IFS
The public finances
Christine Frayne
© Institute for Fiscal Studies, 2004
Outline
• Current receipts– Short term forecast revised down– Medium term level unchanged
• Current spending– Short term forecast unchanged– Medium term slightly higher
• Golden rule– Treasury expects to be met– Small margin of error
© Institute for Fiscal Studies, 2004
New measures
2004-05 2005-06 2006-07 2007-08
Tax -195 225 470 650
£ million
© Institute for Fiscal Studies, 2004
New measures
2004-05 2005-06 2006-07 2007-08
Tax -195 225 470 650
Spend 520 590 695 995
£ million
© Institute for Fiscal Studies, 2004
New measures
2004-05 2005-06 2006-07 2007-08
Tax -195 225 470 650
Spend 520 590 695 995
Extra borrowing
715 365 225 335
£ million
© Institute for Fiscal Studies, 2004
Non-discretionary changes
2004-05
2005-06
2006-07
2007-08
2008-09
Current receipts
-2 -2 -1 0 -½
Note: Excludes change in classification of NHS trusts
© Institute for Fiscal Studies, 2004
Non-discretionary changes
2004-05
2005-06
2006-07
2007-08
2008-09
Current receipts
-2 -2 -1 0 -½
Current spend
-0.8 -1 -2 ½ ½
Note: Excludes change in classification of NHS trusts
© Institute for Fiscal Studies, 2004
Non-discretionary changes
2004-05
2005-06
2006-07
2007-08
2008-09
Current receipts
-2 -2 -1 0 -½
Current spend
-0.8 -1 -2 ½ ½
PSNI -0.7 1½ 2 ½ 0
Note: Excludes change in classification of NHS trusts
© Institute for Fiscal Studies, 2004
Non-discretionary changes
2004-05
2005-06
2006-07
2007-08
2008-09
Current receipts
-2 -2 -1 0 -½
Current spend
-0.8 -1 -2 ½ ½
PSNI -0.7 1½ 2 ½ 0
TME -1.5 ½ 0 1 ½
Note: Excludes change in classification of NHS trusts
© Institute for Fiscal Studies, 2004
Revenue projections
36
37
38
39
40
41
42
43
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
Per
cent
age
of n
atio
nal i
ncom
e
Current receipts - Budget 2002Current receipts - Budget 2003Current receipts - Budget 2004Current receipts - Pre-Budget Report 2004
Source: HM Treasury
© Institute for Fiscal Studies, 2004
Receipts bouncing back?
7.8%
7.3%
6.9%
7.8%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Required growth over next 5 months
First 7 months
Pre-Budget Report 2004
Budget 2004
Nominal growth
Growth in net taxes and social security contributions in 2004–05
Source: HM Treasury
© Institute for Fiscal Studies, 2004
Spending projections
36
37
38
39
40
41
42
43
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
Per
cent
age
of n
atio
nal i
ncom
e
Total Managed Expenditure - Budget 2002Total Managed Expenditure - Budget 2003Total Managed Expenditure - Budget 2004Total Managed Expenditure - Pre-Budget Report 2004
Source: HM Treasury
© Institute for Fiscal Studies, 2004
Current spending growth slowing?
5.1%
5.4%
6.6%
3.8%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Required growth over next 5 months
First 7 months
Pre-Budget Report 2004
Budget 2004
Nominal growth
Growth in central government current spending, (including depreciation) in 2004–05
Source: HM Treasury
© Institute for Fiscal Studies, 2004
The Chancellor’s fiscal rules
• Golden rule: only borrow to invest – Receipts cover current spending– Surplus or balance on current budget– Judged over the economic cycle
• Sustainable investment rule: debt at a ‘stable and prudent’ level, <40% of national income
© Institute for Fiscal Studies, 2004
Current budget surpluses
-2.8
-0.2
1.2
2.1 2.1
0.9
-1.3-1.9
-1.1-0.6
0.00.3
0.6 0.8
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
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
Per
cent
age
of n
atio
nal i
ncom
e
Outturns
PBR 2004 forecast
Source: HM Treasury
© Institute for Fiscal Studies, 2004
Current budget surpluses
-2.8
-0.2
1.2
2.1 2.1
0.9
-1.3-1.9
-1.1-0.6
0.00.3
0.6 0.8
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
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
Per
cent
age
of n
atio
nal i
ncom
e
Outturns
PBR 2004 forecast
Source: HM Treasury
Current economic cycle
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (1)
1.4%
1.1%
0.5%
0.1% 0.1%
-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
Budget 01 Budget 02 Budget 03 Budget 04 PBR 04
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Average current budget surplus 1999–2000 to 2005–06, as a share of national income
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (1)
1.4%
1.1%
0.5%
0.1% 0.1%
-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
Budget 01 Budget 02 Budget 03 Budget 04 PBR 04
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Average current budget surplus 1999–2000 to 2005–06, as a share of national income
£124bn £98bn £45bn £8bn £5bn
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (1)
0.1%
-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
PBR 04 PBR 04, unspentmargin
PBR 04, but2004–05 as trend
PBR 04, but2004–05 as trend& unspent margin
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Average current budget surplus 1999–2000 to 2005–06, as a share of national income
£5bn
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (1)
0.1% 0.1%
-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
PBR 04 PBR 04, unspentmargin
PBR 04, but2004–05 as trend
PBR 04, but2004–05 as trend& unspent margin
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Average current budget surplus 1999–2000 to 2005–06, as a share of national income
£5bn £8bn
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (1)
0.1% 0.1%
-0.1%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
PBR 04 PBR 04, unspentmargin
PBR 04, but2004–05 as trend
PBR 04, but2004–05 as trend& unspent margin
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Average current budget surplus 1999–2000 to 2005–06, as a share of national income
£5bn £8bn –£6bn
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (1)
0.1% 0.1%
-0.1% 0.0%-0.2%0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
PBR 04 PBR 04, unspentmargin
PBR 04, but2004–05 as trend
PBR 04, but2004–05 as trend& unspent margin
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Average current budget surplus 1999–2000 to 2005–06, as a share of national income
£5bn £8bn –£6bn –£2bn
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (2)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
99–00 00–01 01–02 02–03 03–04 04–05 05–06 06–07 07–08 08–09 09–10
Per
cent
age
of n
atio
nal i
ncom
e
Budget 02
Budget 03
Budget 04
PBR 04
Source: HM Treasury
Cyclically adjusted current budget surplus, as a share of national income
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (2)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
99–00 00–01 01–02 02–03 03–04 04–05 05–06 06–07 07–08 08–09 09–10
Per
cent
age
of n
atio
nal i
ncom
e
PBR 04
PBR 04 - cautious case
Source: HM Treasury
Cyclically adjusted current budget surplus, as a share of national income
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (2)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
99–00 00–01 01–02 02–03 03–04 04–05 05–06 06–07 07–08 08–09 09–10
Per
cent
age
of n
atio
nal i
ncom
e
PBR 04
PBR 04 - cautious case
Source: HM Treasury
Cyclically adjusted current budget surplus, as a share of national income
Current cycle
© Institute for Fiscal Studies, 2004
Meeting the golden rule? (2)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
99–00 00–01 01–02 02–03 03–04 04–05 05–06 06–07 07–08 08–09 09–10
Per
cent
age
of n
atio
nal i
ncom
e
PBR 04
PBR 04 - cautious case
Source: HM Treasury
Cyclically adjusted current budget surplus, as a share of national income
Next cycle