Where did the axe fall?
Rowena Crawford
© Institute for Fiscal Studies
Outline
• Has the planned fiscal tightening changed?
• How has the composition of the tightening changed?
• Which departments were relative winners/losers?
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Fiscal tightening
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Sources: HM Treasury; IFS calculations.
Fiscal tightening
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
Tax
21.5
Spending
50.9
Total tightening
72.4
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Composition of the tightening in 2014-15
£ billion
March 2010
Budget
Tax
21.5
Spending
50.9
Investment spending
17.2
Current spending
33.7
Total tightening
72.4
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Composition of the tightening in 2014-15
£ billion
March 2010
Budget
Tax
21.5
Spending
50.9
Investment spending
17.2
Current spending
33.7
Of which:
Debt interest
7
Benefits
-0.3
Public services
27.0
Total tightening
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72.4
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
Tax
21.5
29.8
Spending
50.9
82.8
Investment spending
17.2
Current spending
33.7
Of which:
Debt interest
7
Benefits
-0.3
Public services
27.0
Total tightening
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72.4
112.6
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
Tax
21.5
29.8
Spending
50.9
82.8
Investment spending
17.2
19.3
Current spending
33.7
63.5
Of which:
Debt interest
7
Benefits
-0.3
Public services
27.0
Total tightening
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72.4
112.6
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
Tax
21.5
29.8
Spending
50.9
82.8
Investment spending
17.2
19.3
Current spending
33.7
63.5
7
10
Benefits
-0.3
10.7
Public services
27.0
42.8
72.4
112.6
Of which:
Debt interest
Total tightening
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Spending review: Impact on borrowing?
£ billion
Capital spending
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2011–12
2012–13
2013–14
2014–15
+2.0
+2.0
+2.3
+2.3
Spending review: Impact on borrowing?
£ billion
2011–12
2012–13
2013–14
2014–15
Capital spending
+2.0
+2.0
+2.3
+2.3
BBC licence fee
+0.1
+0.2
+0.3
+0.4
Other tax changes
–0.1
–0.2
–0.3
–0.3
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Spending review: Impact on borrowing?
£ billion
2011–12
2012–13
2013–14
2014–15
Capital spending
+2.0
+2.0
+2.3
+2.3
BBC licence fee
+0.1
+0.2
+0.3
+0.4
Other tax changes
–0.1
–0.2
–0.3
–0.3
TOTAL
+2.1
+2.1
+2.3
+2.2
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Spending review: impact on net investment
£ billion
March 2010
Budget
June 2010
Budget
2010-11
40
38.9
2011-12
29
27.2
2012-13
26
24.0
2013-14
22
19.9
2014-15
23
20.6
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Spending review: impact on net investment
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending
Review
2010-11
40
38.9
38.9
2011-12
29
27.2
29.1
2012-13
26
24.0
26.0
2013-14
22
19.9
22.2
2014-15
23
20.6
22.9
• Additional investment spending brings the coalition plans for
investment back to the levels planned in the March Budget
• Still an average annual real cut of 14.4% (a total cut of 46.4% by
2014-15)
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Fiscal tightening
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Fiscal tightening
© Institute for Fiscal Studies
Sources: HM Treasury; IFS calculations.
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending Review
Tax
21.5
29.8
29.8
Spending
50.9
82.8
80.5
Investment spending
17.2
19.3
Current spending
33.7
63.5
7
10
Benefits
-0.3
10.7
Public services
27.0
42.8
72.4
112.6
Of which:
Debt interest
Total tightening
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110.3
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending Review
Tax
21.5
29.8
29.8
Spending
50.9
82.8
80.5
Investment spending
17.2
19.3
17.0
Current spending
33.7
63.5
63.5
7
10
Benefits
-0.3
10.7
Public services
27.0
42.8
72.4
112.6
Of which:
Debt interest
Total tightening
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110.3
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending Review
Tax
21.5
29.8
29.8
Spending
50.9
82.8
80.5
Investment spending
17.2
19.3
17.0
Current spending
33.7
63.5
63.5
7
10
10
Benefits
-0.3
10.7
17.7
Public services
27.0
42.8
35.7
72.4
112.6
110.3
Of which:
Debt interest
Total tightening
© Institute for Fiscal Studies
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending Review
Tax
21.5
29.8
29.8
Spending
50.9
82.8
80.5
Investment spending
17.2
19.3
17.0
Current spending
33.7
63.5
63.5
7
10
10
Benefits
-0.3
10.7
17.7
Public services
27.0
42.8
35.7
72.4
112.6
110.3
Of which:
Debt interest
Total tightening
% Spending
70
% Tax
30
© Institute for Fiscal Studies
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending Review
Tax
21.5
29.8
29.8
Spending
50.9
82.8
80.5
Investment spending
17.2
19.3
17.0
Current spending
33.7
63.5
63.5
7
10
10
Benefits
-0.3
10.7
17.7
Public services
27.0
42.8
35.7
72.4
112.6
110.3
% Spending
70
74
% Tax
30
26
Of which:
Debt interest
Total tightening
© Institute for Fiscal Studies
Composition of the tightening in 2014-15
£ billion
March 2010
Budget
June 2010
Budget
October 2010
Spending Review
Tax
21.5
29.8
29.8
Spending
50.9
82.8
80.5
Investment spending
17.2
19.3
17.0
Current spending
33.7
63.5
63.5
7
10
10
Benefits
-0.3
10.7
17.7
Public services
27.0
42.8
35.7
72.4
112.6
110.3
% Spending
70
74
73
% Tax
30
26
27
Of which:
Debt interest
Total tightening
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DELs: The grand old Duke of York?
October 2010 Spending Review
June 2010 Budget
March 2010 Budget
25
20
15
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Note: Figure shows Departmental Expenditure Limits (DELs) as a share of
national income under current policies.
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
1999–2000
10
1998–99
Percentage of national income
30
DELs
Index: Labour 2010–11 = 100
105
March 2010 Budget
June 2010 Budget
100
October 2010 Spending Review
95
-11%
90
-10%
85
-13%
-14%
80
75
2010–11
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2011–12
2012–13
2013–14
2014–15
But George said...
• “the average saving in departmental budgets will be lower than
the previous Government implied”
– Spending Review plan: -13%, after taking into account the in-year
cuts in 2010-11
– March Budget plan: -10%
• “departmental budgets other than health and overseas aid will be
cut by an average of 19 per cent over four years, the same pace
as planned by the previous government” (Spending Review 2010, page
5)
– Spending Review plan: -19%, but excludes in-year cuts in 2010-11
– March Budget plan: -16%
• (IFS election analysis said Labour plans implied a 20% cut to
“unprotected” DEL
– But more areas of spending protected, and was based on less
official data)
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‘Winners’
International development
34.2
Energy and climate change
16.2
Work and pensions
1.4
NHS (England)
Defence
0.3
-7.3
Education
-10.8
Average DEL cut
-11.2
-20.0 -10.0 0.0
10.0 20.0 30.0 40.0
Real budget increase 2011-12 to 2014-15
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Note: Figures show real change in total (resource + capital) DEL
Schools Spending
• DfE to receive total real-terms cut in DEL of 10.8%
• Schools spending including pupil premium to grow by 0.1% per
year in real-terms (or 0.4% in total)
– but total pupil numbers to increase by average of 0.7% per year
– total schools spending per pupil to be cut in real-terms by 0.6% per
year (total of 2¼%)
• Assuming flat-rate pupil premium of £2,400 (stated total cost £2.5
billion) and underlying funding per pupil frozen in cash-terms
– 60% of primary school pupils in schools where real funding falls
– 87% of secondary school pupils in schools where real funding falls
– 43% of pupils in (less deprived) schools would see cuts of 5% or more
– 1 in 8 pupils in (very deprived) schools would see increase of 5% or
more
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Note: Assumes all schools experience the same growth in pupil numbers
‘Winners’
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Note: Figures show real change in total (resource + capital) DEL
‘Losers’
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Note: Figures show real change in total (resource + capital) DEL
‘Losers’
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Note: Figures show real change in total (resource + capital) DEL
Record breakers?
• Real increase over next 4 years
– Total spending: tightest since World War II
– Spending on public services: tightest since April 1975 to March 1980
– NHS: tightest since April 1951 to March 1956
– (ODA: greatest since Jan 2002 to Dec 2006)
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Conclusions
• Additional investment spending increases borrowing
– fiscal tightening now 73% from spending cuts by 2014–15
– March 2010 Budget plan: 70% from spending cuts by 2014–15
• Tightest squeeze on total spending since end of World War II
– large cuts to working age welfare spending
– tightest 4-year squeeze on public services since April 1975 to March
1980
• Deep cuts to departmental spending by 2014-15
– average cut of 13% compared to Labour’s 2010-11 baseline
– larger than implied by March Budget despite Chancellor’s rhetoric
– real increases in ODA, DECC, DWP and NHS budgets
– largest cuts to: Communities and Local Government, DEFRA and
BIS
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