NEW: In the absence of official scrutiny from @OBR_UK alongside Friday's announcement, we've provided our own #IFSGreenBudget fiscal forecasts with @citibank.
We find that planned tax cuts with stalling economic growth would leave debt on an unsustainable path.
THREAD: 1/13
It is disappointing that Friday’s statement won't be accompanied by new official forecasts from @OBR_uk.
These would have shown that a combination of a weaker outlook for the economy and substantial tax cuts will lead to more borrowing and more debt.
[2/13]
.@Citibank’s forecasts show an improved outlook for economic growth from the @bankofengland’s August forecast.
But it is still a far worse performance than forecast by @OBR_uk in March.
[3/13]
The rise in the outlook for inflation since March does cushion some of the hit to the cash size of the economy.
Citi forecasts that the cash economy will be only 2% smaller in 2026–27 than @OBR_uk’s March 2022 forecast. [4/13]
The fiscal cost of the Energy Price Guarantee is highly uncertain, however.
We assume it will cost well over £100 billion over the next two years, but the cost will depend on the path of energy prices and whether it is extended past the planned two years.
[5/13]
Even once the substantial Energy Price Guarantee has expired in October 2024, borrowing could still run at about £100 billion a year in the mid-2020s.
This is more than £60 billion a year higher than the @OBR_uk forecast in March.
[6/13]
Reversing the NICs rise and cancelling the corporation tax increase would leave government revenues about £30bn a year lower than planned.
These large, permanent measures will account for nearly half of the medium-term increase in borrowing compared to March’s forecasts. [7/13]
Spending on debt interest, state pensions and most working age benefits will be pushed up by inflation.
We also estimate that public service spending, set in cash terms, would need an extra £18bn just to restore spending to its intended level.
Persistent current budget deficits and rising debt as a share of national income would mean that the two main fiscal targets legislated only in January would be missed.
Even once the Energy Price Guarantee has expired, debt would be left on an ever-increasing path.
[9/13]
An increase in annual growth of above 0.7% of national income would be needed to stabilise debt as a % of GDP.
This is equivalent to the difference between the UK's real growth in the 25 years up to the financial crisis, and during the 2010s' stagnant austerity years.
[10/13]
Getting that scale of increase in growth would require either a great deal of luck over a long period or a concerted change in policy direction.
Setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble at best.
[11/13]
The current cost of servicing debt remains low in historical terms.
But the recent sharp increases in debt interest spending show that in the long-term, a high stock of debt leaves future generations exposed to spending risks whenever interest rates and inflation rise.
[12/13]
“The government is choosing to ramp up borrowing just as it becomes more expensive to do so, in a gamble on growth that may not pay off.”
Established 25 years ago, Sure Start operated as a network of centres integrating services for families with young children under one roof, before being wound back since its peak in 2010.
Previous IFS work found it improved young people’s health and educational outcomes.
[2/9]
Access to a Sure Start centre during the early years reduced the probability of receiving a criminal conviction by 13%, and a custodial sentence in adolescence by 20%.
It did not have a major effect on less serious criminal outcomes: there was no effect on police cautions. [3/9]
NEW: Public sector pay has declined relative to the wider pay distribution, especially for higher earners.
@JCribbEcon @awmckendrick @m_dominguezp’s Green Budget chapter examines the pressures on public sector pay and the implications for recruitment & retention:
[THREAD: 1/11]
The new government has accepted in full the independent 2024 Pay Review Body recommendations, with average pay rises of 5.5%.
This is ahead of inflation, and close to private sector pay growth.
[2/11]
Pay in the public sector has evolved less favorably than in the private sector in recent years.
While private sector pay is 6% higher than it was in early 2019 in real terms, public sector pay is up by only 1%.
NEW: Health-related benefit claims have risen substantially across England and Wales, with increases in mental health claims across all ages.
There is little evidence of similar trends in other countries.
THREAD on our new report on health-related benefits:
[1/7]
There has been rapid growth in the health-related benefits caseload since 2019. 1 in 10 working-age people in England & Wales now claim a health-related benefit.
@OBR_UK projects further growth of 19% for incapacity benefits & 41% for disability benefits from 2023 to 2028. [2/7]
A higher caseload means higher spending. The UK now spends 1.7% of GDP on working-age health-related benefits.
This is up from 1.3% in 2019 but is still close to the OECD’s 2019 average of 1.6%. However, @OBR_UK forecasts that spending could rise to 2.1% of GDP by 2028.
NEW: Rising mortgage interest rates pushed 320,000 into poverty by December 2023, but only two-thirds of that will be captured by official statistics.
THREAD on Sam Ray-Chaudhuri, @TomWatersEcon & Tom Wernham’s @JRF_uk-funded living standards, poverty & inequality report:
[1/7]
Mortgage interest rates have risen rapidly since June 2022.
These increases have not impacted all mortgagors, but those whose fixed period ended recently have faced much higher interest rates, which can increase payments by thousands of pounds per year.
[2/7]
Higher mortgage interest rates have caused poverty among mortgagors to rise from 7.9% to 9.3%, equivalent to 320,000 more people.
Official statistics use average interest rates to calculate mortgage payments, and so will only capture two-thirds (230,000) of this rise.
- @PJTheEconomist: The "raw facts" on the public finances and funding for public services "are largely ignored by the two main parties in their manifestos."
"They have singularly failed even to acknowledge some of the most important issues and choices."
@PJTheEconomist Low growth, high debt and high interest payments means "to stop debt spiralling ever upwards we need to run primary surpluses."
"That means the government collecting more in tax and other revenues than it spends on everything apart from debt interest."
NEW: In advance of the Conservatives confirming their tax plans for the future today, we've assessed their record on tax policy in last 14 years.
THREAD on @HelenMiller_IFS, @StuartAdam_IFS and Bobbie Upton's new report, funded by @NuffieldFound @finan_fairness:
[1/11]
Tax revenue as a share of national income, at 36%, is higher now than at any point since 1948 and forecast to rise further.
The 2019-24 parliament saw the biggest rise in the tax take of any parliament in modern history.
[2/11]
The composition of revenue has changed.
Relative to 2010, more tax revenue is being raised from income tax, VAT, corporation tax and capital taxes. Less is being raised from fuel and tobacco duties and business rates.