1. Budget 2009: more repairs needed?
Carl Emmerson
BBC seminar, Thursday 16th April 2009
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2. The 2008 Pre-Budget Report: the problem
Exchequer loses 3.5% of national income (£50bn) a year permanently
permanent 4% fall in productive potential of the economy
equity and house prices to stay below levels assumed in Budget

3. The 2008 Pre-Budget Report: the policy response
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4. The 2008 Pre-Budget Report: the policy response
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5. Public spending squeeze ahead
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6. Borrowing overshooting PBR forecast
On current trends public sector will borrow £95 billion in 2008–09
(ONS to release provisional outturn on Budget day morning)
Almost £17 billion more than forecast in PBR
Net investment overshooting by £4.3billion and revenues undershooting by £12.5 billon
IFS Green Budget had forecast weaker revenues, but still an unexplained £5.8 revenue shortfall
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7. Recession deeper than expected at PBR time…
Economic growth
2009
2010
2011
Treasury’s PBR assumptions
–1¼ to –¾%
+1½ to +2%
+2¾ to +3¼%
Bank of England’s February mean forecasts
–3.7%
+1.0%
+2.5%
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8. …which will add to borrowing
Economic growth
2009
2010
2011
Treasury’s PBR assumptions
–1¼ to –¾%
+1½ to +2%
+2¾ to +3¼%
Bank of England’s February mean forecasts
–3.7%
+1.0%
+2.5%
Public sector net borrowing
2008–09
2009–10
2010–11
2011–12
Additional (% of GDP)
Additional (£ billion)
+0.3%
£4.4bn
+1.6%
£23.4bn
+2.2%
£32.2bn
+2.5%
£36.6bn
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9. Public sector borrowing to hit post-war peak
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10. Public sector borrowing to hit post-war peak
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11. Public sector net debt to exceed mid-90s peak
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12. Public sector net debt to exceed mid-90s peak
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13. Longer term outlook: debt stays on upward path
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14. Interest payments: borrowing costs crucial
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15. Budget 2009: another fiscal stimulus?
PBR stimulus package smaller and shorter than US or German
Stimulus only small fraction of debt rise forecast in PBR
Two views of the affordability of additional stimulus:
debt rising so far that it would make little difference
debt rising so far that adding anything more would be dangerous
Mervyn King has increased market/political downside
targeted employment measures now more likely?
Relationship between credibility and market reaction complex
do investors look more at Labour or Conservative credibility?
investors may be unusually wary of hung parliament
Credibility of consolidation more important than stimulus decision
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16. Budget 2009: another fiscal tightening?
May need to repeat scale of PBR tightening to balance current budget by 2015–16
all by tax would require increases of £1,250 per family
all by spending would require real public spending freeze over the five years from April 2011 (rather than +1.1%)
Budget may be more pessimistic than us in the short term and less pessimistic in the long term
Treasury likely to delay return to balance, with smaller tightening and forecast downgrades than our projections suggest
How is any tightening split between tax increases and spending cuts?
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17. Budget 2009: more repairs needed?
Carl Emmerson
BBC seminar, Thursday 16th April 2009
© Institute for Fiscal Studies 17