The public finances
Election 2005
Institute for Fiscal Studies
www.ifs.org.uk/election/index05.php
Liberal Democrats
• Giveaway policies
• Abolition of council tax
• Stamp duty threshold increased to £150k
• Enhanced citizen’s pension for those aged 75+
• Free personal care for those aged 65+
• Abolition of tuition fees
• In 2007–08 this equates to £8.1bn of spending
increases and £23.7bn of tax cuts
Liberal Democrats
• Takeaway policies
• 49p rate of income tax on incomes >£100,000 pa
• New local income tax on incomes up to £100,000
(set at lower level than current council tax)
• Large cuts to business subsidies, abolition of
child trust fund and eurofighter, plus others
• In 2007–08 this equates to £5.7bn of spending cuts
and £26.6bn of tax increases
The parties compared: 2007–08
Net change in
tax
Liberal
Democrats
+£2.9bn
Net change in
spending
+£2.4bn
Net change in
borrowing
–£0.5bn
Liberal Democrats
• Risks:
• 49p rate might not raise as much as
expected
• Spending commitments might cost more
than expected
• But margin averaging £1.0bn a year over first
4 years could cover any shortfall
Conservatives
• Giveaway policies
• Cutting council tax of some pensioners
• Increased support for pension saving
• Stamp duty threshold increased to £250k
• Earnings-indexation of the basic state pension
• Slightly more spending on police and defence
• In 2007–08 this equates to £1.3bn of spending
increases and £4.0bn of tax cuts
Stamp duty land tax
• Rationale for taxing property transactions unclear
• Abolition would probably increase economic
efficiency
• Increases in threshold moves towards abolition
• Primary gainers owners of properties
• Unless cutting stamp duty increases the
property stock
Conservatives
• Takeaway policies
• Gershon efficiency savings
• James Review
• In 2007–08 this equates to £13.3bn of
spending cuts (and no tax increases)
The parties compared: 2007–08
Conservatives
Net change in
tax
–£4.0bn
Net change in
spending
–£12.0bn
Net change in
borrowing
–£8.0bn
Conservatives
• Risks:
• Spending cuts might not be deliverable in
planned timescale
• Spending plans might lead to lower than
expected quality of public services
Redistributing ‘savings’
30.0
Labour / Liberal Democrats
Conservatives
20.0
£ billion
0.0
-10.0
23.0
21.5
10.0
0.0
-12.0
-21.5
-21.5
-20.0
-13.5
-30.0
Efficiency 'Additional'
'savings' spending
Net
change
Efficiency 'Additional'
& other spending
'savings'
Net
change
Note: Figures rounded to nearest £½ bn
Spending growth: Labour
Average annual real growth in spending, April 2006 to March 2008
NHS
7.1
Int Development
5.7
Education
3.5
Total spending
2.9
Other
2.5
Police
2.4
Transport
2.2
Defence
1.3
Social security
0.9
-2
-1
0
1
2
3
4
5
Average annual real growth
6
7
8
Note: Real growth estimated using GDP deflator
Spending growth: Conservatives
Average annual real growth in spending, April 2006 to March 2008
NHS
7.1
Int Development
5.7
Schools
3.3
Total spending
1.9
Other
-0.8
Police
3.2
Transport
2.2
Defence
1.6
Social security
1.1
-2
-1
0
1
2
3
4
Average annual real growth
5
6
7
8
Note: Real growth estimated using GDP deflator
Planned differences in 2007–08
Spending in 2007–08 by the Conservatives relative to Labour
Defence (+£0.6bn)
1.8
Cut relative to Labour
Social security benefits and tax credits (+£0.5bn)
Education and Skills (–£0.9bn)
0.3
Increase relative to Labour
-10.1
-10.9
Home Office (–£1.5bn)
Const. Affairs and Attorney General's (–£0.5bn)
Foreign and Commonwealth Office (–£0.2bn)
Culture, Media and Sport (–£0.3bn)
-17.6
Trade and Industry (–£1.2bn)
-17.9
-12.5
Chancellor's Departments (–£1.2bn)
-21.8
Office of the Deputy Prime Minister (–£2.8bn)
-28.6
-28.6
Environment, Food and Rural Affairs (–£1.0bn)
Work and Pensions (–£2.7bn)
Non-NHS health (–£0.9bn)
-2.5
-32.9
-42.9
-50 -45 -40 -35 -30 -25 -20 -15 -10 -5 0
Percentage difference relative to Labour plans
5
The parties compared: 2007–08
Conservatives
Liberal
Democrats
Net change in
tax
–£4.0bn
+£2.9bn
Net change in
spending
–£12.0bn
+£2.4bn
Net change in
borrowing
–£8.0bn
–£0.5bn
The parties compared: 2007–08
Conservatives
Liberal
Democrats
Net change in
tax
–£4.0bn
+£2.9bn
Labour
baseline
plans
+£14bn
Net change in
spending
–£12.0bn
+£2.4bn
+£5bn
Net change in
borrowing
–£8.0bn
–£0.5bn
–£8bn
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
Labour
2002–03
2001–02
2000–01
1999–2000
45.0
44.0
43.0
42.0
41.0
40.0
39.0
38.0
37.0
36.0
35.0
1998–99
1997–98
1996–97
Percentage of national income
Total public spending
Budget 2005 basis
Conservatives
Liberal Democrats
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–2000
45.0
44.0
43.0
42.0
41.0
40.0
39.0
38.0
37.0
36.0
35.0
1998–99
1997–98
1996–97
Percentage of national income
Total public spending
IFS Green Budget 2005 basis
Labour
Conservatives
Liberal Democrats
Average public spending
41.5
42.2
Liberal
Democrats 1?
Labour 1+2
42.1
Conservatives
1?
39.1
Labour 3?
38.2
40.1
Labour 2
Percentage of national income
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Labour 1
Budget 2005 basis
Budget 2005 basis
45.0
44.0
43.0
42.0
41.0
40.0
39.0
38.0
37.0
36.0
35.0
Labour
Conservatives
Liberal Democrats
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–2000
1998–99
1997–98
Conservatives - with additional tax cuts
1996–97
Percentage of national income
Total current receipts
Percentage of national income
38.8
37.9
38.4
40.0
39.8
40.2
39.5
Labour 2
Labour 1+2
Labour 3?
Conservatives
1?
Liberal
Democrats 1?
Conservatives
extra cuts 1?
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Labour 1
Average Government receipts
Budget 2005 basis
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–2000
1998–99
45.0
44.0
43.0
42.0
41.0
40.0
39.0
38.0
37.0
36.0
35.0
1997–98
1996–97
Percentage of national income
Total current receipts
IFS Green Budget 2005 basis
Labour
Conservatives
Liberal Democrats
Current budget surplus
Budget 2005 basis
2.0
1.0
0.0
-1.0
Labour (also Conservatives with additional tax cuts)
Conservatives
Liberal Democrats
-2.0
-3.0
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–2000
1998–99
1997–98
-4.0
1996–97
Percentage of national income
3.0
-1.0
-1.5
0.5
0.0
-0.5
-0.9
0.1
0.4
Liberal
Democrats 1?
Conservatives
1?
0.2
Labour 3?
2.0
Labour 1+2
Labour 2
1.5
Labour 1
Percentage of national income
Average current budget surplus
Budget 2005 basis
1.3
1.0
0.2
2011–12
2010–11
2009–10
2008–09
-3.0
2007–08
-2.0
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–2000
3.0
1998–99
1997–98
1996–97
Percentage of national income
Current budget surplus
IFS Green Budget 2005 basis
2.0
1.0
0.0
-1.0
Labour
Conservatives
Liberal Democrats
-4.0
Percentage of national income
Average current budget surplus
IFS Green Budget 2005 basis
2.0
1.5
1.3
1.0
0.5
0.2
0.0
-0.5
Conservatives
1?
Labour 1+2
Labour 2
Labour 1
-1.5
Labour 3?
-0.8
-0.9
-0.7
Liberal
Democrats 1?
-0.5
-1.0
The public finances
Election 2005
Institute for Fiscal Studies
www.ifs.org.uk/election/index05.php
Average Government receipts
38.8
37.9
38.4
39.2
38.9
39.4
Labour 2
Labour 1+2
Labour 3?
Conservative
1?
Liberal
Democrat 1?
IFS Green Budget 2005 basis
Labour 1
Percentage of national income
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
The public finances
Election 2005
Institute for Fiscal Studies
www.ifs.org.uk/election/index05.php