Public finances: less to repair, a bit more done
Gemma Tetlow
© Institute for Fiscal Studies
Public finances: summary
• The big picture
– Borrowing
g in 2009–10 to be £11bn lower than PBR 2009 forecast
– This is expected to persist in future, offset slightly by weaker outlook
for growth
• New policy announcements
– Small short-term giveaway, small medium-term takeaway
• Timescale for fiscal tightening shortened, from 8 years to 7 years
• Still work to be done
– Further, as-yet-unannounced, fiscal tightening pencilled in for 2015–16
and 2016–17
– Public service spending settlement to be very tight from April 2011
© Institute for Fiscal Studies
How big is the problem?
2
-2
-4
-6
-8
Extra cyclical borrowing
-10
Extra structural borrowing
g
12
-12
© Institute for Fiscal Studies
Source: IFS calculations based on HM Treasury figures.
2017-18
8
2016-17
7
2015-16
6
2013-14
4
2012-13
3
2011-12
2
2010-11
1
2009-10
0
-14
2014-15
5
Borrowing in Budget 2008
2008-09
9
Percentage o
of national income
Public sector net borrowing in PBR 2008, excluding policy measures
since PBR 2008
0
How big is the problem?
2
-2
-4
-6
-8
Extra cyclical borrowing
-10
Extra structural borrowing
g
12
-12
© Institute for Fiscal Studies
Source: IFS calculations based on HM Treasury figures.
2017-18
8
2016-17
7
2015-16
6
2014-15
5
Borrowing in Budget 2008
2013-14
4
2012-13
3
2011-12
2
2010-11
1
2009-10
0
-14
Repair job = 3.2% of GDP, £45bn
2008-09
9
Percentage o
of national income
Public sector net borrowing in PBR 2008, excluding policy measures
since PBR 2008
0
How big is the problem?
2
-2
-4
-6
-8
Extra cyclical borrowing
-10
Extra structural borrowing
g
12
-12
© Institute for Fiscal Studies
Source: IFS calculations based on HM Treasury figures.
2017-18
8
2016-17
7
2015-16
6
2014-15
5
Borrowing in Budget 2008
2013-14
4
2012-13
3
2011-12
2
2010-11
1
2009-10
0
-14
Repair job = 6.4% of GDP, £90bn
2008-09
9
Percentage o
of national income
Public sector net borrowing in Budget 2009, excluding policy measures
since PBR 2008
0
How big is the problem?
2
-2
-4
-6
-8
Extra cyclical borrowing
-10
Extra structural borrowing
g
12
-12
© Institute for Fiscal Studies
Source: IFS calculations based on HM Treasury figures.
2017-18
8
2016-17
7
2015-16
6
2014-15
5
Borrowing in Budget 2008
2013-14
4
2012-13
3
2011-12
2
2010-11
1
2009-10
0
-14
Repair job = 5.2% of GDP, £73bn
2008-09
9
Percentage o
of national income
Public sector net borrowing in PBR 2009, excluding policy measures
since PBR 2008
0
How big is the problem?
2
-2
-4
-6
-8
Extra cyclical borrowing
-10
Extra structural borrowing
g
12
-12
© Institute for Fiscal Studies
Source: IFS calculations based on HM Treasury figures.
2017-18
8
2016-17
7
2015-16
6
2014-15
5
Borrowing in Budget 2008
2013-14
4
2012-13
3
2011-12
2
2010-11
1
2009-10
0
-14
Repair job = 4.7% of GDP, £66bn
2008-09
9
Percentage o
of national income
Public sector net borrowing in Budget 2010, excluding policy measures
since PBR 2008
0
Changes to borrowing since PBR 2009
Public sector net borrowing, £ billion
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
PBR 2009
177 6
177.6
176
140
117
96
82
Revisions
–11.0
–14½
–9
–7
–6½
–6½
Budget 2010, no
discretionary
changes
166.5
161½
131
110½
90
75½
Discretionary
changes
B d t 2010
Budget
Sources: HM Treasury; IFS calculations.
Changes to borrowing since PBR 2009
Public sector net borrowing, £ billion
Revisions
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
–11.0
–14½
–9
–7
–6½
–6½
Of which
Lower growth
Timing of bank
bonus tax
Other
Note: Numbers do not sum due to rounding.
Sources: HM Treasury; IFS calculations.
Changes to borrowing since PBR 2009
Public sector net borrowing, £ billion
Revisions
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
–11.0
–14½
–9
–7
–6½
–6½
0.0
0
2
3
3
3
Of which
Lower growth
Timing of bank
bonus tax
Other
Note: Numbers do not sum due to rounding.
Sources: HM Treasury; IFS calculations.
Changes to borrowing since PBR 2009
Public sector net borrowing, £ billion
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
–11.0
–14½
–9
–7
–6½
–6½
Lower growth
0.0
0
2
3
3
3
Timing of bank
bonus tax
0.6
–1½
0
0
0
0
Revisions
Of which
Other
Note: Numbers do not sum due to rounding.
Sources: HM Treasury; IFS calculations.
Changes to borrowing since PBR 2009
Public sector net borrowing, £ billion
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
–11.0
–14½
–9
–7
–6½
–6½
Lower growth
0.0
0
2
3
3
3
Timing of bank
bonus tax
0.6
–1½
0
0
0
0
–11.6
–13
–11
–10
–10
–10
Revisions
Of which
Other
Note: Numbers do not sum due to rounding.
Sources: HM Treasury; IFS calculations.
Caution in the unemployment assumption
2.5
Million
ns
Claimant count unemployment
2.0
15
1.5
1.0
NAO Assumption, PBR 2009
0.5
NAO Assumption,
Assumption Budget 2010
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
201
14
201
13
201
12
201
11
201
10
200
09
200
08
0.0
Caution in the unemployment assumption
2.5
Million
ns
Claimant count unemployment
2.0
200,000 fewer unemployed,
saving banked ≈ £1.0bn a year
15
1.5
1.0
NAO Assumption, PBR 2009
0.5
NAO Assumption,
Assumption Budget 2010
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
201
14
201
13
201
12
201
11
201
10
200
09
200
08
0.0
Caution in the unemployment assumption
2.5
Million
ns
Claimant count unemployment
2.0
15
1.5
750,000 fewer unemployed,
saving to come ≈ £3.7bn a year
1.0
NAO Assumption, PBR 2009
NAO Assumption, Budget 2010
0.5
HMT Projection, Budget 2010
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
201
14
201
13
201
12
201
11
201
10
200
09
200
08
0.0
Changes to borrowing since PBR 2009
Public sector net borrowing, £ billion
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
PBR 2009
177 6
177.6
176
140
117
96
82
Revisions
–11.0
–14½
–9
–7
–6½
–6½
Budget 2010, no
discretionary
changes
166.5
161½
131
110½
90
75½
Discretionary
changes
0
+1.4
–0.2
–½
–1
–1½
B d t 2010
Budget
166 5
166.5
163
131
110
89
74
Sources: HM Treasury; IFS calculations.
Measures: giveaway then takeaway
£ billion
Budget 2010
2010–11
2011–12
2012–13
2013–14
2014-15
1.4
–0.2
–0.7
–0.9
–1.6
Tax giveaway
Tax takeaway
Spending giveaway
Spending takeaway
Net tax increase
Net spending cut
Net giveaway
Note: Actual numbers may differ due to rounding.
Sources: HM Treasury; IFS calculations.
Measures: giveaway then takeaway
£ billion
Budget 2010
2010–11
2011–12
2012–13
2013–14
2014-15
Spending giveaway
1.6
0.0
0.0
0.0
0.0
Spending takeaway
0.8
0.0
0.0
0.0
0.0
Net spending cut
–0.8
0.0
0.0
0.0
0.0
Net giveaway
1.4
–0.2
–0.7
–0.9
–1.6
Tax giveaway
Tax takeaway
Net tax increase
Note: Actual numbers may differ due to rounding.
Sources: HM Treasury; IFS calculations.
Measures: giveaway then takeaway
£ billion
Budget 2010
2010–11
2011–12
2012–13
2013–14
2014-15
Tax giveaway
1.2
0.8
0.4
0.4
0.4
Tax takeaway
0.5
0.9
1.1
1.3
2.0
Spending giveaway
1.6
0.0
0.0
0.0
0.0
Spending takeaway
0.8
0.0
0.0
0.0
0.0
Net tax increase
–0
0.7
7
02
0.2
07
0.7
09
0.9
16
1.6
Net spending cut
–0.8
0.0
0.0
0.0
0.0
Net giveaway
1.4
–0.2
–0.7
–0.9
–1.6
Note: Actual numbers may differ due to rounding.
Sources: HM Treasury; IFS calculations.
Fiscal tightening: two parliaments of pain?
nal incom
me
Perrcentage of nation
7
PBR 08
Job done
6
5
4
3
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Fiscal tightening: two parliaments of pain?
Job done
nal incom
me
Perrcentage of nation
7
PBR 08 & Budget 09
6
5
4
3
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Fiscal tightening: two parliaments of pain?
Job done
nal incom
me
Perrcentage of nation
7
PBR 08 & Budget 09 & PBR 09
6
5
4
3
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Fiscal tightening: two parliaments of pain?
PBR 2009: End of fiscal tightening
nal incom
me
Perrcentage of nation
7
Job done
PBR 08 & Budget 09 & PBR 09 & Budget 10
6
5
4
3
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2017-18
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Fiscal tightening: two parliaments of pain?
nal incom
me
Perrcentage of nation
7
6
5
4
3
Unknown tax or current spending
Investment changes
Current spending changes
Tax changes
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Fiscal tightening: two parliaments of pain?
1/3rd tax,
tax 2/3rds spend
nal incom
me
Perrcentage of nation
7
6
5
4
3
Unknown tax or current spending
Investment changes
Current spending changes
Tax changes
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Fiscal tightening: two parliaments of pain?
Total repair
p 4.8%,, £67bn
(30% left to do)
nal incom
me
Perrcentage of nation
7
6
5
4
3
Unknown tax or current spending
Investment changes
Current spending changes
Tax changes
2
1
0
-1
1
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
2016-17
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-0
09
-2
Planned size and mix of tightening in 2017–18
Perrcentage of nation
nal incom
me
7
6
5
Unknown
Investment
Current spending
Tax
£90bn
£77b
£77bn
£67bn
4
3
£37bn
2
1
0
PBR 2008
g 2009
Budget
PBR 2009
1/8th tax
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Budget
g 2010
Planned size and mix of tightening in 2017–18
Perrcentage of nation
nal incom
me
7
6
5
Unknown
Investment
Current spending
Tax
£90bn
£77b
£77bn
£67bn
4
3
£37bn
2
1
0
PBR 2008
g 2009
Budget
PBR 2009
1/5th tax
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Budget
g 2010
Planned size and mix of tightening in 2017–18
Perrcentage of nation
nal incom
me
7
6
5
Unknown
Investment
Current spending
Tax
£90bn
£77b
£77bn
£67bn
4
3
£37bn
2
1
0
PBR 2008
g 2009
Budget
PBR 2009
1/3rd tax
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Budget
g 2010
Planned size and mix of tightening in 2017–18
Perrcentage of nation
nal incom
me
7
6
5
Unknown
Investment
Current spending
Tax
£90bn
£77b
£77bn
£67bn
4
3
£37bn
2
1
0
PBR 2008
g 2009
Budget
PBR 2009
Budget
g 2010
1/3rd tax
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
What would have happened with no action?
Total Managed Expenditure - no action
Current receipts - no action
Total Managed Expenditure - projected
Current receipts - projected
50
45
40
35
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
201
14-15
201
13-14
201
12-13
201
11-12
201
10-11
200
09-10
200
08-09
200
07-08
200
06-07
200
05-06
200
04-05
200
03-04
200
02-03
200
01-02
200
00-01
199
99-00
199
98-99
199
97-98
30
199
96-97
ercentage
e of natio
onal incom
me
Pe
55
What would have happened with no action?
Total Managed Expenditure – no action
Current receipts – no action
Total Managed Expenditure – projected
Current receipts – projected
50
Highest borrowing since WW2
Highest spending since 1982–83
Lowest tax burden since 1993–94
45
40
35
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
201
14-15
201
13-14
201
12-13
201
11-12
201
10-11
200
09-10
200
08-09
200
07-08
200
06-07
200
05-06
200
04-05
200
03-04
200
02-03
200
01-02
200
00-01
199
99-00
199
98-99
199
97-98
30
199
96-97
ercentage
e of natio
onal incom
me
Pe
55
Difference between the two main parties
• Government’s Fiscal Consolidation Plan
– Target
g (1):
( ) Halve deficit from 2009–10,, to 5.9% of GDP in 2013–14
– Target (2): 5.5% of GDP borrowing in 2013–14
– Budget
g forecast for 2013–14: 5.2%, down from 5.5% at PBR
© Institute for Fiscal Studies
Difference between the two main parties
• Government’s Fiscal Consolidation Plan
• Conservative target for borrowing:
– Balanced structural current budget by “end of forecast horizon”
– Budget
g 2010 forecasts imply
py
• Structural current budget deficit: 0.6% of GDP (£8bn) in 2015–16
• Down from 1.1% of GDP ((£15bn)) in PBR 2009
– Less additional work required by a Conservative government
– Action needed would likely depend on judgement of new Office of
Budget Responsibility in June
• Stability and Growth Pact
– Target: no more than 3% general government deficit
– Budget forecast: 4.2% of GDP in 2014–15, down from 4.6% in PBR
© Institute for Fiscal Studies
Public finances: summary
• The big picture
– Borrowing
g in 2009–10 to be £11bn lower than PBR 2009 forecast
– This is expected to persist in future, offset slightly by weaker outlook
for growth
• New policy announcements
– Small short-term giveaway, small medium-term takeaway
• Timescale for fiscal tightening shortened, from 8 years to 7 years
• Still work to be done
– Further, as-yet-unannounced, fiscal tightening pencilled in for 2015–16
and 2016–17
– Public service spending settlement to be very tight from April 2011
© Institute for Fiscal Studies
Public finances: less to repair, a bit more done
Gemma Tetlow
© Institute for Fiscal Studies