IFS Green Budget 2021

Adam, Stuart; Cribb, Jonathan; Delestre, Isaac; Emmerson, Carl; Johnson, Paul E.; Levell, Peter; Miller, Helen; Nabarro, Benjamin; Ogden, Kate; Phillips, David; Salisbury, Adam C.; Schulz, Christof; Sion, Cian; Stockton, Isabel; Warner, Max; Zaranko, Ben

doi:10.1920/re.ifs.2021.0200

Cited by 2 publications

(2 citation statements)

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“…To achieve the government's fiscal objectives, the Charter set out two main fiscal targets: first, the fiscal mandate 'to have public sector net debt (excluding the Bank of England) as a percentage of GDP falling by the third year of the rolling forecast period'; and second, a supplementary target to aim to 'balance the current budget by the third year of the rolling forecast period'. 10 A detailed discussion of the design of fiscal targets in general, and these in particular, can be found in chapter 4 of last year's Green Budget (Emmerson and Stockton, 2021).…”

Section: Missing the Fiscalmentioning

confidence: 99%

“…But the risk here is obvious. As we put it in last year's Green Budget, extend fiscal targets forwards 'too long and governments may have more scope to promise future tax rises or spending cuts that they do not intend -or are perhaps unable -to implement' (Emmerson and Stockton, 2021). Mr Kwarteng is aware of this concern.…”

Section: How Might Falling Public Sector Net Debt Be Delivered?mentioning

confidence: 99%

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Outlook for the public finances

Emmerson¹,

Stockton²

2022

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1. The most recent official economic and fiscal forecasts, from March 2022, had the government meeting its fiscal targets with a current budget surplus (i.e. total revenues exceeding day-to-day spending) from 2023-24 onwards and underlying public sector net debt on course to fall, albeit modestly, as a fraction of national income from the same year. The Office for Budget Responsibility (OBR) calculated that the government's mandate to have debt forecast to fall was met by a margin of £28 billion.2. Much has changed. Under Citi's macroeconomic forecast, which underpins our analysis of the public finances, rising inflation and interest rates will add to public spending on working-age benefits, state pensions and debt interest. Recent policy decisions, such as the Energy Price Guarantee and the new government's package of permanent tax cuts, will also add to borrowing. Overall, we forecast that borrowing this year will be £194 billion, which would be £94 billion higher than the £99 billion forecast in March. Of this increase, £68 billion is explained by support for energy bills announced since March (net of revenues from the new energy profits levy).3. But more important for the sustainability of the public finances is the outlook for borrowing in the medium term. Even once the energy support packages are assumed to expire, borrowing remains elevated. There is huge uncertainty around the exact magnitude, but under a central forecast in 2026-27 we expect borrowing of £103 billion, which would be £71 billion higher than forecast in March. Much of this increase is uncertain -it will in particular depend on the path of the economy, inflation and interest rates -but less uncertain is £43 billion of the increase in borrowing, which is explained by the direct impact of the permanent tax cuts announced by the new Chancellor, Kwasi Kwarteng. 4. We forecast that spending on debt interest will be £103 billion in 2023-24, double the £51 billion forecast by the OBR in March and which was already an upwards revision on the £39 billion the OBR forecast in October 2021. Much of this increase in debt interest spending will dissipate as long as inflation falls back. But even in 2026-27 we forecast that debt interest spending will be £66 billion, some £18 billion higher than forecast by the OBR in March, £26 billion more than forecast in October 2021 and £9 billion more than was spent in 2021-22, as a result of higher interest rates and a higher level of accumulated debt. 5. In line with stated government policy, we assume that the government keeps broadly to the departmental spending plans set out a year ago. This is despite rising inflation eating into the implied real increases: restoring their generosity would require an additional £14 billion of spending in 2023-24 and £23 billion in 2024-25. Keeping to the existing cash spending plans is essentially imposing a rather hidden form of austerity on departments, and doing so in a rather arbitrary way, as it depends on the extent to which rising prices are adding to the spending press...

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Section: Missing the Fiscalmentioning

confidence: 99%

Section: How Might Falling Public Sector Net Debt Be Delivered?mentioning

confidence: 99%

Outlook for the public finances

Emmerson¹,

Stockton²

2022

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The OBR and the unintended economic consequences of Mr Osborne

O’Donovan

2024

Br Polit

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The creation of the Office for Budget Responsibility (OBR) was heralded as a major change in UK economic governance, purporting to offer objective analysis insulated from partisan politics. In the tumultuous years since the OBR’s foundation, however, its neutrality has been disputed by critics of diverse political persuasions. Ben Clift’s new book, The Office for Budget Responsibility and the Politics of Technocratic Economic Governance, offers a nuanced evaluation of these criticisms, illuminating the subtle ways in which the OBR favours certain policy choices over others. Building on Clift’s work, this symposium article considers whether the OBR is inherently biased towards austerity and fiscal conservatism, or whether OBR scrutiny is compatible with more radical changes in the UK’s political economy.

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IFS Green Budget 2021

Cited by 2 publications

References 63 publications

Outlook for the public finances

Outlook for the public finances

The OBR and the unintended economic consequences of Mr Osborne

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