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Public finances
Christine Frayne
Institute for Fiscal Studies
The big picture
3536373839404142434445
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
Financial year
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Total expenditure
Current expenditure
Receipts
Source: HM Treasury
Labour I Labour II
Mr Brown’s fiscal record
1996-97 2007-08
Change Change
% GDP £bn
Receipts 37.3 40.1 2.9 39.6
Spending 40.8 42.0 1.8 25.0
Net borrowing 3.5 2.4 –1.1 –14.6
Net debt 43.6 38.2 –5.4 –74.4
Source: HM Treasury; IFS
Mr Brown’s fiscal record
1996-97 2007-08
Change Change
% GDP £bn
Receipts 37.3 40.1 2.9 39.6
Spending 40.8 42.0 1.8 25.0
Net borrowing 3.5 2.4 –1.1 –14.6
Net debt 43.6 38.2 –5.4 –74.4
Source: HM Treasury; IFS
Mr Brown’s fiscal record
1996-97 2007-08
Change Change
% GDP £bn
Receipts 37.3 40.1 2.9 39.6
Spending 40.8 42.0 1.8 25.0
Net borrowing 3.5 2.4 –1.1 –14.6
Net debt 43.6 38.2 –5.4 –74.4
Source: HM Treasury; IFS
Mr Brown’s fiscal record
1996-97 2007-08
Change Change
% GDP £bn
Receipts 37.3 40.1 2.9 39.6
Spending 40.8 42.0 1.8 25.0
Net borrowing 3.5 2.4 –1.1 –14.6
Net debt 43.6 38.2 –5.4 –74.4
Source: HM Treasury; IFS
Sharing the proceeds of growth
• In 2007-08 compared with 1996-97• Families on average pay £5600 more tax in
real terms
• National income is higher by £356bn• On average £11700 per family
• So once tax has been deducted• Families on average still keep £6100 more
Current budget: total change
£billion 2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Current budgetPBR 2006
–7.9 –1.5 +4 +7 +10 +14
Discretionary changes
0 –½ ½ 0 ½ ½
Of which: changes to taxes
0 0 1½ 1½ 2 2
Revisions and forecasting changes
–1.6 –2½ –1½ –1½ –1½ –2
Of which: North Sea taxes
–1½ –2½ –2½ –2½ –2 –1½
Current budget Budget 2007
–9.5 –4.3 +3 +6 +9 +13
Source: HM Treasury; IFS
Current budget: total change
£billion 2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Current budgetPBR 2006
–7.9 –1.5 +4 +7 +10 +14
Discretionary changes
0 –½ ½ 0 ½ ½
Of which: changes to taxes
0 0 1½ 1½ 2 2
Revisions and forecasting changes
–1.6 –2½ –1½ –1½ –1½ –2
Of which: North Sea taxes
–1½ –2½ –2½ –2½ –2 –1½
Current budget Budget 2007
–9.5 –4.3 +3 +6 +9 +13
Source: HM Treasury; IFS
Current budget: total change
£billion 2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Current budgetPBR 2006
–7.9 –1.5 +4 +7 +10 +14
Discretionary changes
0 –½ ½ 0 ½ ½
Of which: changes to taxes
0 0 1½ 1½ 2 2
Revisions and forecasting changes
–1.6 –2½ –1½ –1½ –1½ –2
Of which: North Sea taxes
–1½ –2½ –2½ –2½ –2 –1½
Current budget Budget 2007
–9.5 –4.3 +3 +6 +9 +13
Source: HM Treasury; IFS
Current budget: total change
£billion 2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Current budgetPBR 2006
–7.9 –1.5 +4 +7 +10 +14
Discretionary changes
0 –½ ½ 0 ½ ½
Of which: changes to taxes
0 0 1½ 1½ 2 2
Revisions and forecasting changes
–1.6 –2½ –1½ –1½ –1½ –2
Of which: North Sea taxes
–1½ –2½ –2½ –2½ –2 –1½
Current budget Budget 2007
–9.5 –4.3 +3 +6 +9 +13
Source: HM Treasury; IFS
Current budget: total change
£billion 2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Current budgetPBR 2006
–7.9 –1.5 +4 +7 +10 +14
Discretionary changes
0 –½ ½ 0 ½ ½
Of which: changes to taxes
0 0 1½ 1½ 2 2
Revisions and forecasting changes
–1.6 –2½ –1½ –1½ –1½ –2
Of which: North Sea taxes
–1½ –2½ –2½ –2½ –2 –1½
Current budget Budget 2007
–9.5 –4.3 +3 +6 +9 +13
Source: HM Treasury; IFS
Budget measures£billion 2007–08 2008–09 2009–10
Income tax & NICsPositiveNegative
+0.0+0.0+0.0
–2.1+9.0–11.1
–2.5+10.7–13.2
CorporatePositiveNegative
–0.2+0.0–0.2
+0.1+2.0–2.0
–0.1+3.6–3.7
Green measures +0.2 +0.3 +0.3
‘Avoidance’ –0.2 +0.8 +1.1
Empty properties etc –0.4 +1.2 +1.3
Total –0.5 +0.3 +0.1
Source: HM Treasury
Budget measures£billion 2007–08 2008–09 2009–10
Income tax & NICsExchequer gainExchequer loss
+0.0+0.0+0.0
–2.1+9.0–11.1
–2.5+10.7–13.2
CorporateExchequer gainExchequer loss
–0.2+0.0–0.2
+0.1+2.0–2.0
–0.1+3.6–3.7
Green measures +0.2 +0.3 +0.3
‘Avoidance’ –0.2 +0.8 +1.1
Empty properties etc –0.4 +1.2 +1.3
Total –0.5 +0.3 +0.1
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
Current budget balance
-2.8
-0.1
1.2
2.3 2.5
1.1
-1.1-1.6 -1.6
-1.2-0.7
-0.3
0.1 0.3 0.6 0.8
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
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
10–1
1
11–1
2
Per
cent
age
of n
atio
nal i
ncom
e
Outturns
Budget 07 forecast
Source: HM Treasury
Current cycle total =0.8% of GDP or £10.5bn
Current budget balance
-2.8
-0.1
1.2
2.3 2.5
1.1
-1.1-1.6 -1.6
-1.2-0.7
-0.3
0.1 0.3 0.6 0.8
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
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
10–1
1
11–1
2
Per
cent
age
of n
atio
nal i
ncom
e
Outturns
Budget 07 forecast
Source: HM Treasury
Next cycle
Structural 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
Pe
rce
nta
ge
of
na
tion
al i
nco
me
Budget 02Budget 03Budget 04Budget 05Budget 06Budget 07
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
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
Financial year
Per
cent
age
of n
atio
nal i
ncom
e
Budget 2007
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
Financial year
Per
cent
age
of n
atio
nal i
ncom
e
80%60%40%20%Budget 200720%40%60%80%Ceiling
Source: HM Treasury; IFS
Debt could exceed 40%
6%
30%
41% 44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007–08 2008–09 2009–10 2010–11
Pro
ba
bili
ty
Source: HM Treasury; IFS
50/50 chance
Conclusions
• Slight deterioration in the public finances• Small net impact of new measures on
Exchequer• Large gains and losses
• Both fiscal rules on course to be met• Relies on further:
• Increases in tax burden• Reductions in public spending as a share
of national income
