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Evidence in public policy Paul Johnson
SRA annual conference
14 December 2015
© Institute for Fiscal Studies
What makes for effective evidence?
• Deals with an issue of importance
• Timely
• Robust
• Well presented/communicated
• From a trusted source
© Institute for Fiscal Studies
The IFS
• Combines academic with public policy
• Focus on clear communication
• Very careful to be, and be seen to be, independent/neutral
• Stick to what we know
• Unidisciplinary
• Been doing it for 30+ years
© Institute for Fiscal Studies
Understanding causation
• Not the subject of this talk
• Widespread abuse of figures by politicians
– And search for evidence that confirms priors
• Right combination of timeliness, robustness, clarity required
– Remains all too rare
• To be useful results need to be generalisable
– Need models and experiments
© Institute for Fiscal Studies
Some examples
• Public finances
– Debt and spending
– The Autumn Statement
– Eliminating the deficit – risk and uncertainty
• What has been happening to the income distribution
– Long term trends
• Changes to welfare
– Examples and populations
– Long term and short term
© Institute for Fiscal Studies
Public sector debt at record high
0
20
40
60
80
100 1
99
0
19
92
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94
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96
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98
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00
20
02
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% o
f n
ati
on
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inco
me
Financial year
© Institute for Fiscal Studies Notes and sources: see Figure 5.2 of The IFS Green Budget: February 2015.
But not on a longer perspective
0
50
100
150
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300 1
83
0
18
50
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70
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90
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10
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30
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70
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90
20
10
% o
f n
ati
on
al
inco
me
Financial year
© Institute for Fiscal Studies Notes and sources: see Figure 5.2 of The IFS Green Budget: February 2015.
Debt hasn’t exceeded
80% of national income
since 1967–68
But was higher from:
1830–31 to 1869–70
1916–17 to 1967–68
Spending in historical perspective
30
32
34
36
38
40
42
44
46
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50
19
48
19
51
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54
19
57
-58
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60
-61
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63
-64
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66
-67
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69
-70
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72
-73
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-76
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-79
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-82
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84
-85
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-88
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90
-91
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93
-94
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96
-97
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99
-00
20
02
-03
20
05
-06
20
08
-09
20
11
-12
20
14
-15
20
17
-18
20
20
-21
% o
f n
ati
on
al
inco
me
© Institute for Fiscal Studies
1960s: 52%
real growth
1970s: 36%
real growth
1980s: 7%
real growth
1990s: 24%
real growth
2000s: 46%
real growth
2010s: 1%
real growth
Change in total DEL – evidence in manifestos?
86
88
90
92
94
96
98
100
102
104
106
108
2015–16 2016–17 2017–18 2018–19 2019–20 2020–21
Re
al te
rms,
20
15
–1
6=1
00
IFS: Conservative manifesto
IFS: Labour manifesto
July Budget 2015
Autumn Statement 2015
© Institute for Fiscal Studies
Notes and sources: Crawford, et al (2015).
Paid for by £27bn windfall?
• No
• £14bn net tax rise
• Small net forecasting adjustments
– Number cumulated over several years
© Institute for Fiscal Studies
Eliminating the deficit in this parliament?
-6
-4
-2
0
2
4
6
8
10
12
20
07
–0
8
20
08
–0
9
20
09
–1
0
20
10
–1
1
20
11
–1
2
20
12
–1
3
20
13
–1
4
20
14
–1
5
20
15
–1
6
20
16
–1
7
20
17
–1
8
20
18
–1
9
20
19
–2
0
% o
f n
ati
on
al
inco
me
Financial year
© Institute for Fiscal Studies Source: Office for Budget Responsibility.
Past forecast errors suggest 55% chance of a surplus in 2019–20
Forecast surplus in 2019–20 of £10bn
Average absolute forecasting error 5 years out ≈ £70bn
What about the income distribution?
• Everyone knows it’s been getting more unequal
• Only trouble is that in recent years the evidence would suggest otherwise
© Institute for Fiscal Studies
Income inequality is lower than pre-recession
© Institute for Fiscal Studies
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Cu
mu
lati
ve
in
com
e c
ha
ng
e
Percentile point
Income measured before housing costs
Income measured after housing costs
Real income growth by percentile point, 2007–08 to 2013–14
Source: Fig 3.9 of Living Standards, Inequality and Poverty in the UK: 2015
What about the income distribution?
• Everyone knows it’s been getting more unequal
• Only trouble is that in recent years the evidence would suggest otherwise
• Need to be much clearer what we mean
– The top 1% were pulling away in the 2000s
– Complex changes to wealth distribution
– There are big generational differences
– Sometimes it takes public perception a while to catch up with the evidence
© Institute for Fiscal Studies
Incomes of pensioners catching up with the rest...
© Institute for Fiscal Studies
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Me
dia
n H
ou
seh
old
in
com
e o
f p
en
sio
ne
rs
rela
tive
to
no
n-p
en
sio
ne
rs
Before housing costs After housing costs
Median income of pensioners relative to that of non-pensioners, 1979 to 2013–14
Source: Fig 3.6 of Living Standards, Inequality and Poverty in the UK: 2015
What about the income distribution?
• Everyone knows it’s been getting more unequal
• Only trouble is that in recent years the evidence would suggest otherwise
• Need to be much clearer what we mean
– The top 1% were pulling away in the 2000s
– There are big generational differences
– Sometimes it takes public perception a while to catch up with the evidence
– Over a long period inequality has changed enormously
© Institute for Fiscal Studies
Distributional effects of policy change
• Lots of examples in July Budget of how tax credit changes plus new National Living Wage would leave lots better off
• You can produce all sorts of examples
Effect of Budget changes to taxes, benefits and the minimum wage on lone parent’s budget constraint in 2019–20
© Institute for Fiscal Studies
£300
£350
£400
£450
£500
0 5 10 15 20 25 30 35 40
Ne
t in
co
me
(£
/wk
, cu
rre
nt
pri
ce
s)
Weekly hours worked at Minimum Wage
Pre-budget
+ tax and benefit changes
+ minimum wage
Assumes: 2 children aged under 5, median Local Housing Allowance rate, ‘National Living Wage’ 13% above NMW.
Effect of Budget changes to taxes, benefits and the minimum wage on budget constraint of a second earner in a couple in 2019–20
© Institute for Fiscal Studies
£450
£500
£550
£600
£650
£700
£750
0 5 10 15 20 25 30 35 40
Ne
t in
co
me
(£
/wk
, cu
rre
nt
pri
ce
s)
Weekly hours worked at Minimum Wage
Pre-budget
+ tax and benefit changes
+ minimum wage
Assumes: 2 children aged under 5, median Local Housing Allowance rate, ‘National Living Wage’ 13% above NMW,
partner earns £25,000 a year.
© Institute for Fiscal Studies
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
Poorest 2 3 4 5 6 7 8 9 Richest All
Ch
an
ge
in
ne
t in
com
e
Income Decile Group
Pre-Autumn Statement
Post-Autumn Statement
Short-run impact of tax and benefit changes Changes in April 2016 only
Note: Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
Poorest 2 3 4 5 6 7 8 9 Richest All
Ch
an
ge
in
ne
t in
com
e
Income Decile Group
Pre-Autumn Statement
Post-Autumn Statement
Long-run impact of tax and benefit changes All changes introduced May 2015-April 2019 fully in place
Note: Assumes full take-up of means-tested benefits and tax credits.
