The problem: more borrowing, mostly structural Public sector net borrowing in Budget 2009, excluding PBR and Budget policy measures Sources: HM Treasury; IFS calculations; figures may not add due to rounding.
Cutting the shrinking cake in Spending Review Given plausible assumption on debt interest, social security and other annually managed expenditure, Budget implies real cut for public services and admin of 2.3% a year or 6.7% after 3 years –Equivalent to £26 billion a year real cut comparing 2013–14 to 10–11 –Sharpest real decline since IMF squeeze in late 1970s Parties have things they would like to protect (health, aid, schools, defence), increasing necessary cuts elsewhere Is this plausible? More tax increases, especially if tightening accelerated?
The policy... Standard rate of VAT cut from 17.5% to 15% from Dec 1 st 2008 to Dec 31 st 2009 –Government estimates the cost to be £12.4 billion –This is about £440 per household Standard rate of VAT applies to about 55% of total consumer expenditure If fully (or near fully) passed on, average consumer prices would fall by about 1.2%
Overall revenue impact Total income tax and pension package to raise £7bn a year From relatively few, relatively well-off people –Roughly 2% of adults (750k) have incomes above £100k –Roughly 1% of adults (350k) have incomes above £150k Part of larger tax package affecting more people