IFS Public Finance Forecasts
Robert Chote
Carl Emmerson
Christine Frayne
Sarah Love
Forecasts for 2003–04
£ billion
PBR
Dec. 2003
IFS GB
Jan. 2004
Difference
Current receipts
422.8
423.2
+0.4
Current expenditure
442.1
441.9
–0.3
Current budget surplus
–19.3
–18.7
+0.6
Net investment
18.0
18.0
0.0
PSNB
37.4
36.7
–0.7
Baseline revenue assumptions
• Economy performs as Treasury expects
• Corporation Tax receipts return to long-run
average share of national income
• Net Council Tax revenues grow in line with
national income
Receipts forecasts
Percentage of national income
42.0
Treasury December 2003 Pre-Budget Report forecast
41.0
IFS January 2004 forecast
40.0
39.0
38.0
37.0
36.0
35.0
1999–2000 2000–01
2001–02
2002–03
2003–04
2004–05
Financial year
2005–06
2006–07
2007–08
Receipts forecasts for 2007–08
% of national income
PBR
Dec. 2003
IFS GB
Jan. 2004
Difference
Income tax & soc. sec.
contributions
18.0
18.0
0.0
Corporation tax
3.5
3.2
–0.3
VAT & excise duties
9.4
9.5
+0.1
Other taxes
9.3
8.9
–0.4
Total
40.2
39.6
–0.6
Notes: Income tax & soc. sec. contributions net of tax credits
Corporation tax includes petroleum revenue tax
Baseline spending assumptions
• Margin in Annually Managed Expenditure
‘reset’
• Treasury’s assumptions used for spending
beyond March 2006
AME margin
£ billion
2003–04
2004–05
2005–06
Budget 2003
1.0
2.0
3.0
PBR 2003
0.3
0.0
0.0
Budget 2004?
0.0
1.0
2.0
Addition to
spending?
–0.3
+1.0
+2.0
Spending assumptions from April
2006 to March 2008:
• Public Sector Net Investment
• Increases to 2¼% of national income in 2007–08
• Current AME grows by 1¾% a year in real terms
• Current departmental expenditure
• Non-NHS departmental spending falls as a share
of national income
• (Spending projection fixed in cash terms despite
higher inflation forecast than Budget 2003)
Current spending forecasts
Percentage of national income
42.0
Treasury December 2003 Pre-Budget Report forecast
41.0
IFS January 2004 forecast
40.0
39.0
38.0
37.0
36.0
35.0
1999–2000 2000–01
2001–02
2002–03
2003–04
2004–05
Financial year
2005–06
2006–07
2007–08
Implications of PBR spending
Average annual real growth in spending, April 2003 to March 2008:
Employment
Pay
Wage bill
Other current
spend
Total current
spend
3.2
Implications of PBR spending
Average annual real growth in spending, April 2003 to March 2008:
Employment
Pay
Wage bill
Other current
spend
Total current
spend
0.0
0.0
0.0
4.7
3.2
Implications of PBR spending
Average annual real growth in spending, April 2003 to March 2008:
Employment
Pay
Wage bill
Other current
spend
Total current
spend
0.0
0.0
0.0
4.7
3.2
0.0
2.3
2.3
3.7
3.2
Implications of PBR spending
Average annual real growth in spending, April 2003 to March 2008:
Employment
Pay
Wage bill
Other current
spend
Total current
spend
0.0
0.0
0.0
4.7
3.2
0.0
2.3
2.3
3.7
3.2
1.7
2.3
4.0
3.0
3.2
Alternative spending scenarios,
April 2005 to March 2008
5.0
Annual average real growth
Real growth in TME
4.0
Real growth in the national economy
+£4.6bn
+£0.0bn
3.0
–£2.5bn
2.0
1.0
0.0
–£14.2bn
Real freeze
-1.0
Constant share
PBR projections
Continue current
growth
£bn are per year differences from PBR projections
Medium term IFS forecasts
• Receipts to grow, but less quickly than
forecast by HMT
• Public spending slightly above PBR forecast
Higher levels of borrowing
Current budget surpluses
Treasury April 2003 Budget forecast
Treasury December 2003 Pre-Budget Report forecast
IFS January 2004 forecast
Percentage of national income
3.0
2.0
1.0
0.0
-1.0
-2.0
1999–2000 2000–01
2001–02
2002–03
2003–04
2004–05
Financial year
2005–06
2006–07
2007–08
Meeting the golden rule (1):
Retrospective assessment
Percentage of national income
3.0
HMT estimate of current cycle
2.0
1.0
0.0
-1.0
-2.0
1999–2000 2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
Financial year
IFS Green Budget forecast for current budget surplus
Meeting the golden rule (2):
Prospective assessment
Percentage of national income
3.0
Next cycle
2.0
1.0
0.0
-1.0
-2.0
1999–2000 2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
Financial year
IFS Green Budget forecast for current budget surplus
Budget judgement (1)
To expect to continue to meet the golden rule:
• If PBR revenue projections right:
• Current spending plans could be delivered without
further announcements of tax increases
• If IFS revenue projections right:
• Further tax increases or slower growth in current
spending required
Budget judgement (2)
• If IFS revenue projections right:
• £10bn tax increase by 2006–07 would lead to
current budget balance
• £13bn tax increase by 2007–08 would return
borrowing to the path set out in the April 2003
Budget
• This is equivalent to 1% a year lower real growth
in current spending from April 2005 to March 2008
• Announcements in the forthcoming Budget would
protect the credibility of the fiscal rules