csr 2007: not the final settlement?

IFS

CSR 2007: Not the final settlement?

Carl Emmerson

Institute for Fiscal Studies

Presentation to LGA Conference, “the comprehensive spending review”,

Tuesday 23rd October 2007

www.ifs.org.uk/budgets/pbr2007/index.php

© Institute for Fiscal Studies, 2007

The big picture: Labour’s record

35

36

37

38

39

40

41

42

43

44

45

96–9

7

97–9

8

98–9

9

99–0

0

00–0

1

01–0

2

02–0

3

03–0

4

04–0

5

05–0

6

06–0

7

07–0

8

08–0

9

09–1

0

10–1

1

11–1

2

12–1

3

Financial year

Per

cent

age

of n

atio

nal i

ncom

e

Total expenditure

Current receipts

Source: HM Treasury

Labour I Labour II

Borrowing = 2.7% of GDP


The big picture: going forwards

35

36

37

38

39

40

41

42

43

44

45

96–9

7

97–9

8

98–9

9

99–0

0

00–0

1

01–0

2

02–0

3

03–0

4

04–0

5

05–0

6

06–0

7

07–0

8

08–0

9

09–1

0

10–1

1

11–1

2

12–1

3

Financial year

Per

cent

age

of n

atio

nal i

ncom

e

Total expenditure

Current receipts

Source: HM Treasury

Labour I Labour II


Av. annual increase (%) Current Capital Total

2007 CSR +1.9 +4.4 +2.1

A challenging spending review

Source: HM Treasury; IFS calculationsNote: Assumes GDP deflator of 2.7% per year going forwards



2007 CSR +1.9 +4.4 +2.1

Labour

April 1999 to March 2008 +3.6 +15.7 +4.0

April 1997 to March 1999 –0.3 +6.8 –0.2





2007 CSR +1.9 +4.4 +2.1

Labour

April 1999 to March 2008 +3.6 +15.7 +4.0

April 1997 to March 1999 –0.3 +6.8 –0.2

Conservatives

April 1979 to March 1997 +1.7 –5.0 +1.5




What is a spending cut?


What is a spending cut?

“The Conservative Party is committed to making cash cuts of £35 billion from Labour's public spending plans – cuts so large they could only be found from cutting deep into front-line public services, including schools, hospitals and the police.”

(Alistair Darling, 17 March 2005)


Breakdown of spending growth

4.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

CSR 2007plans

Spendingreview years to

date (April1999 to March

2008)

Average annual real increase

TME

AME

DEL

Source: HM Treasury; IFS calculations



4.9

2.8

4.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

CSR 2007plans



2008)


TME

AME

DEL




4.9

2.8

2.1

4.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

CSR 2007plans



2008)


TME

AME

DEL




2.1

4.9

2.1

2.8

2.1

4.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

CSR 2007plans



2008)


TME

AME

DEL



Relative winners?

2.5%

3.0%

3.0%

3.7%

6.5%

16.8%

-8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Science (UK)

Education (UK)

Transport (UK)

Health (UK)

Culture, Media & Sport (incl.Olympics)

Overseas Aid

Average annual real increase 2007–08 to 2010–11

Average DEL increase = 2.1 per cent



Relative losers?

-5.6%

-2.6%

-0.2%

0.0%

0.8%

1.1%

1.4%

1.5%

1.8%

-8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Work and Pensions

Business, Ent. & Reg. Reform

Foreign Office

Culture, Media and Sport (excl. Olympics)

Local Government

Home Office

Environment, Food and Rural Affairs

Defence

Housing (UK)

Average annual real increase 2007–08 to 2010–11

Average DEL increase = 2.1 per cent



Winners and losers?

2.1%

2.1%

4.9%

4.0%

0.0% 5.0% 10.0% 15.0% 20.0%

Overseas Aid

Defence

Education (UK)

Housing (UK)

Home office

Health (UK)

Transport (UK)

DEL

TME


Labour spending reviews to date (April1999 to March 2008)

CSR07 plans (April 2008 to March 2011)



Winners and losers?

3.0%

1.8%

1.1%

3.7%

3.0%

2.1%

2.1%

5.4%

4.9%

4.0%

8.4%

6.9%

4.8%

4.3%

0.0% 5.0% 10.0% 15.0% 20.0%

Overseas Aid

Defence

Education (UK)

Housing (UK)

Home office

Health (UK)

Transport (UK)

DEL

TME






Winners and losers?

16.8%

1.5%

3.0%

1.8%

1.1%

3.7%

3.0%

2.1%

2.1%

8.9%

1.4%

5.4%

4.9%

4.0%

8.4%

6.9%

4.8%

4.3%

0.0% 5.0% 10.0% 15.0% 20.0%

Overseas Aid

Defence

Education (UK)

Housing (UK)

Home office

Health (UK)

Transport (UK)

DEL

TME






Local government settlement?

0.0 1.0 2.0 3.0 4.0 5.0

Stated maximum desired increase incouncil tax over CSR2007 period

Average increase in Band D counciltax 1996-97 to 2006-07

Average increase in total CG support1996-97 to 2006-07

2010–11

2009–10

2008–09

Communities: Local GovernmentDEL


Average = 0.8%

Note: Assumes GDP deflator of 2.7% per year going forwardsSource: HM Treasury; Department for Communities and Local Government; IFS calculations



0.3

1.0

1.2

0.0 1.0 2.0 3.0 4.0 5.0




2010–11

2009–10

2008–09






0.3

1.0

1.2

3.6

0.0 1.0 2.0 3.0 4.0 5.0




2010–11

2009–10

2008–09






0.3

1.0

1.2

3.6

2.3

4.4

0.0 1.0 2.0 3.0 4.0 5.0




2010–11

2009–10

2008–09



Source: HM Treasury; Department for Communities and Local Government; IFS calculationsNote: Assumes GDP deflator of 2.7% per year going forwards


UK health spending

5.6%

4.7%

4.4%

7.1%

7.2%

3.7%

0% 1% 2% 3% 4% 5% 6% 7% 8%

CSR 2007 award

Wanless 2002 "slow uptake"

Wanless 2002 "solid progress"

Wanless 2002 "fully engaged"

Latest estimate

Wanless 2002


April 2003 to March 2008

April 2008 to March 2011



Health spending shortfall?

• CSR 2007 settlement below Wanless 2002 recommendations for 2010–11– £2bn under “fully engaged” scenario– £3bn under “solid progress” scenario– £6bn under “slow uptake” scenario

Wanless (2007) “neither the assumed rate of productivity improvement nor the changes in personal behaviour that the more optimistic scenarios in the 2002 review envisaged have been achieved”


But plans could be topped up?

3.8

5.0 5.2

4.2

2.0

5.6 5.9 5.5

4.3

2.1

0

1

2

3

4

5

6

CSR 98 SR 00 SR 02 SR 04 CSR 07

Rea

l gro

wth

in s

pend

ing

(%)

Original plan

Latest estimate

Note: Initial plans adjusted for subsequent inflationSource: HM Treasury

Departmental Expenditure Limits


The 2010 child poverty target

0%

5%

10%

15%

20%

25%

30%

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

Chi

ld p

over

ty r

ate

Actual

Estimated path

Target


Conclusions

• Spending growth considerably slower than Labour’s spending reviews to date– growth in DELs planned to slow from 4.9% p.a. to

2.1% p.a.

• Might prove incompatible with aspirations for public services and child poverty

• Plans could be topped up– higher spending likely to require greater tax revenues

IFS

CSR 2007: Not the final settlement?

Carl Emmerson

Institute for Fiscal Studies

Presentation to LGA Conference, “the comprehensive spending review”,

Tuesday 23rd October 2007

www.ifs.org.uk/budgets/pbr2007/index.php

csr 2007: not the final settlement?

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