Evidence in public policy
Paul Johnson
SRA annual conference
14 December 2015
© Institute for Fiscal Studies

What makes for effective evidence?
• Deals with an issue of importance
• Timely
• Robust
• Well presented/communicated
• From a trusted source
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The IFS
• Combines academic with public policy
• Focus on clear communication
• Very careful to be, and be seen to be, independent/neutral
• Stick to what we know
• Unidisciplinary
• Been doing it for 30+ years
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Understanding causation
• Not the subject of this talk
• Widespread abuse of figures by politicians
– And search for evidence that confirms priors
• Right combination of timeliness, robustness, clarity required
– Remains all too rare
• To be useful results need to be generalisable
– Need models and experiments
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Some examples
• Public finances
– Debt and spending
– The Autumn Statement
– Eliminating the deficit – risk and uncertainty
• What has been happening to the income distribution
– Long term trends
• Changes to welfare
– Examples and populations
– Long term and short term
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Public sector debt at record high
100
80
60
40
20
0
Financial year
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Notes and sources: see Figure 5.2 of The IFS Green Budget: February 2015 .

But not on a longer perspective
300
250
200
150
100
50
0
But was higher from:
1830–31 to 1869–70
1916–17 to 1967–68
Financial year
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Notes and sources: see Figure 5.2 of The IFS Green Budget: February 2015 .
Debt hasn’t exceeded
80% of national income since 1967–68

Spending in historical perspective
1970s: 36% real growth
1980s: 7% real growth
40
38
36
34
32
30
50
48
46
44
42
1960s: 52% real growth
1990s: 24% real growth
2000s: 46% real growth
2010s: 1% real growth
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Change in total DEL – evidence in manifestos?
108
106
104
102
100
98
96
94
92
90
88
86
2015–16
IFS: Conservative manifesto
IFS: Labour manifesto
July Budget 2015
Autumn Statement 2015
2016–17 2017–18 2018–19 2019–20 2020–21
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Notes and sources: Crawford, et al (2015).

Paid for by £27bn windfall?
• No
• £14bn net tax rise
• Small net forecasting adjustments
– Number cumulated over several years
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Eliminating the deficit in this parliament?
Past forecast errors suggest 55% chance of a surplus in 2019–20
Forecast surplus in 2019–20 of £10bn
Average absolute forecasting error 5 years out ≈ £70bn
12
10
8
6
4
2
0
-2
-4
-6
Financial year
© Institute for Fiscal Studies Source: Office for Budget Responsibility.

What about the income distribution?
• Everyone knows it’s been getting more unequal
• Only trouble is that in recent years the evidence would suggest otherwise
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Income inequality is lower than pre-recession
Real income growth by percentile point, 2007–08 to 2013–14
10%
Income measured before housing costs
8%
Income measured after housing costs
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Percentile point
Source: Fig 3.9 of Living Standards, Inequality and Poverty in the UK: 2015
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What about the income distribution?
• Everyone knows it’s been getting more unequal
• Only trouble is that in recent years the evidence would suggest otherwise
• Need to be much clearer what we mean
– The top 1% were pulling away in the 2000s
– Complex changes to wealth distribution
– There are big generational differences
– Sometimes it takes public perception a while to catch up with the evidence
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Incomes of pensioners catching up with the rest...
Median income of pensioners relative to that of non-pensioners, 1979 to 2013–14
105%
Before housing costs After housing costs
100%
95%
90%
85%
80%
75%
70%
65%
60%
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Source: Fig 3.6 of Living Standards, Inequality and Poverty in the UK: 2015
© Institute for Fiscal Studies

What about the income distribution?
• Everyone knows it’s been getting more unequal
• Only trouble is that in recent years the evidence would suggest otherwise
• Need to be much clearer what we mean
– The top 1% were pulling away in the 2000s
– There are big generational differences
– Sometimes it takes public perception a while to catch up with the evidence
– Over a long period inequality has changed enormously
© Institute for Fiscal Studies

Distributional effects of policy change
• Lots of examples in July Budget of how tax credit changes plus new National Living Wage would leave lots better off
• You can produce all sorts of examples

Effect of Budget changes to taxes, benefits and the minimum wage on lone parent’s budget constraint in 2019–20
£500
£450
£400
£350
Pre-budget
+ tax and benefit changes
+ minimum wage
£300
0 5 10 15 20 25 30
Weekly hours worked at Minimum Wage
35 40
Assumes: 2 children aged under 5, median Local Housing Allowance rate, ‘National Living Wage’ 13% above NMW
.
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Effect of Budget changes to taxes, benefits and the minimum wage on budget constraint of a second earner in a couple in 2019–20
£750
£700
£650
£600
£550
Pre-budget
+ tax and benefit changes
+ minimum wage
£500
£450
0 5 10 15 20 25 30
Weekly hours worked at Minimum Wage
35 40
Assumes: 2 children aged under 5, median Local Housing Allowance rate, ‘National Living Wage’ 13% above NMW, partner earns £25,000 a year.
© Institute for Fiscal Studies

Short-run impact of tax and benefit changes
Changes in April 2016 only
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%
Poorest 2
Pre-Autumn Statement
Post-Autumn Statement
3 4 5 6 7
Income Decile Group
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Note: Assumes full take-up of means-tested benefits and tax credits.
8 9 Richest All

Long-run impact of tax and benefit changes
All changes introduced May 2015-April 2019 fully in place
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%
Poorest 2 3 4 5 6 7
Income Decile Group
© Institute for Fiscal Studies
Note: Assumes full take-up of means-tested benefits and tax credits.
Pre-Autumn Statement
Post-Autumn Statement
8 9 Richest All