meeting the fiscal rules?
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Meeting the fiscal rules?. Gemma Tetlow Institute for Fiscal Studies. Strengthening the public finances. Change in current budget balance, 2007–08 to 2012–13. Source: HM Treasury; IFS. Strengthening the public finances. Change in current budget balance, 2007–08 to 2012–13. - PowerPoint PPT PresentationTRANSCRIPT
Meeting the fiscal rules?
Gemma Tetlow
Institute for Fiscal Studies
Strengthening the public finances
Source: HM Treasury; IFS
% GDP PBR 2007 Budget 2008
Spending cuts
CSR 07 years
SR 09 years
Tax increase
Overall current budget tightening
+1.7% +1.6%
Change in current budget balance, 2007–08 to 2012–13
Strengthening the public finances
Source: HM Treasury; IFS
% GDP PBR 2007 Budget 2008
Spending cuts –0.7%
CSR 07 years
SR 09 years
Tax increase +1.0%
Overall current budget tightening
+1.7% +1.6%
Change in current budget balance, 2007–08 to 2012–13
Strengthening the public finances
Source: HM Treasury; IFS
% GDP PBR 2007 Budget 2008
Spending cuts –0.7% –0.9%
CSR 07 years
SR 09 years
Tax increase +1.0% +0.7%
Overall current budget tightening
+1.7% +1.6%
Change in current budget balance, 2007–08 to 2012–13
Strengthening the public finances
Source: HM Treasury; IFS
% GDP PBR 2007 Budget 2008
Spending cuts –0.7% –0.9%
CSR 07 years –0.4% –0.3%
SR 09 years
Tax increase +1.0% +0.7%
Overall current budget tightening
+1.7% +1.6%
Change in current budget balance, 2007–08 to 2012–13
Strengthening the public finances
Source: HM Treasury; IFS
% GDP PBR 2007 Budget 2008
Spending cuts –0.7% –0.9%
CSR 07 years –0.4% –0.3%
SR 09 years –0.3% –0.6%
Tax increase +1.0% +0.7%
Overall current budget tightening
+1.7% +1.6%
Change in current budget balance, 2007–08 to 2012–13
Strengthening the public finances
Source: HM Treasury; IFS
2007–08 terms PBR 2007 Budget 2008
Spending cuts –£10bn –£12bn
CSR 07 years –£6bn –£4bn
SR 09 years –£4bn –£8bn
Tax increase +£14bn +£9bn
Overall current budget tightening
+£24bn +£22bn
Change in current budget balance, 2007–08 to 2012–13
The big picture
35
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
10
–1
1
11
–1
2
12
–1
3
Financial year
Pe
rce
nta
ge
of
na
tion
al i
nco
me
ReceiptsCurrent expenditureTotal expenditure
Source: HM Treasury
Labour I Labour II
The fiscal rules• Golden Rule
• Borrow only to invest• Current budget balance or surplus• Judged over the economic cycle
• Sustainable Investment Rule• Debt at a stable and prudent level• This cycle: ≤40% of national income every
year
Source: HM Treasury
Current budget balance
-0.1
1.2
2.3 2.4
1.2
-1.0-1.5 -1.6
-1.1-0.3 -0.6 -0.7
-0.2
0.3 0.61.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
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
Per
cent
age
of n
atio
nal i
ncom
e
Outturns
Budget 08 forecast
Source: HM Treasury
Meeting the golden rule?
-40
-20
0
20
40
60
80
100
120
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th
Financial year of the cycle
Cum
ulat
ive
surp
lus
£bn,
2007
–08
term
s
Cycle starting in 1997-98
Cumulative current budget balance
Source: HM Treasury; IFS
Meeting the golden rule?
-40
-20
0
20
40
60
80
100
120
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th
Financial year of the cycle
Cum
ulat
ive
surp
lus
£bn,
2007
–08
term
s
Cycle starting in 1997-98
Cycle starting in 2006-07
Cumulative current budget balance
Source: HM Treasury; IFS
Meeting the golden rule?
-40
-20
0
20
40
60
80
100
120
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th
Financial year of the cycle
Cum
ulat
ive
surp
lus
£bn,
2007
–08
term
s
Cycle starting in 1997-98
Cumulative current budget balance
Source: HM Treasury; IFS
Current budget balances
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
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
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Budget 01 Budget 02Budget 03 Budget 04Budget 05 Budget 06Budget 07 Budget 08
Source: HM Treasury
The fiscal rules• Golden Rule
• Borrow only to invest• Current budget balance or surplus• Judged over the economic cycle
• Sustainable Investment Rule• Debt at a stable and prudent level• This cycle: ≤40% of national income every
year• Now defined excluding Northern Rock
Will the investment rule be met?
0
10
20
30
40
50
60
1997
-98
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
2011
-12
2012
-13
Financial year
Per
cent
age
of n
atio
nal i
ncom
e
Budget 2008
Ceiling
Source: HM Treasury; IFS
Will the investment rule be met?
0
10
20
30
40
50
60
1997
-98
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
2011
-12
2012
-13
Financial year
Per
cent
age
of n
atio
nal i
ncom
e
Budget 2008
Ceiling
Includingestimatedimpact ofNorthern Rock
Source: HM Treasury; IFS
Will the investment rule be met?
0
10
20
30
40
50
60
1997
-98
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
2011
-12
2012
-13
Financial year
Per
cent
age
of n
atio
nal i
ncom
e
Budget 2008
Ceiling
Source: HM Treasury; IFS
Meeting the net debt rule?
0.21.2
9.79.0
6.2
3.62.9
1.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Budget01
Budget02
Budget03
Budget04
Budget05
Budget06
Budget07
Budget08
% o
f na
tion
al i
nco
me
Source: HM Treasury; IFS
Minimum forecast headroom from 40% ceiling
Meeting the net debt rule?
2.816.9
136.3126.5
87.1
50.640.7
22.5
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Budget01
Budget02
Budget03
Budget04
Budget05
Budget06
Budget07
Budget08
£bn,
200
7-08
term
s
Source: HM Treasury; IFS
Minimum forecast headroom from 40% ceiling
Risks to the public finances
• Economic downturn deeper/more prolonged• Underlying receipts weaker than Treasury
believes• Though Budget 2008 projection now closer
to Green Budget 2008• Political pressure for greater giveaways
Greater giveaways ahead?
• One-off enhanced payment for over-60s• Maybe over-60s equally deserving next winter?• Cost £575 million per year
• Fuel duty: delay 2p nominal increase until October• Maybe oil price will remain high?• Cost £550 million per six months
• Gift aid: 2p cut in charity relief delayed for 3 years• Maybe charities equally deserving in year four?• Cost £120 million per year
• To make these policies permanent: £2bn a year
Conclusions
• £7½bn deterioration in public finances• Financed by new measures, tighter
Spending Review 2009 and higher borrowing
• No room to manoeuvre against either fiscal rule• Debt rule could easily be breached in 2010–
11• Increased pressure for further giveaways?