only to invest
• Current budget balance or surplus
• Judged over the economic cycle
• Sustainable Investment Rule
• Debt at a stable and prudent level
• This cycle: ≤40% of national income every
year
2011-12
2010-11
2009-10
2008-09
2006-07
2007-08
2005-06
2004-05
2003-04
2001-02
2002-03
2000-01
1999-00
1998-99
1997-98
Percentage of national income
Will the investment rule be met?
60
50
Budget 2007
40
30
20
Ceiling
10
0
Financial year
Source: HM Treasury; IFS
2011-12
2010-11
2009-10
2008-09
2006-07
2007-08
2005-06
2004-05
2003-04
2001-02
2002-03
2000-01
1999-00
1998-99
1997-98
Percentage of national income
Will the investment rule be met?
60
50
40
30
20
10
80%
60%
40%
20%
Budget 2007
20%
40%
60%
80%
Ceiling
0
Financial year
Source: HM Treasury; IFS
Debt could exceed 40%
100%
90%
80%
Probability
70%
60%
50/50 chance
50%
40%
41%
44%
2009–10
2010–11
30%
30%
20%
10%
6%
0%
2007–08
2008–09
Source: HM Treasury; IFS
Conclusions
• Slight deterioration in the public finances
• Small net impact of new measures on
Exchequer
• Large gains and losses
• Both fiscal rules on course to be met
• Relies on further:
• Increases in tax burden
• Reductions in public spending as a share
of national income