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

2. © Institute for Fiscal Studies, 2007 The fiscal framework Code for Fiscal Stability Fiscal rules by which performance is judged –Golden rule –Sustainable investment rule

3. © Institute for Fiscal Studies, 2007 The golden rule Borrow only to invest Current budget balance or surplus Judged over the economic cycle

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

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

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

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

8. © 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

9. © Institute for Fiscal Studies, 2007 Will the investment rule be met? Source: HM Treasury; IFS

10. © Institute for Fiscal Studies, 2007 Forecasts for the next five years % national income2006–072011–12 Net borrowing (PSNB)2.81.3 Current budget balance–0.60.8

11. © Institute for Fiscal Studies, 2007 Forecasts for the next five years % national income2006–072011–12 Net borrowing (PSNB)2.81.3 Current budget balance–0.60.8 Current spending40.339.5 Net investment2.2 Revenues39.740.4

12. © Institute for Fiscal Studies, 2007 A challenging spending review? Average annual increase in spending (%) CurrentCapitalTotal 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

13. © Institute for Fiscal Studies, 2007 How has spending increased? Source: HM Treasury Note: Average annual increase 1996–97 to 2007–08

14. © 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

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

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

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

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

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

20. © 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%

21. © 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%

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

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