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Analysing government fiscal forecasts and tax and spending.
Analysis of the fiscal choices an independent Scotland would face.
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Reforming the tax system for the 21st century.
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Authors: Robert Chote and Carl Emmerson
The new coalition Government has announced a £6.2 billion headline cut to public spending in the current year. Since £500 million is being recycled into additional spending or tax cuts, and the £704 million earmarked for devolved administrations does not have to be found until next year, the likely reduction in borrowing in 2010-11 is around £5 billion. This is less than a tenth of the fiscal repair job that Alistair Darling's March 2010 Budget forecast suggested will be needed over the next few years.
Of the £5 billion reduction in borrowing £4.8 billion is to come from reduced spending by central government on public services and their administration (Departmental Expenditure Limits, DELs). The rest is from cuts to the Child Trust Fund, offset by a small cut in business rates. This is a fall in these budgets of 1.2% relative to the level departments were told they could budget for under the previous Labour Government's plans. Labour had planned to cut these budgets by 0.5% after economy-wide inflation between 2009-10 and 2010-11: the 1.2% cut in plans for 2010-11 announced today increases this cut to 1.7%.
As promised the new coalition Government is keeping to Labour's planned increases in spending in the NHS, MoD and overseas aid. In addition they have decided not to cut spending on schools, Sure Start and education for 16-19 year olds. Our calculations - largely based on spending figures made available from the Treasury -suggest that on average the areas of spending that have not been protected from cuts in today's announcement will see their budgets fall by an extra 3.7%. This brings the total cut in these areas relative those planned for last year up from 4.7% to 8.2%. (An earlier version of this observation contained slightly different numbers as it was produced before any figures were made available from the Treasury.)
The Table below shows our estimate of the cuts to each department as a share of the previous Labour Government's plans, and the change in budget compared to last year.
Note: Figures take account of increases in spending in the CLG Communities and the Business, Innovation and Skills departments. Chancellor's Departments ignores the cut to the Child Trust Fund.
View all Observations in the series
Death to the death tax?
Last week the Prime Minister, David Cameron, stated that he would like to increase the inheritance tax threshold, reviving memories of the 2010 Conservative Party manifesto pledge to increase the threshold to £1 million. This observation sets out how much this would cost, who would benefit and sets out arguments for alternative reforms to inheritance tax.
No new money, yet more generous support for childcare
The Government has today announced more details on its new Tax Free Childcare scheme and the way in which childcare will be supported in Universal Credit. The announcement means that the planned system will be significantly more generous than initially envisaged, providing support to children aged up to 12 straight away, will provide a higher level of support, and will provide more generous support for childcare in Universal Credit. Yet the Treasury has not increased its estimate of the total cost, as it has revised down considerably its estimate of how many families will benefit.
Scotland's fiscal position worsened in 2012–13 as North Sea revenues fell
Today, the Scottish Government published the latest version of its annual Government Expenditure and Revenues Scotland (GERS) publication. For the first time in 5 years GERS suggests that Scotland's net fiscal balance, or budget deficit, was worse than that of the UK as a whole even when allocating North Sea revenues to Scotland on an illustrative geographic basis. Until now these revenues have been enough to more than outweigh the higher public spending per head in Scotland than in the rest of the UK. But not in 2012–13.