IFS Fiscal rules and public spending Gemma Tetlow Institute for Fiscal Studies 7 February 2007.

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Presentation transcript:

IFS Fiscal rules and public spending Gemma Tetlow Institute 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? Source: HM Treasury Financial Year Current budget balance

© Institute for Fiscal Studies, 2007 Has Gordon Brown met the golden rule? Source: HM Treasury Financial Year

© Institute for Fiscal Studies, 2007 Has Gordon Brown met the golden rule? Source: HM Treasury Financial Year

© Institute for Fiscal Studies, 2007 Has Gordon Brown met the golden rule? 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? Source: HM Treasury; IFS

© Institute for Fiscal Studies, 2007 Forecasts for the next five years % national income2006–072011–12 Net borrowing (PSNB) Current budget balance–0.60.8

© Institute for Fiscal Studies, 2007 Forecasts for the next five years % national income2006–072011–12 Net borrowing (PSNB) Current budget balance– Current spending Net investment2.2 Revenues

© Institute for Fiscal Studies, 2007 A challenging spending review? Average annual increase in spending (%) CurrentCapitalTotal 2007 CSR+1.9? ? Labour April 1999 to March April 1997 to March 1999– –0.2 April 1997 to March Conservatives April 1979 to March –

© Institute for Fiscal Studies, 2007 How has spending increased? 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? 9 smaller departments Source: HM Treasury ; IFS Department for Constitutional Affairs

© Institute for Fiscal Studies, 2007 What increases might we have? 9 smaller departments Source: HM Treasury ; IFS Department for Constitutional Affairs

© Institute for Fiscal Studies, 2007 A trade-off between health and education?

© Institute for Fiscal Studies, 2007 A trade-off between health and education? Labour to date

© Institute for Fiscal Studies, 2007 A trade-off between health and education? Labour to date Wanless recommendation = 4.4%

© Institute for Fiscal Studies, 2007 A trade-off between health and education? 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? Expected growth in national income = 2½% Labour to date Wanless recommendation = 4.4%

IFS Fiscal rules and public spending Gemma Tetlow Institute for Fiscal Studies 7 February 2007

© Institute for Fiscal Studies, 2007 Has Gordon Brown met the golden rule? Source: HM Treasury; Morgan Stanley Financial Year