Filling the hole: how do the three main UK
parties plan to repair the public finances?
Carl Emmerson
© Institute for Fiscal Studies
Summary (1/2)
• Large fiscal tightening required by all three parties
– Conservatives plan to start and finish sooner
– 2010–11 to 2016–17: Conservatives would borrow 6% less than
Labour & the Liberal Democrats would
– debt to return to 40% of GDP in 2031–32 under all three parties
• Bigger differences in planned ratio of spending cuts to tax rises
– Labour 2:1; Liberal Democrats (eventually) 2½:1 and Conservatives 4:1
– two 1993 Conservative Budgets planned for 1:1 ratio
– Labour and Conservatives plans imply further tax raising measures
© Institute for Fiscal Studies
Summary (2/2)
• All plans imply deep cuts to spending on public services
– Labour & Liberal Democrat plans imply tightest sustained squeeze since
April 1976 to March 1980
– spending cuts as deep as Conservative plans imply not delivered over any
sustained period since Second World War
• Very little detail from any of the parties
– Liberal Democrats slightly less bad on this score than the other two
– but they would have the most to find in 2015–16 and 2016–17
• Would any of the parties deliver cuts to public services on this scale?
– alternative is significant tax increases and/or welfare cuts
© Institute for Fiscal Studies
Timing and size of the fiscal tightening
6
Percentage of national income
Repair job = 4.8% of GDP, £71bn
5
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Timing and size of the fiscal tightening
6
Percentage of national income
Same target for all parties
5
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Timing and size of the fiscal tightening
6
Percentage of national income
Labour: 6 year tightening from April 2011
5
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Timing and size of the fiscal tightening
6
Percentage of national income
Liberal Democrats: as Labour (6 year tightening from April 2011)
5
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Timing and size of the fiscal tightening
6
Percentage of national income
Conservatives: start & finish sooner (6 year tightening from July 2010)
5
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Public sector net borrowing profiles
Percentage of national income
14
Labour
Liberal Democrats
Conservatives
12
Over 7 years from April 2010 borrowing would be:
Labour & Liberal Democrat = £643 billion
Conservatives = £604 billion
10
8
6
4
2
0
2009–10 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17
© Institute for Fiscal Studies
Note and sources: Figure 3.2.
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
2017–18
2018–19
2019–20
2020–21
2021–22
2022–23
2023–24
2024–25
2025–26
2026–27
2027–28
2028–29
2029–30
2030–31
2031–32
2032–33
2033–34
2034–35
2035–36
2036–37
2037–38
2038–39
2039–40
2040–41
Percentage of national income
Debt high for a generation
80
Labour
70
Liberal Democrats
60
Conservatives
50
40
30
20
Debt below 40% of GDP
Labour & Liberal Democrats
& Conservatives = 2031–32
10
0
© Institute for Fiscal Studies
Note and sources: Figure 3.3 .
Composition of discretionary fiscal tightening
Percentage of national income
6
5
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Composition of discretionary fiscal tightening
6
Percentage of national income
Spending
5
Taxation
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Composition of discretionary fiscal tightening
6
Percentage of national income
Spending
5
Labour: 2:1 spending cut to tax rises
Taxation
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Composition of discretionary fiscal tightening
6
Percentage of national income
Spending
5
Liberal Democrats: 2½:1 spending cut to tax rises
Taxation
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Composition of discretionary fiscal tightening
6
Conservatives: 4:1 spending cut to tax rises
Percentage of national income
Spending
5
Taxation
4
3
2
1
0
-1
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
L LD C
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
© Institute for Fiscal Studies
Note and sources: Figure 4.1.
Total spending and revenues
Spending
Revenues
50
Labour: spending down to 2004–05 level
taxes up to 1989–90 level
45
40
35
© Institute for Fiscal Studies
Note and sources: Figure 4.2.
2017–18
2016–17
2015–16
2014–15
2013–14
2012–13
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–00
1998–99
30
1997–98
Percentage of national income
55
Total spending and revenues
Spending
Revenues
50
Liberal Democrats: spending down to 2004–05 level
taxes up to 1989–90 level
45
40
35
© Institute for Fiscal Studies
Note and sources: Figure 4.2.
2017–18
2016–17
2015–16
2014–15
2013–14
2012–13
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–00
1998–99
30
1997–98
Percentage of national income
55
Total spending and revenues
Spending
Revenues
50
Conservatives: spending down to 2003–04 level
taxes up to 2006–07 level
45
40
35
© Institute for Fiscal Studies
Note and sources: Figure 4.2.
2017–18
2016–17
2015–16
2014–15
2013–14
2012–13
2011–12
2010–11
2009–10
2008–09
2007–08
2006–07
2005–06
2004–05
2003–04
2002–03
2001–02
2000–01
1999–00
1998–99
30
1997–98
Percentage of national income
55
No more tax rises?
• Labour
– £17 billion tax increase in pipeline (April 2010 to March 2014)
– further £7 billion required by 2016–17
• Conservatives
– £6 billion net tax cut on top of the increases in the pipeline
– would need to reverse £3 billion of this by 2016–17
• Liberal Democrats
– £3 billion net tax increase on top of the increases in the pipeline
– might not need to do anything further
© Institute for Fiscal Studies