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"Whoever wins the election, Labour or Conservative, is going to have to cut spending. That is not something that Margaret Thatcher actually did. So tougher than Margaret Thatcher." So said George Osborne on the Today Programme this morning - and the numbers by and large bear him out.
Total public spending increased by an average of 1.1% a year in real terms over the Thatcher era. This is almost three times the increase of 0.4% a year that Alistair Darling pencilled into his Pre-Budget Report last November for the forthcoming Parliament. If the Conservatives wish to achieve a bigger fiscal tightening than Labour - and/or if they wish to achieve more of it through spending cuts rather than tax increases - then the gap would be even bigger.
While the PBR figures do show spending continuing to rise in real terms over the coming Parliament, if we subtract spending on welfare and debt interest then we estimate that the rest of public spending would be cut in real terms by an average of 1.4% a year compared to an average increase of 0.7% in the Thatcher era. We have not seen five years with an average annual real cut as big as this since the mid-1970s. The PBR figures also suggest that we will see real cuts not just on average over the Parliament but in every year of it - and we have not seen cuts for four or five years running since before the war.
Even this comparison flatters the likely outlook for public services, as it includes some spending on other areas (such as public sector pension bills) that are likely to continue rising in real terms. We estimate that if you look solely at what the Treasury calls "Department Expenditure Limits" - Whitehall spending on public services and administration - then the likely real cut implied by the PBR projections would be 2.4% a year over the Parliament.
Alas we don't have official estimates of what DELs would have been in the pre-Labour years. But the comparison would be pretty sobering. And if the Conservatives want to cut further and faster, all the more so.
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Does offering higher teacher salaries improve pupil attainment?
In new work published today, IFS researchers analyse the impact of offering higher teacher salaries on pupil attainment. We examine salary scales and pupil attainment in primary schools in and around London. For these schools, and for the salary differences of just under 5% that we observe, we do not find evidence that higher salary scales for teachers have much impact on pupil attainment. This suggests that if individual schools offered salary differentials on this scale across-the-board, they would not necessarily attract more effective teachers.
The next five years look better but tough fiscal choices remain for Scotland
The latest public finance forecasts published by the Office for Budget Responsibility (OBR) in December presented a better outlook for the UK than had been suggested by their March forecast. This is good news for the UK and Scotland in the short-term but much of the improved short-term outlook comes at the expense of reduced scope for economic recovery after 2018–19. Also the one area of greater weakness in the OBR’s latest forecast – revenues from oil and gas production – has substantially more adverse consequences for Scotland’s fiscal position than for the UK as a whole. In short, the new forecasts do little to diminish the tough choices that will face Scotland (and, to a lesser extent, the UK) if it is to achieve long-run fiscal sustainability.
50p tax – strolling across the summit of the Laffer curve?
Ed Balls and Ed Milliband have cited recent HMRC statistics which show those paying the 50% income tax rate are estimated to have paid some £10 billion more in tax over the three years 2010-11 to 2012-13 than was projected to be the case back in 2012 when HMRC analysed how much the tax was raising. Is that an indication that the 50p rate was more successful in raising revenue than HMRC concluded in their analysis?