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Post Budget Briefing Institute for Fiscal Studies 23 rd March 2006

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Presentation on theme: "Post Budget Briefing Institute for Fiscal Studies 23 rd March 2006"— Presentation transcript:

1 Post Budget Briefing Institute for Fiscal Studies 23 rd March 2006

2 Public finances Carl Emmerson

3 A small Budget? 2006 Budget 45 measures averaging £40m each per year 2002 Budget 54 measures averaging £220m each per year 1997 Budget 27 measures averaging £370m each per year 2005 Pre-Budget Report 30 measures averaging £165m each per year Source: HM Treasury

4 Budget measures £million2006–072007–082008–09 Total takeaway5151,2601,205 Total giveaway Net takeaway– Source: HM Treasury

5 Takeaway measures Measures aimed at protecting revenues takeaway of £630m a year by 2008–09 Other measures raise £575m (Real Estate Investment Trust and removal of income tax exemption for loaned computers)

6 Giveaway measures Measures aimed at protecting the environment giveaway of £290m in 2006–07 (take-away of £80m in 2008–09) average cost of motoring reduced by Budget Climate Change Levy indexed in line with prices Extra schools spending Tax credits for lower income families with children increased £1bn extra spending in 2006–07 on overseas commitments in Iraq and Afghanistan

7 Underlying public finances Economy growth forecasts unchanged from PBR output gap estimated to be slightly smaller Public finances offsetting changes in receipts and spending borrowing and debt broadly unchanged

8 Public Sector Net Borrowing Source: HM Treasury

9 Changes to forecasts (1) BBC classification change January 2006 ONS decision to count this as central government rather than public corporation both receipts and spending increased by around £3bn a year

10 Changes to forecasts (2) Medium term receipts up by £2bn/year 8% rise in stock market slight increase in oil price No increase in short-term receipts recent average earnings and employment data oil production Spending up on Working and Child Tax Credits due to lower salaries and wages

11 Gordon Browns fiscal rules Golden rule only borrow to invest receipts must cover current spending implies surplus or balance on current budget judged over the economic cycle, not year by year Sustainable investment rule

12 Current budget balance Source: HM Treasury Current cycle total = 0.7% of GDP or £10.1bn

13 Will the golden rule be met? Source: HM Treasury; IFS 50/50 chance

14 Chances of meeting the golden rule? Source: HM Treasury; IFS 50/50 chance

15 Chances of meeting the golden rule? Source: HM Treasury; IFS 50/50 chance

16 Chances of meeting the golden rule? Source: HM Treasury; IFS 50/50 chance

17 Gordon Browns fiscal rules Golden rule Sustainable investment rule keep debt at a stable and prudent level defined as below 40% of national income to be met every year in current economic cycle

18 Will the investment rule be met? Source: HM Treasury; IFS

19 Will the investment rule be met? Source: HM Treasury; IFS

20 Will the investment rule be met? Source: HM Treasury; IFS

21 A rising tax burden Source: HM Treasury

22 Total Managed Expenditure Source: HM Treasury

23 Total Managed Expenditure Source: HM Treasury

24 What increases might we have? HMRC, HMT, DWP & Cabinet Office Source: HM Treasury ; IFS

25 What increases might we have? HMRC, HMT, DWP & Cabinet Office Source: HM Treasury ; IFS

26 Conclusion Relatively small Budget fiscal rules still expected to be met with reduced margin of error Risks can economy grow as quickly as hoped? will receipts materialise? will total spending be reduced? if so which departments will suffer?


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