Debt in our central forecast with @Citibank continues to rise throughout the forecast horizon, even once the big packages of support for rising energy prices are assumed to have expired.
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Even once these support packages expire, tax cuts and a weak economic outlook would keep borrowing high.
While there’s uncertainty around the scale, under a central forecast in 2026–27 we expect borrowing of around £100bn, around £70bn higher than forecast in March.
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We forecast spending on debt interest will be around £100bn next year, double @OBR_UK's March forecast (itself already an £13bn upwards revision).
This increase would partly dissipate if inflation falls back, but higher interest rates & debt levels will push up spending.
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Rising inflation is eating into departmental spending plans set out a year ago, but the government has stated that it will leave them unchanged despite rising pressures.
Making big additional cuts to already squeezed departments to stabilise debt would be far from easy.
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More growth would reduce the scale of fiscal tightening needed to stabilise debt.
But even if growth turned out to be 0.25 percentage points a year stronger than @Citibank expects, a fiscal tightening of around £40bn would be required to stabilise debt by 2026-27.
[6/8]
The renewed focus on growth is welcome, but @OBR_UK has not historically incorporated hoped-for growth improvements into forecasts without concrete evidence of stronger growth.
Plans which rely on an unlikely uptick in growth are unlikely to impress financial markets.
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“The Chancellor should not rely on over-optimistic growth forecasts or promises of unspecified spending cuts. To do so would risk his plans lacking the credibility which recent events have shown to be so important.”
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:
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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:
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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.
NEW: The size of the state – spending as a proportion of national income – has increased by significantly more under this parliament than under any previous post-war Conservative parliament. A large part of this increase looks to be permanent.
The state was the same size in 2019-20 as it was in 2007-08.
Almost a decade of austerity simply reversed the growth in the state that happened during the financial crisis, and returned the size of the state to where it had been after a decade of New Labour governments.
[2/11]
Returning the size of the state to 2007-08 levels after the financial crisis meant very slow spending growth over the 2010s compared to the historic average, particularly in a context of relatively weak economic growth.
NEW: There will be no easy options when it comes to schools funding after the #GeneralElection.
@lukesibieta’s new @NuffieldFound-funded report explains why the next government faces painful choices on school spending:
[THREAD: 1/8]
Since 2019, a £6 billion increase in school spending has taken real-terms spending per pupil back to 2010 levels.
But rapid rises in staff, energy and food costs leave the purchasing power of school budgets about 4% lower than in 2010.
[2/8]
With an expected 5% drop in pupil numbers up to 2028, an incoming government could cut total school spending by £3.5 billion (6%) by maintaining spending per pupil in real terms.
But since many school costs are fixed in the short run, this is easier said than done.
NEW: Ahead of the election, @PJtheEconomist, @nridpathecon and Carl Emmerson look back at the economy over the last 14 years in a chapter for @anthonyseldon and @Tom_AE_123’s forthcoming book The Conservative Effect, 2010-2024.
THREAD on the UK economy since 2010:
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The economy has grown only slowly since the Great Financial Crisis.
If we had continued growing at the rates seen in the 2000s, we would be on average over £10,000 richer each.
[2/13]
Slow growth has been a common trend across advanced economies.
However, the UK has still lagged behind: since 2008, income per head has grown at a third of the speed of the US and half the speed of Germany.