ifs fiscal rules and public spending gemma tetlow institute for fiscal studies 7 february 2007
TRANSCRIPT
IFS
Fiscal rules and public spending
Gemma TetlowInstitute for Fiscal Studies
7 February 2007
© Institute for Fiscal Studies, 2007
The fiscal framework
• Code for Fiscal Stability
• Fiscal rules by which performance is judged– Golden rule– Sustainable investment rule
© Institute for Fiscal Studies, 2007
The golden rule
• Borrow only to invest
• Current budget balance or surplus
• Judged over the economic cycle
© Institute for Fiscal Studies, 2007
Has Gordon Brown met the golden rule?
-2.8
-0.1
1.2
2.3 2.5
-1.1-1.7 -1.6
-1.2-0.6
-0.1
0.3 0.5 0.6 0.81.0
-4
-3
-2
-1
0
1
2
3
4
5
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
Per
cen
tag
e o
f n
atio
nal
in
com
e
Actual Pre-Budget Report 2006 forecast
Source: HM Treasury
Financial Year
Current budget balance
© Institute for Fiscal Studies, 2007
Has Gordon Brown met the golden rule?
-2.8
-0.1
1.2
2.3 2.5
-1.1-1.7 -1.6
-1.2-0.6
-0.1
0.3 0.5 0.6 0.81.0
-4
-3
-2
-1
0
1
2
3
4
5
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
Per
cen
tag
e o
f n
atio
nal
in
com
e
Actual Pre-Budget Report 2006 forecast
Budget 2005 cycle = 0.0% of GDP or +£2.4bn
Source: HM Treasury
Financial Year
© Institute for Fiscal Studies, 2007
Has Gordon Brown met the golden rule?
-2.8
-0.1
1.2
2.3 2.5
-1.1-1.7 -1.6
-1.2-0.6
-0.1
0.3 0.5 0.6 0.81.0
-4
-3
-2
-1
0
1
2
3
4
5
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
Per
cen
tag
e o
f n
atio
nal
in
com
e
Actual Pre-Budget Report 2006 forecast
Budget 2006 cycle = 0.1% of GDP or +£10.8bn
Source: HM Treasury
Financial Year
© Institute for Fiscal Studies, 2007
Has Gordon Brown met the golden rule?
-2.8
-0.1
1.2
2.3 2.5
-1.1-1.7 -1.6
-1.2-0.6
-0.1
0.3 0.5 0.6 0.81.0
-4
-3
-2
-1
0
1
2
3
4
5
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
Per
cen
tag
e o
f n
atio
nal
in
com
e
Actual Pre-Budget Report 2006 forecast
PBR 2006 cycle = 0.1% of GDP or +£8.4bn
Source: HM Treasury
Financial Year
© Institute for Fiscal Studies, 2007
The sustainable investment rule
• Debt at a stable and prudent level
• This cycle: ≤40% of national income every year
• Undefined over next cycle
© Institute for Fiscal Studies, 2007
Will the investment rule be met?
25
30
35
40
45
50
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
Financial year
Per
cent
age
of n
atio
nal i
ncom
e
Actual Forecast
Source: HM Treasury; IFS
© Institute for Fiscal Studies, 2007
Forecasts for the next five years
% national income 2006–07 2011–12
Net borrowing (PSNB) 2.8 1.3
Current budget balance –0.6 0.8
© Institute for Fiscal Studies, 2007
Forecasts for the next five years
% national income 2006–07 2011–12
Net borrowing (PSNB) 2.8 1.3
Current budget balance –0.6 0.8
Current spending 40.3 39.5
Net investment 2.2 2.2
Revenues 39.7 40.4
© Institute for Fiscal Studies, 2007
A challenging spending review?
Average annual increase in spending (%)
Current Capital Total
2007 CSR +1.9? +2.7 +2.0?
Labour
April 1999 to March 2008 +3.6 +15.6 +4.0
April 1997 to March 1999 –0.3 +6.7 –0.2
April 1997 to March 2008 +2.9 +13.9 +3.2
Conservatives
April 1979 to March 1997 +1.7 –4.9 +1.5
© Institute for Fiscal Studies, 2007
How has spending increased?
2.3
4.4
6.2
3.2
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Other
Education
NHS
Total
Average annual real growth (%)Source: HM Treasury
Note: Average annual increase 1996–97 to 2007–08
© Institute for Fiscal Studies, 2007
What might the trade-off be?
• Health spending– Wanless Review recommended minimum 4.4%
annual growth in spending
• Education spending– State school spending per pupil to match that in
the private sector in 2005–06
• Child poverty– £4½ billion needed to meet 2010–11 target
© Institute for Fiscal Studies, 2007
What increases might we have?
2.0
1.8
0.0
-5.0
-3.5
11.2
2.0
1.6
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13
NHS and education
Non NHS, non-education
Social security and tax credits
Debt interest
Official Development Assistance
Home office
Of which:
TME after refilling margin
Total Managed Expenditure
Percentage real increase
9 smaller departments
Source: HM Treasury ; IFS
Department for Constitutional Affairs
© Institute for Fiscal Studies, 2007
What increases might we have?
2.0
1.8
0.0
-5.0
-3.5
11.2
2.0
2.5
0.0
3.3
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13
NHS and education
Non NHS, non-education
Social security and tax credits
Debt interest
Official Development Assistance
Home office
Of which:
TME after refilling margin
Total Managed Expenditure
Percentage real increase
9 smaller departments
Source: HM Treasury ; IFS
Department for Constitutional Affairs
© Institute for Fiscal Studies, 2007
A trade-off between health and education?
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Annual real growth in health spending (%)
An
nu
al r
ea
l gro
wth
in e
du
catio
n
spe
nd
ing
(%
)
3.3%
© Institute for Fiscal Studies, 2007
A trade-off between health and education?
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Annual real growth in health spending (%)
An
nu
al r
ea
l gro
wth
in e
du
catio
n
spe
nd
ing
(%
)
3.3%
Labour to date
© Institute for Fiscal Studies, 2007
A trade-off between health and education?
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Annual real growth in health spending (%)
An
nu
al r
ea
l gro
wth
in e
du
catio
n
spe
nd
ing
(%
)
3.3%
Labour to date
Wanless recommendation =
4.4%
© Institute for Fiscal Studies, 2007
A trade-off between health and education?
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Annual real growth in health spending (%)
An
nu
al r
ea
l gro
wth
in e
du
catio
n
spe
nd
ing
(%
)
3.3%
Expected growth in national income = 2½%
Labour to date
Wanless recommendation =
4.4%
© Institute for Fiscal Studies, 2007
A trade-off between health and education?
0
1
2
3
4
5
6
7
8
9
10
0 1 2 3 4 5 6 7 8 9 10
Annual real growth in health spending (%)
An
nu
al r
ea
l gro
wth
in e
du
catio
n
spe
nd
ing
(%
)
3.3%
4.1%
Expected growth in national income = 2½%
Labour to date
Wanless recommendation =
4.4%
IFS
Fiscal rules and public spending
Gemma TetlowInstitute for Fiscal Studies
7 February 2007