Institute for Fiscal Studies Profile picture
Sep 21, 2022 13 tweets 7 min read Read on X
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] An image of a section of a written quote from report author
.@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] A chart with three lines with title 'The outlook for real gr
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] Chart with two lines and title 'Citi forecasts that the cash
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.

ifs.org.uk/articles/infla…
[8/13]
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.”

Read our full #IFSGreenBudget briefing, funded by @NuffieldFound> ifs.org.uk/publications/r…

[13/13]

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More from @TheIFS

Oct 23
NEW: Access to Sure Start as a child reduced the likelihood of ending up in youth custody by a fifth.

THREAD on our new report, funded by @NuffieldFound, on Sure Start’s impact on crime and social care outcomes: [1/9]

ifs.org.uk/publications/e…
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] Chart shows effect of growing up near Sure Start on crime up to age 16, by percentage change in offending rates. Title states: "Living near a Sure Start centre before age 5 significantly reduced youth convictions and custodial sentences."
Read 9 tweets
Sep 27
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] Image
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%.

[3/11] Image
Read 11 tweets
Sep 19
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] Chart shows share of working-age population claiming selected health-related benefits: selected countries (indexed to 2019). Title states: "The rapid growth in health-related benefits seems to be largely a UK phenomenon."
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] Chart shows share of working-age population claiming health-related benefits. Title states: "The caseload for incapacity benefits has grown by 28% since 2019–20, and the disability benefits caseload by 39%."
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.

[3/7] Chart shows sickness and disability benefits cash spending as a share of GDP: OECD countries (2019) and UK (2019, 2023, 2028). Title states: "Despite recent increases, the UK’s spending on working-age health-related benefits is still similar as a share of GDP to other comparable countries."
Read 7 tweets
Jul 25
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] Charts show mortgagor absolute poverty rate (after deducting housing costs), under alternative interest rates. Title states: "Higher mortgage interest payments pushed 320,000 mortgagors into poverty by December 2023."
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] Chart shows average interest rate on new loans/remortgages (weighted by loan value). Title states: "Average mortgage interest rates for re-mortgagors had risen to more than 5% by December 2023."
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.

[3/7] Chart shows mortgagor absolute poverty rate (after deducting housing costs), under alternative interest rates. Title states: "Higher mortgage interest payments pushed 320,000 mortgagors into poverty by December 2023."
Read 7 tweets
Jun 24
STARTING NOW: @PJTheEconomist opens our IFS event analysing the 2024 General Election manifestos:

📺 Watch live here:

Ask questions here:
app.sli.do/event/9esN5Dd8…
- @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."

- @PJTheEconomist
Read 15 tweets
Jun 11
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] Image
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] Image
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.

[3/11] Image
Read 12 tweets

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