Institute for Fiscal Studies | Briefing Notes We produce short briefing notes to outline our analysis of current policy issues. These are available online only. Sat, 29 Apr 2017 09:17:34 +0000 <![CDATA[The UK labour market: where do we stand now?]]> This Briefing Note provides key information on the UK labour market in recent years, and summarises the challenges in the labour market facing the next government. It uses up-to-date data to understand how the labour market has performed in recent years and how it might continue to evolve over the course of the next parliament. IFS Election 2017 analysis is being produced with funding from the Nuffield Foundation as part of its work to ensure public debate in the run-up to the General Election is informed by independent and rigorous evidence.

IFS Election 2017 analysis is being produced with funding from the Nuffield Foundation as part of its work to ensure public debate in the run-up to the General Election is informed by independent and rigorous evidence. For more information go to

Key findings

1. The remarkable growth in employment since 2012 means the current employment rate is at a record high of 75%. However, it has levelled off in recent months and is not forecast to rise further.

2. There is no evidence that recent employment growth has been disproportionately driven by jobs in low-skilled occupations. Measures of ‘under-employment’ (workers who want to work more hours) are still higher than in 2008, but have fallen back since 2012.

3. Although the number of non-UK-born workers has increased faster than the number of UK-born workers since 2008, the employment rate of UK-born individuals is at a record high.

4. After adjusting for inflation, average earnings of employees are still substantially below pre-recession levels, and are currently being squeezed by rising household inflation (linked in large part to falls in sterling). Central forecasts from the Office for Budget Responsibility (OBR) imply average earnings will still be lower than their 2007–08 level in 2021‒22. This is despite an extraordinary increase in the education levels of the workforce: 35% are now graduates compared with 25% in 2008.

5. Men and younger workers have seen larger falls in average earnings than women and older workers since 2008. Low-earning workers, boosted by recent large increases in minimum wage rates, have seen stronger pay growth since 2008 than higher-paid workers.

6. With unemployment having fallen to below 5%, further increases in employment will be harder to achieve. A key future challenge is pay growth: it will continue to disappoint unless poor productivity growth can be redressed. It is hard to overstate how important this is to increasing living standards in the long run.

The remarkable recovery in the employment rate since 2012 has pushed it to a record high, though employment growth has slowed in recent months.

Figure 1. Employment rate (aged 16–64)

Employment rate (aged 16–64)

Note: 2017Q1 data point contains data for the three months ending in February 2017.

Source: ONS series LF24, MGSV and LF25.

Employment in the UK since the 2008 recession has consistently performed better than expected. The strong recovery since 2012 has pushed the employment rate above its pre-recession level and it now stands at an all-time high of nearly 75%. Employment growth has been particularly strong among women, with the female employment rate increasing from 67% in 2008 to 70% in 2016. Despite falling further during the recession, male employment has now also slightly exceeded its 2008 level, reaching 79% in early 2017.

Since early 2016, however, the employment rate has barely changed. With unemployment now lower than in 2007, substantial further rises in the employment rate are unlikely unless groups who are currently not actively seeking paid work start to do so. Neither the Office for Budget Responsibility (OBR) nor the Bank of England anticipates further increases in the employment rate in their central forecasts.

Despite rises in self-employment, full-time employee jobs still dominate the UK workforce.

Figure 2. Composition of workforce, by type of work in main job

Figure 2. Composition of workforce, by type of work in main job

Note: Restricted to the 16–64 workforce.

Source: Authors’ calculations using the Labour Force Survey.

In recent years, there has been considerable interest in the growth of ‘non-standard’ ways of working, particularly in the increase in self-employment. The past decade has witnessed a steady increase in the share of workers who are self-employed, which has risen from 12.2% in 2005 to 14.1% in 2016. This may not sound dramatic but it amounts to 860,000 more self-employed workers in 2016 than in 2005, an increase of 25%.

The share of workers working as part-time employees increased in the aftermath of the recession but has since returned to its pre-crisis level. This overall trend masks a falling prevalence of part-time employment for women and a rising prevalence for men. While these trends have caused a small overall decline in the share of workers in full-time employee jobs, working as a full-time employee continues to be by far the most prevalent, and accounted for 64% of the UK workforce in 2016 compared with 66% in 2008. Overall, changes in employment and hours mean working-age adults are working 4% more hours in 2016 than in 2008.

Measures of ‘under-employment’ have been falling but remain above pre-recession levels.

Figure 3. Indicators of ‘under-employment’

Indicators of ‘under-employment’

Note: Restricted to the 16–64 workforce.

Source: Authors’ calculations using the Labour Force Survey.

Although employment is at a record high, there is evidence that some workers still want to work more hours than they are currently working. The proportion of part-time workers wanting to work full-time is still higher than in 2008, at 15% of part-time workers compared with 10% in 2008. The fraction of workers who want to work more hours (at the same rate of pay) is also slightly above pre-recession levels. However, both of these measures of underemployment are reduced from their recent peaks in 2012 and 2013, particularly the fraction of part-time workers who could not find a full-time job.

Recent years have not seen a rise in the share of jobs in low-skilled occupations.

Figure 4. Composition of workforce, by skill level of occupation and education

Figure 4. Composition of workforce, by skill level of occupation and education

Note: Restricted to the 16–64 workforce. Adjusted for discontinuity caused by the introduction of SOC2010 occupation coding between 2010Q4 and 2011Q1. Skill level of occupation is defined by one-digit Standard Occupational Classification (SOC) 2000 code (SOC 2010 since 2011). ‘High-skilled’ is defined as codes 1– 3, ‘medium-skilled’ is codes 4–6 and ‘low-skilled’ is codes 7–9.

Source: Authors’ calculations using the Labour Force Survey.

Despite some perceptions that recent employment gains have been driven by an expansion of low-skill work, low-skill occupations have not increased any faster than overall employment. As a result, the share of workers in low-skill jobs has remained virtually unchanged during the labour market recovery in recent years. By contrast, the share of workers in high-skill jobs has increased slightly, at a slower rate than during the years preceding the recession.

However, there has been a very large increase in the percentage of workers who are university graduates: 35% of workers now have completed an undergraduate degree, up from 25% in 2008. This share is set to rise further in coming years as younger generations are more educated than older generations. In combination, these trends mean the proportion of graduates working in low-skill jobs has increased, from 5.3% in 2008 to 8.1% in 2016.

Numbers of non-UK-born workers have increased rapidly, but employment rate of UK-born also higher than pre-crisis.

Figure 5. Change in (16+) employment level since 2000, by country of birth

Figure 5. Change in (16+) employment level since 2000, by country of birth

Source: ONS series JF6F and JF6G.

Figure 6. Employment rate (aged 16–64), by country of birth

Figure 6. Employment rate (aged 16–64), by country of birth 

Source: ONS series LFM6 and LFM7.

Increases in the non-UK-born population and their employment rate resulted in the number of non-UK-born workers rising by 1.7 million between 2008 and 2016. This large increase means that workers born outside the UK have accounted for a large share of overall employment growth in recent years. However, the number of UK-born people in work has also increased substantially during the recent labour market recovery, rising by 1.1 million between 2011 and 2016. Moreover, the fraction of UK-born people in work, at 75%, is now higher than at any point since consistent statistics began in 1997.

Average earnings are still substantially below pre-crisis levels; central forecasts see average earnings not reaching 2007–08 levels even in 2021–22.

Figure 7. Real median earnings of employees since 2007–08, and forecasts

Figure 7. Real median earnings of employees since 2007–08, and forecasts

Note: Adjusted for inflation using the Consumer Prices Index. The line ‘Pre-recession trend’ projects what real median earnings growth would have been had the growth in real median earnings in the decade before the recession (1.8% p.a.) continued in each year after 2007­–08.

Source: Authors’ calculations using the Annual Survey of Hours and Earnings and the OBR’s Economic and Fiscal Outlook March 2017.

The recession had a particularly severe impact on employees’ pay, with median (middle) employee earnings falling by 9.4% between 2007‒08 and 2013‒14 after adjusting for inflation. Although growth has returned since then, growth rates have consistently been lower than expected, with the result that median earnings in 2015‒16 were still 7.1% (£1,700 per year) lower than in 2007‒08. In comparison, had real earnings continued to grow at the same pace after 2007–08 as in the decade prior to the recession, by 2015–16 median earnings would have been 15% (£3,700 per year) higher than they were in 2007–08.

These statistics are informative because they allow us to understand how the average pay of people in work in 2015–16 compares with the pay of those in work in previous years. However, it is important to stress that this is not the same as the average pay growth of people who have been in work continuously since 2007–08. Many individuals will have personally experienced substantial pay growth over this period.

More recent data from ONS, shown in Figure 8, show growth in real mean weekly earnings slowing substantially since the middle of 2016. This is due to the increase in inflation, which has risen in recent months in large part due to the fall in the value of sterling following the vote to leave the European Union. Real mean pay in early 2017 was only 0.3% above its level a year earlier. With inflation rising, it would not be surprising for official statistics to record falling real earnings in the coming months.

Figure 8. Annual nominal mean earnings growth, inflation and real mean earnings growth since 2015Q1

Annual nominal mean earnings growth, inflation and real mean earnings growth since 2015Q1

Note: Inflation measured using the Consumer Prices Index. 2017Q1 refers to the three months December 2016 to February 2017. Growth in prices and earnings are calculated compared with the same three months a year earlier.

Source: Authors’ calculations using ONS Average Weekly Earnings series.

Looking further ahead, the OBR’s central estimate is that only modest real pay growth will mean that average earnings will still not have returned to pre-recession levels by 2021‒22 – an astonishing and unprecedentedly long period without a rise in average earnings in the UK. Given current forecasts are subject to particularly high uncertainty, Figure 7 also presents two alternative scenarios, which show the path of average earnings if productivity growth is 1% higher or lower per year than the OBR expects. The low-productivity scenario results in essentially no earnings growth over the next five years. Even under the optimistic high-productivity scenario, it would take until 2020–21 for average earnings to exceed pre-recession levels.

Men have seen greater reductions in pay, due to sharper falls following the recession.

Figure 9. Real median earnings growth of employees since 2008, by sex

Figure 9. Real median earnings growth of employees since 2008, by sex

Note: Adjusted for inflation using the Consumer Prices Index.

Source: Authors’ calculations using the Annual Survey of Hours and Earnings.

Figure 9 shows the difference in earnings growth in recent years between men and women. It gives the change in real earnings between 2008 and 2016 and also split between 2008‒14 and 2014–16. Earnings fell in the first period and started to recover in the second.

Average earnings of male employees were 7.3% lower than their 2008 levels in 2016, whereas average earnings of female employees were only 1.8% lower. This largely reflects much bigger falls in male average earnings in the years following the financial crisis.

Younger workers have seen the biggest falls in earnings, although their earnings have bounced back in recent years.

Figure 10. Real median earnings growth of employees since 2008, by age group

Figure 10. Real median earnings growth of employees since 2008, by age group

Note: Adjusted for inflation using the Consumer Prices Index.

Source: Authors’ calculations using the Annual Survey of Hours and Earnings.

Distinguishing between younger and older workers shows that those aged below 40 have seen the greatest reductions in their earnings between 2008 and 2016. Workers in their 20s saw the sharpest earnings falls in the aftermath of the recession; younger workers typically fare worse during downturns. Earnings growth for this group, however, has been particularly strong during the recent recovery, to the extent that it is those in their 30s who have seen the largest earnings falls over the entire period.

Strong growth in the earnings of low earners since 2014 has reduced earnings inequality.

Figure 11. Real earnings growth of employees since 2008, by percentile point

Figure 11. Real earnings growth of employees since 2008, by percentile point

Note: Adjusted for inflation using the Consumer Prices Index.

Source: Authors’ calculations using the Annual Survey of Hours and Earnings.

Although earnings fell relatively uniformly for high, middle and low earners during the aftermath of the recession, earnings growth since 2014 has been strongest for low-paid workers. Between 2014 and 2016, pay at the tenth percentile (i.e. the pay of someone who earns less than 90% of employees) rose by an impressive 12.3% in comparison with growth of only 4.6% at the median. The surge in earnings at the bottom of the distribution is largely driven by increases in minimum wage rates, which we will discuss further in an upcoming election briefing note. The combined result of these trends is that earnings inequality is lower in 2016 than it was in 2008.

Earnings growth will remain weak unless poor productivity growth can be redressed. Further increases in employment will be harder to achieve than in recent years.

It is hard to overstate the importance of boosting productivity if robust pay growth is to return and be sustained. It is the very poor productivity performance of the economy which has led directly to the worst earnings growth we have seen in more than a century. While there are no quick fixes, investment in infrastructure, genuine improvements in education and skills, and a more efficient tax system are all important avenues to pursue.

It will be harder for employment to grow in the next parliament than in recent years. Employment has reached record highs and unemployment has fallen to below 5% for the first time since the mid 2000s. With the unemployment rate near its long-term sustainable level, further growth in the employment rate will have to come from encouraging more people to seek work and participate in the labour force. There may well be scope for this – male employment rates, especially among older men, are still well below historical highs. While past policy reforms have successfully increased the participation of some groups – notably lone parents and women aged 60 and over – additional increases in participation will probably be more challenging.

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<![CDATA[The impact of tax and benefit reforms on household incomes]]> This Briefing Note, produced in advance of the 2017 Election, analyses the impact of tax and benefit changes since May 2015 on the incomes of different kinds of households. We look both at reforms already implemented, and those planned by the current government (but not at any potential manifesto commitments, which will be analysed later).

IFS Election 2017 analysis is being produced with funding from the Nuffield Foundation as part of its work to ensure public debate in the run-up to the General Election is informed by independent and rigorous evidence. For more information go to

Key findings

Increases to the income tax personal allowance and higher-rate threshold, costing the government around £5 billion per year, have been the biggest change to taxes or benefits so far this parliament.


These have benefited most basic-rate taxpayers to the tune of £160 a year, while most higher-rate taxpayers have gained £380 a year. However, for the latter group, all this giveaway is doing is reversing most of the effect of the cuts in the higher-rate threshold in the last parliament. And cuts in pension tax relief, on top of a large number of tax increases in the last parliament, have hit those with the very highest incomes.

While cuts to benefits have been small as yet, government plans for future cuts would significantly reduce the incomes of low-income working-age households, particularly those with children.


The most important changes are the cash freeze in most benefit rates, cuts to child tax credit and the continued roll-out of the less generous universal credit.

If these planned cuts were fully in place now, nearly 3 million working households with children on tax credits would be an average of £2,500 a year worse off, with larger families losing more.


The 1 million families with children and nobody in paid work would be £3,000 a year worse off on average. But it is important to stress that many of the changes will not create immediate losses of benefit income, because of protections for existing claimants.

Planned cuts will have a bigger effect on the entitlements of the poorest families than the cuts made by the coalition.


More broadly, the period since 2010 has seen lower-income households lose as a result of benefit cuts and the richest households lose from increases in income tax. But those on average and moderately high incomes, as well as most pensioners, have seen their incomes almost completely protected on average.


This analysis does not tell you what has actually happened to the incomes of different types of households. That depends on changes in earnings, employment and inflation as well as changes to taxes and benefits. For analysis of overall trends in household income see here and here. Further IFS election analysis to be published shortly will provide the latest picture on what we know about overall trends in household incomes.

Tax and benefit reforms since May 2015 have so far had little effect, but there are big benefit cuts to come

Figure 1. Impact of tax and benefit reforms implemented between May 2015 and June 2017 by income decile [download the data]

Figure 1. Impact of tax and benefit reforms implemented between May 2015 and June 2017 by income decile

Note: For the cash equivalents of these impacts, please see Appendix B. Income decile groups are derived by dividing all households into 10 equal-sized groups according to net income adjusted for household size using the McClements equivalence scale. Assumes full take-up of means-tested benefits and tax credits.

Source: Authors’ calculations using TAXBEN run on uprated data from the 2015–16 FRS and 2014 LCFS.

The key point to take from Figure 1 is that the average impact of tax and benefit changes since May 2015 has been relatively small – less than 1% of income in each income decile. Cash impacts are shown in Appendix B.

Cuts to income tax – the above-inflation increases in the income tax personal allowance (to £11,500 rather than £10,710) and the higher-rate threshold (to £45,000 rather than £42,815) – largely explain the gains for higher-income households. Together, these tax cuts will cost the government around £5 billion in 2017–18, with most basic-rate taxpayers gaining £160 a year and most higher-rate taxpayers gaining £380 a year. In the top decile, those changes have been roughly offset on average by increases in tax on income that is paid into private pensions, although those rises predominantly affect those towards the top of the top decile.

For lower-income households, there has been a cash freeze in most working-age benefits – affecting 11 million households. But low inflation over the last two years has meant that this has only amounted to a 1% real cut so far. Meanwhile, the reduction in the benefit cap, while hitting some households very hard, has affected fewer than 100,000 households. Hence, the overall scale of benefit cuts seen over the past two years has been small.[1]

Figure 2. Long-run impact of tax and benefit reforms since May 2015 by income decile [download the data]

Figure 2. Long-run impact of tax and benefit reforms since May 2015 by income decile

Note: For the cash equivalents of these impacts, please see Appendix B. Income decile groups are derived by dividing all households into 10 equal-sized groups according to net income adjusted for household size using the McClements equivalence scale. Assumes full take-up of means-tested benefits and tax credits, and that all planned changes are fully in place.

Source: Authors’ calculations using TAXBEN run on uprated data from the 2015–16 FRS and 2014 LCFS.

Looking ahead, Figure 2 adds the long-run impact of tax and benefit changes that are now being rolled out or are planned by the current government. The large losses for low-income households (more than 4% of income, on average, in each of the bottom three deciles) are mostly explained by three planned benefit cuts:

  • the continued freeze in most working-age benefit rates until March 2020; under current inflation forecasts, this will reduce the real value of these benefits by 5% between now and 2020, and reduce government spending by over £3 billion a year;
  • cuts to the generosity of tax credits for families with children – limiting entitlement to two children and removing the ‘family element’ – that are expected to reduce government spending by around £5 billion a year in the long run;
  • the roll-out of universal credit, expected to reduce government spending by around £5 billion a year in the long run.

The small number of tax measures due to be implemented in the coming years will have a very limited impact. We do not include the effects of meeting the 2015 Conservative manifesto commitment to a £12,500 personal allowance and a £50,000 higher-rate threshold (although note that standard inflation uprating is expected to get these thresholds most of the way to those commitments by 2020, without any further policy action). Later IFS election work will analyse the potential effects of 2017 manifesto commitments.

Figure 3. Long-run impact of planned tax and benefit reforms by income decile and household type [download the data]

Figure 3. Long-run impact of planned tax and benefit reforms by income decile and household type

Note: For the cash equivalents of these impacts, please see Appendix B. Income decile groups are derived by dividing all households into 10 equal-sized groups according to net income adjusted for household size using the McClements equivalence scale. Assumes full take-up of means-tested benefits and tax credits, and that all planned changes are fully in place.

Source: Authors’ calculations using TAXBEN run on uprated data from the 2015–16 FRS and 2014 LCFS.

Figure 3 focuses on the impact of future tax and benefit changes (those being rolled out or planned by the current government, shown by the green bars in Figure 2), and splits households within each decile into working-age households with children, working-age households without children and those containing a pensioner.

Pensioner households are mostly protected from future benefit cuts. By contrast, the impact on the incomes of working-age households with children is large, with average losses of more than 10% in the bottom two income deciles. This reflects the overall importance of benefit income for these households, as well as the specifics of the reforms chosen. Looking in more detail at the impact of future cuts on working-age households with children, if all planned cuts were fully in place now:

  • the 1 million households with children and no one in paid work would be an average of £3,000 a year worse off;
  • the 3 million working households with children currently entitled to tax credits (those with lower earnings) would be an average of £2,500 a year worse off;
  • the 4 million working households with children not entitled to tax credits (generally those with higher earnings) would be an average of £100 a year worse off.

It is important to stress that many of the changes will not create immediate losses of benefit income, because of protections for existing claimants. Rather, they will significantly reduce the generosity of the system in the long run.

These changes come on top of lots of reforms made by the coalition government

Figure 4. Impact of tax and benefit reforms implemented between May 2010 and May 2015 by income decile [download the data]

Figure 4. Impact of tax and benefit reforms implemented between May 2010 and May 2015 by income decile

Notes and sources: Figure 3.1 of Browne and Elming (2015)
For the cash equivalents of these impacts, please see Appendix B.

Figure 4, taken from our 2015 election analysis, shows the average gain or loss in each income decile resulting from tax and benefit changes between May 2010 and May 2015, as a percentage of income. It shows the following:

  • The cuts to working-age benefits made by the coalition government led to significant reductions in household income across the lower-income half of households (of over 3% in each of the bottom two income deciles, on average).
  • The top income decile faced large tax increases on average, both as a result of cuts to the higher-rate threshold, and due to other measures targeting predominantly those on the very highest incomes (approximately the top 1%). Indeed, if one were also to include measures introduced in the final months of the last Labour government, the top decile lost the most as a share of income over the period of fiscal consolidation up to May 2015 (6.5%).[2]
  • Households in the sixth to ninth income deciles were protected from the impact of reforms over this period to a remarkable degree. That is because, on average, large increases in the income tax personal allowance and cuts in fuel duty roughly offset the increases in VAT and NICs and the benefit cuts for this group.

Figure 5. Impact of tax and benefit reforms implemented between May 2010 and May 2015 by income decile and household type [download the data]

Figure 5. Impact of tax and benefit reforms implemented between May 2010 and May 2015 by income decile and household type

Figure 5, again taken from our 2015 election analysis, shows the effects of tax and benefit reforms over the same period, but this time splitting households within each income decile into working-age households with children, working-age households without children and pensioner households (households containing someone aged over the state pension age).

Pensioners outside of the top income decile were broadly unaffected by tax and benefit changes on average. They did not gain from increases in the personal allowance, but they were also unaffected by the increase in NICs and mostly protected from benefit cuts. Losses from the increase in VAT were broadly cancelled out by gains from the ‘triple lock’ on the basic state pension (and knock-on increases in pension credit).

Meanwhile, working-age households without children did much better than those with children – in fact, the former group actually gained on average in the fourth to ninth income deciles. This divergence is explained by the fact that families with children were affected by benefit cuts to a much greater extent. It is worth remembering, however, that there were large increases in the generosity of benefits for families with children under Labour, which were only partly offset by the cuts implemented by the coalition government.[3]

[1] Small gains from benefit reforms in the top half of the income distribution are explained by the introduction of ‘tax-free’ childcare.

[2] See figure 3.2 of J. Browne and W. Elming, ‘The effect of the coalition’s tax and benefit changes on household incomes and work incentives’, IFS Briefing Note BN159, 2015,

[3] See figure 3.5 of J. Browne and W. Elming, ‘The effect of the coalition’s tax and benefit changes on household incomes and work incentives’, IFS Briefing Note BN159, 2015,

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<![CDATA[The short- and long-run impact of the national funding formula for schools in England]]> The government is embarking on the single largest reform of the school funding system in England for the last 25 years. Currently, the level of funding a school receives is determined by a local-authority-specific funding formula and the amount each local authority receives from central government. The proposed reform, due to be introduced from financial year 2018–19, will replace the 152 different local authority funding formulae with one single National Funding Formula (NFF). When fully in place, this would ensure similar schools in different parts of the country receive a similar amount of funding. While this has been the ambition of successive governments, they have consistently shied away from the hard choices such a reform entails. The current government is to be applauded for making specific proposals, setting out the reasons for the choices it has made and publishing a large amount of data alongside these proposals to enable effective scrutiny.

This briefing note provides impartial explanation and analysis of the proposed reforms. We start by briefly presenting the case for reform, before setting out what the government has proposed, including transition arrangements. We then analyse the likely effects of these reforms on different schools and areas in the short run up to 2019–20. Such analysis confirms and complements the detailed report recently released by the Education Policy Institute. We then extend this to analyse what is likely to happen after 2019–20. Only about 60% of schools will be on the main funding formula by this date and the government has provided worryingly little clarity on how quickly remaining schools will be moved onto the new formula. We analyse a number of hypothetical paths for the transition after 2019–20. 

Key findings

Largest reform to school funding in over 25 years


Government proposals for a National Funding Formula (NFF) for schools in England starting in 2018–19 would replace the 152 different local authority funding formulae with one single formula. The government is to be applauded for making specific proposals and setting out the reasons for the choices it has made.

Reform comes at a time of heavy strain on school budgets


School funding per pupil has been frozen in cash terms between 2015–16 and 2019–20, resulting in a real-terms cut of 6.5%. This would be the largest cut in school spending per pupil over a four-year period since at least the early 1980s and would return school spending per pupil to about the same real-terms level as it was in 2010–11. Any losses schools face as a result of the NFF come on top of this cut.

Wide variation in funding per pupil mostly preserved


Wide variation in funding across schools that currently exists is mostly the result of deliberate choices to target funding towards disadvantaged schools and high-cost areas. The proposed NFF would largely preserve this variation. The intention of the reform is to ensure similar schools are funded in a similar way, rather than to reduce all disparities in funding across schools.

Inevitably, there are winners and losers


Grants to local authorities are currently based on information that is nearly 15 years out of date. Local authorities also make different choices in their current funding formulae. Harmonising these formulae and ensuring allocations to different areas are based on up-to-date information was always going to create winners and losers.

Some redistribution across different types of schools and areas


Funding is diverted from schools with very high levels of deprivation to those with average levels. There is also a shift in funding towards small primary schools and large secondary schools. Schools in inner London are among the biggest losers, with average cuts of around 2.5% in cash-terms per-pupil funding between 2017–18 and 2019–20.

Pupil Premium not included in the funding formula


This is despite the formula including a specific amount for pupils who have been eligible for free school meals in the past six years – the same factor Pupil Premium is based on. The government should rationalise sources of funding by adding the Pupil Premium to the NFF and hold schools to account for all additional funding they receive for pupils from disadvantaged backgrounds.

Large number of schools won’t be on the main funding formula by 2019­–20


Proposed protections would prevent any school from losing more than 3% of funding per pupil in cash terms between 2017–18 and 2019–20. Since many schools’ budgets are a long way from those implied by the formula, only 60% of schools will be on the main formula in 2019–20. Around 5% of schools would have budgets over 7% higher than that implied by the formula in 2019–20.

Government has not said how it will move all schools to main formula after 2019–20


We model three scenarios for transiting all schools to the new formula, all incorporating a maximum annual cash-terms loss of 1.5%. If overall school spending per pupil is frozen in cash terms after 2019–20, all schools get to the main formula by 2029–30. If there is a real-terms freeze to overall spending, all schools get there by 2024–25; and if there is 2% real-terms growth, all schools get there by 2023–24. 


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<![CDATA[Income growth in 2015–16 modest but widespread, leaving inequality and poverty roughly unchanged]]> The Department for Work and Pensions (DWP) has today published the latest official statistics on household incomes, covering the financial year 2015–16. IFS researchers have summarised the headline trends observed in the new data and placed them in historical context in order to understand better changes in living standards in recent years.

The full analysis with graphics can be found here.

Key findings are:

Average household incomes

  • The latest data suggest that median household income grew by 1.4% in 2015–16 after adjusting for inflation, leaving it 5% higher than in 2013–14 – a welcome improvement on the recent past. But it is just 3.7% above its pre-recession (2007–08) level.
  • The record for those of working age has been worse than that, with almost no income growth since 2007-08 on average. Median pensioner incomes on the other hand are around 10% higher than they were in 2007-08.

Income inequality

  • Income inequality was roughly unchanged in 2015–16, remaining lower than on the eve of the financial crisis, and around the same level as in 1990. The fall in inequality just after the recession was driven by benefits rising faster than earnings. During the recovery, a combination of weak pay growth and strong employment growth has stopped inequality bouncing back.

Income poverty

  • Poverty rates were little changed in 2015–16. But a slight uptick in child poverty, while small at this stage and not statistically significant, is likely to continue as cuts to working-age benefits act to reduce the incomes of low-income households with children.

Agnes Norris Keiller, a Research Economist at IFS said:

“Growth in household incomes in 2015–16 was modest but widespread, continuing the pattern seen in recent years. The period since the recession has been defined not by sharp rises in inequality or poverty, but historically slow growth in average incomes – in 2015–16 average income for working-age adults was no higher than 8 years previously. Inequality and poverty actually remained slightly lower than before the financial crisis. However, large planned benefit cuts mean child poverty is likely to rise over the next few years.”



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<![CDATA[The business rates revaluation, appeals and local revenue retention]]> For the last seven years, the business rates that occupiers of non-residential property have paid have been based on the value of their property in 2008. From April 2017, updated property values as of 2015 will be used to calculate rates bills. While the revaluation is meant, as far as possible, to be revenue-neutral (redistributing rates bills according to changes in relative rental values of properties), individual occupiers will see major changes in their rates bills. Because the changes in average value have varied significantly, there will also be big changes in the business rates revenues raised in different council areas, which requires that an adjustment is made to the business rates retention system (BRRS), which allocates a proportion of business rates to councils. Appeals by occupiers against their new rateable values will also pose a financial risk to councils, despite an increase in the headline business rates tax rate (the multiplier) to fund the cost of these appeals.

Key findings

Across England as a whole, revaluation will lead to an 11% (cash-terms) increase in the rateable value of the average non-domestic property.   Changes in values are very unevenly distributed though. At a regional level, the largest increases are in inner London (28.4%), with values falling in the North East (–0.9%). More generally, property values are estimated to have gone up by more in the south and midlands than in the north, and by more in the central parts of urban areas than in their hinterlands.
The business rates ‘multiplier’ will be adjusted so that the revaluation is revenue-neutral, after accounting for a forecast of the costs of appeals against the new values assigned to properties.   This means that the immediate effect of the revaluation will be to increase revenues and the average rates bill by around 4.6%, on top of inflation. The additional revenues raised up front will then be used to fund the cost of successful appeals further down the line. These costs include refunds for ‘overpayments’ of people who successfully appeal their rateable values.
Revaluation would lead to average bills increasing in London (16%), the South East (4%) and East Midlands (2%), and falling in the other regions of England, after this adjustment.   However, as ratepayers successfully appeal against their rateable values, these bills and revenues will eventually come down. The figures published by the government – which show London as the only region where average bills and revenues will increase (by 11%) – are based on assumed bills after appeals, under the assumption that each region sees appeals in line with the government’s forecast for England as a whole.
A complex package of transitional relief will phase in the biggest increases in bills. After accounting for such reliefs, revenues and the average bill in London will rise by 12% above inflation in the first year following the revaluation, 2017–18.   Transitional relief is paid for by phasing in rates cuts for other taxpayers. In 2017–18, these ‘caps’ to cuts will fully offset the 6% reductions in revenues and average bills in the North West and Yorkshire & the Humber that are implied by the revaluation itself. Individual rates payers due a large cut in bills will, of course, still see some cut, just not as much as they would if the transitional relief scheme did not exist.
More frequent revaluation of properties could provide a better way of smoothing the shock of big overnight changes in values and bills than transitional relief.   This is because, in general, it takes time for large changes in property values to occur. More frequent revaluation would also mean that rates bills are based on more up-to-date information on local economic conditions – whereas transitional relief delays that adjustment process.
The impact of the revaluation on the amount of business rates retained by individual councils under the BRRS will be offset by changes to the redistributive ‘tariffs’ and ‘top-ups’ between councils, with the aim of leaving their budgets unaffected by revaluation.   This will prevent some large overnight cuts (and increases) to councils’ budgets. It also avoids the risk that councils will try to constrain the supply of local properties to push up rents, values and hence their revenues. But it means councils have less incentive to boost demand for existing properties: they do not benefit from the resulting increases in rents and values. This suggests devolution of other revenues may need to be considered if broader incentives for growth are seen as desirable.
The unequal pattern of growth in rateable values and revenues means that the amount of redistribution of business rates revenues the BRRS needs to undertake will increase slightly.   The total amount of top-ups required will increase from £4.2 billion to £4.4 billion. London councils will see an increase in their net tariff of almost £400 million to £730 million, while councils in the north will get bigger top-ups. This reflects a more general trend towards greater reliance on London for government revenues.
For the majority of councils that see a relative reduction in the amount of business rates they collect following the revaluation (and an increase in their top-up or decrease in their tariff), fiscal incentives to boost local growth will weaken.   This is because their own business rates revenues will be a relatively less important source of their overall funding. Conversely, incentives will strengthen for those councils that see a relative increase in the amount of rates they collect. More generally, the BRRS implies very different fiscal incentives for growth in different parts of the country.
Presently, the BRRS requires councils to bear the risk associated with appeals against rateable values in their areas.   In order to cover the cost of appeals in their area, councils will retain their share of the additional 4.6% business rates raised by increasing the multiplier. This means they will bear the risk of appeals in their area being higher or lower than this forecast for the average cost across England as a whole.
During the first three years of the BRRS (2013–14 to 2015–16), there was significant variation in the amount councils put away in ‘provisions’ for appeals and in the proportion of these provisions they have had to use.   This suggests that the financial risk associated with appeals is large and difficult to forecast. Furthermore, appeals have been a little larger, on average, in areas that saw big increases in their bills at the last revaluation (in 2010). If this pattern holds again, areas that have seen large increases in rateable values and bills, such as inner London, may be especially likely to find the extra revenues collected up front insufficient to cover the costs of appeals.
The government is currently consulting on ‘centralising’ the risk associated with appeals that are backdated to the start of the relevant rating list, coming into effect when councils move to retaining 100% of business rates in April 2019.   This proposal would insulate councils from a risk – valuation errors – that is largely outside their control. It would also remove the temptation for councils to ‘game’ the appeals system by initially over-providing for appeals, claiming ‘safety-net’ payments from central government, and then releasing the provisions at a later date (a temptation that would have increased under 100% retention).
]]> Fri, 03 Mar 2017 00:00:00 +0000
<![CDATA[Inheritances and inequality across and within generations]]> Today’s elderly have much more wealth to bequeath than their predecessors, primarily as the result of rising homeownership rates and rising house prices. At the same time, today’s young adults will find it harder to accumulate wealth of their own than previous generations did, due to the sharp fall in homeownership, the dramatic decline of defined benefit pensions in the private sector and the stagnation in household incomes. Together, these trends mean inherited wealth is likely to play a more important role in determining the lifetime economic resources of younger generations, with important implications for inequality and social mobility.

Looking at current pensioners, we find that those with the highest lifetime incomes are also those who have inherited the most across the course of their lives. High-lifetime-income individuals are around twice as likely as low-income individuals to have inherited something, and many times more likely to have inherited hundreds of thousands of pounds. There is evidence that these patterns are likely to be maintained among younger generations: those with higher incomes are much more likely to either have received an inheritance or expect to receive one in future. An assessment of how inequality in the amounts inherited will differ for younger generations would require the collection of new data, but would be a worthy topic for future research.

The growing importance of inherited wealth

Elderly households now have much more wealth than households of the same age a decade ago.

Among households where all members are 80 or older, average real non-pension wealth in 2012–13 was £230,000, compared with £160,000 for the same age group in 2002–03.

An increased proportion of elderly households intend to leave a large inheritance.

In 2012–13, 44% of elderly households expected to leave an inheritance of £150,000 or more, compared with just 24% in 2002–03.

Younger generations are much more likely to expect to receive an inheritance than their predecessors.

Of those born in the 1970s, 75% either have received or expect to receive an inheritance, compared with 68% of those born in the 1960s, 61% of those born in the 1950s, 55% of those born in the 1940s and less than 40% of those born in the 1930s.


Current pensioners: who inherited?

People with higher incomes over their lifetimes are also more likely to receive an inheritance.

Looking at a group of individuals born in England in the 1930s and 1940s, 64% of the highest-income fifth (top quintile) have benefited from an inheritance, compared with 32% of the lowest-income fifth (bottom quintile).

Among heirs, those with higher incomes inherit more on average.

Looking at the same group, mean inheritance among heirs averaged £150,000 for the top quintile, but less than £100,000 for everyone else. Combined with being more likely to receive an inheritance at all, this meant the top quintile inherited four times as much on average as the bottom quintile (£100,000 compared with £25,000).

Those with the highest lifetime incomes are much more likely to have received an extremely large inheritance.

Nearly 10% of those in the top lifetime income quintile have inherited more than £250,000, compared with around 1% of those in the bottom three quintiles. In other words, more than half of those who have inherited more than £250,000 are also in the top lifetime income quintile.

As a proportion of lifetime income, inheritances are largest for the highest- and lowest-income individuals.

Lifetime inheritances are 4.4% of net lifetime income for the top quintile and 3.6% for the bottom quintile, compared with around 2% for the second and third lifetime income quintiles.

These inheritances can be significant multiples of annual income from employment, particularly for low earners.

Across the group as a whole, 12% have inherited more than 5 years’ worth of net earnings and 4% have inherited more than 10 years of net earnings. But among the lowest-earning fifth, those figures rise to 16% and 9% respectively.


Younger generations: who will inherit? 

The wealth of elderly households is extremely unequally distributed.

The top half of households where all members are 80 or older hold 90% of the wealth, and the top 10% hold 40% of the wealth. Hence a ‘lucky half’ of younger households look likely to get the vast majority of the inherited wealth from the older generation.

In younger generations, those with higher current incomes are significantly more likely to have received an inheritance or expect to receive one at some point in future.

Among those born in the 1970s, 87% of those in the top income quintile have received or expect to receive an inheritance, compared with 58% of those in the bottom income quintile.

Inheritances have become more important for both low- and high-income households.

The poorest fifth of those born in the 1970s are more likely to have received or expect to receive an inheritance than the highest-income fifth of those born in the 1930s.

]]> Thu, 05 Jan 2017 00:00:00 +0000
<![CDATA[Police officer retention in England and Wales]]> Key findings

Police force numbers are driven by changing entry rates, not exit rates

Police officers are not employees, as in other occupations.


The absence of a contract of employment implies, among other things, that police officers cannot be made redundant.

Changes in police officer numbers are largely driven by changes in the entry rate.


Police officer numbers rose sharply between 2001 and 2005, and contracted between 2010 and 2013. Exit rates changed little over time.

Which officers leave, and what do they do next?

The primary exit route for police officers is through ordinary retirement via the police pension schemes.


Over the period 2004–05 to 2014–15, 62% of police officer exits from the force were ordinary retirements, while 7% were early retirements on the grounds of ill health. Less than one-third (27%) were voluntary resignations from the police force.

Most police retire from the labour force on leaving the police service; those who remain in the labour force choose a variety of occupations.


Of the third that leave the police (either through retirement or for other reasons) and continue in employment, 15% continue in protective services or elementary security occupations. However, the majority go to occupations not directly related to policing, including administrative and secretarial (25%) and associate professional and technical (19%) occupations.

Leaving rates differ across police forces and this variation reflects the relative attractiveness of alternative occupations.


We show that better outside local labour market opportunities (higher wages and lower unemployment rates) are statistically significantly associated with higher resignation rates across police forces. Those forces geographically close to London also have higher rates of exit through transfers. We find no evidence that variation in crime rates and workload affect exit from the police service.


The labour market in England and Wales for police officers is unusual in two respects. First, unlike virtually all other occupations in the UK, police officers have security of tenure. Police officers are not employees, but officers under the Crown, and there are no provisions for making police officers redundant. Hence, fluctuations in the size of the police officer workforce are largely driven by changes in entry rates rather than exit rates over time. Second, the requirement that an active police officer should be ‘fully deployable’ over a whole range of activities has underpinned a relatively young ‘normal age of retirement’ in police pension schemes relative to most other occupations.

These two characteristics of the police labour market imply that standard analyses of employee retirement in other occupations are less pertinent to police officers. Exit rates are not very sensitive to aggregate fluctuations in public spending or the aggregate business cycle. In addition, many police officers do not retire from the labour force on leaving the police. Nevertheless, local conditions may be an important factor in considering retention and exit strategies of police officers. This briefing note therefore considers retention in the police force: who leaves the police, what they go on to do, and how retention differs across the individual police forces of England and Wales.

To set the scene, Figure 1 illustrates the size of the total police officer workforce across England and Wales between 1989 and 2015. During the 1990s, the number of police

Figure 1. Total police officer strength

Total police officer strength

Note: Full-time equivalents as at 31 March. Excludes secondments outside the police service in England and Wales.

Source: Home Office, Police Service Personnel, 1998–2000; Home Office, Police Service Strength, 2000–12; Home Office, Police Workforce, 2013–15.

officers was relatively steady at around 125,000, though on a gradual decline from 1993 onwards. However, from 2001, the number of police officers increased markedly, reaching around 141,000 in 2005. This expansion was an explicit decision by the Labour government, who were re-elected in 2001 on the basis of a manifesto that included a pledge to increase police spending significantly and to thereby increase police numbers to record levels. Between 2005 and 2010, officer numbers were again relatively stable (increasing slightly in 2009). From 2010 onwards, as a consequence of the coalition government’s cuts to public spending in the wake of the financial crisis, the number of police officers has fallen to roughly the level in 2002.

Figure 2 shows that these changes in police officer numbers are largely driven by changes in the rate at which officers join the police force; the leaving rate is relatively stable over this period by comparison. This is unsurprising given, as we have suggested, that police forces have little direct control over leaving rates.

Figure 2. Police officer joining and leaving rates

Police officer joining and leaving rates

Note: Joining/leaving rates are calculated as the number of police officers joining/leaving the police during a financial year, divided by the total number of police officers (full-time equivalents) at the end of the financial year. Figures include transfers (i.e. officers who transfer between forces will count as both a joiner and a leaver).

Source: Home Office, Police Service Personnel, 1998–2000; Home Office, Police Service Strength, 2000–12; Home Office, Police Workforce, 2013–15.

In this briefing note, we examine police officer retention in more detail. We start in Section 2 by describing the institutional context – the ways by which police officers can leave the force voluntarily or involuntarily and the incentives created by the police pension schemes. In Section 3, we examine how common different types of exit are across England and Wales as a whole, how this has changed over time and what police officers do when they leave the police force. Then in Section 4 we explore differences across individual police forces in exit rates and reasons. Section 5 concludes.

]]> Tue, 03 Jan 2017 00:00:00 +0000
<![CDATA[Does free childcare help parents work?]]> Free part-time childcare places for all 3- and 4-year-olds in England were introduced in the early 2000s. The government is now planning to extend this offer from 15 to 30 hours per week (still for 38 weeks of the year) for children in working families from September 2017. One of the aims of the policy is to enable parents to work more – but is it likely to achieve this aim? This briefing note draws on the findings of a new IFS working paper, ‘Free childcare and parents’ labour supply: is more better?’, by Mike Brewer, Sarah Cattan, Claire Crawford and Birgitta Rabe, to try to answer this question.

In this new work, the researchers compared what happened to the labour market outcomes of mothers and fathers as their children moved from being entitled to a free part-time nursery place (offering 15 hours of free childcare per week) to a full-time place at primary school (which effectively offers parents 30–35 hours of free childcare per week).

The research found no evidence that the work patterns of mothers with younger children, or those of fathers, were affected. There was evidence of an effect for mothers whose youngest child became eligible for free full-time care, but this was still relatively small: at the end of the first year of entitlement to free full-time care, mothers whose youngest child was eligible were found to be 5.7 percentage points more likely to be in the labour force and 3.5 percentage points more likely to be in work than mothers whose youngest child was at the end of their first year of part-time entitlement. This was equivalent to around 12,000 more mothers in work each year.

Should we infer from these results that the planned increase in entitlement to free care from 15 to 30 hours per week for 3- and 4-year-olds in working families in England will have a similarly small effect on parents’ labour supply? There are some reasons to think that the effects identified by the researchers might be smaller than the future impact of this policy: for example, the researchers examined the effects of moving to a very rigid form of full-time childcare – that delivered during school hours and only during term time – while the plans for the new policy suggest that the additional hours of free care could be taken more flexibly, across fewer than 5 days per week and more than 38 weeks per year. The fact that the additional hours are only available to working parents may also encourage more parents to move into work in order to become entitled to the extra care. But there are also reasons to think that the effects of the new policy might be smaller than those identified by the researchers: 30 hours is slightly less than the number of hours per week that children spend in school, and more mothers are in work now than they were at the time of the study.

Overall, it is difficult to judge what effect the proposed extension of free care from 15 to 30 hours per week for 3- and 4-year-olds in working families in England will have on parental labour supply, but the recent research conducted in England – together with the balance of evidence from the international literature – suggests that it is only likely to increase parental employment slightly.

Of course, the provision of additional free childcare is also likely to reduce the amount parents spend on childcare. But it will probably do so by far less than the amount the government will spend providing the extra care, because many parents use informal care (for which they do not have to pay) rather than paying for formal care to meet their childcare needs.

]]> Thu, 01 Dec 2016 00:00:00 +0000
<![CDATA[Winter is Coming: the outlook for the public finances in the 2016 Autumn Statement]]> As the new Chancellor prepares for his first fiscal statement this briefing note looks at how significant a public finance challenge he faces.

Prior to the referendum the public finance challenge facing the UK already looked far from easy. Two out of the three fiscal targets that the new Conservative Government set itself had already been breached and further net tax rises, benefit cuts and real cuts to spending on public services – which will not be easy to deliver – were planned for the remainder of this parliament in order to try to eliminate a still relatively high budget deficit by 2019–20. And there was a further longer-term public finance challenge caused by the financial costs of an ageing population.

But since then the referendum result has led to the Government abandoning its other fiscal target and virtually all leading economic forecasters – including the Bank of England – substantially revising down their forecasts for economic growth. If correct this worsens the UK’s public finance position. This briefing note attempts to quantify how much greater the public finance challenge might be, taking into account not just the latest macroeconomic forecasts but also the movements in gilt rates, equity markets and oil prices seen since the last Budget and the scope for a cut to public spending as a result of no longer having to make a net financial contribution to the EU budget.

The note is structured as follows. Section 2 sets out the UK government’s public finance plans as of the March 2016 Budget. Section 3 describes how forecasts for growth and inflation from the Bank of England and other leading forecasters have changed since the referendum result, and also highlights the evolution of equity markets, gilt rates and the sterling oil price over the same period as these can all affect revenues and spending. Given these changes, Section 4 takes a plausible outlook for the UK economy and describes how this would change the forecasts for receipts, spending, borrowing and debt through to 2019–20. In Section 5 we discuss considerations for the Chancellor around his choice of fiscal targets and how fiscal policy might need to adjust to the changing public finance outlook both over the next few years and over the longer-term. Section 6 concludes.

]]> Tue, 08 Nov 2016 00:00:00 +0000
<![CDATA[The economic circumstances of different generations: the latest picture]]> In their early 30s, people born in the early 1980s have average (median) net household wealth of £27,000 per adult – including housing, financial and private pension wealth. This is about half the median wealth that those born in the 1970s had at around the same age (£53,000).

Differences in the economic circumstances of people born at different times and the role of government policy in exacerbating or mitigating those differences, have risen in prominence in recent years.The Work and Pensions Select Committee is currently conducting an inquiry into ‘intergenerational fairness’. The new Prime Minister included the fact that ‘if you’re young, you’ll find it harder than ever before to own your own home’ in a list of ‘injustices’ she intends to fight.

This briefing note provides an up-to-date and comprehensive picture of the incomes and wealth of different cohorts as they have moved through their lives. It is partly an update of previous work by some of the same authors, which focused on those born between the 1940s and the 1970s. The key finding of that research was that, compared with those born 10 years earlier at the same age, those born in the 1960s and 1970s have no higher takehome incomes; have saved no more of their previous take-home income; are less likely to own a home; probably have lower private pension wealth relative to their earnings; and will tend to find that their state pensions replace a smaller proportion of previous earnings. On the other hand, they expect to inherit more wealth – perhaps the main reason they could still hope to be better off than their predecessors in retirement, on average.

It looks like those born in the early 1980s are likely to find it harder than their predecessors to build up wealth in housing and pensions as they age. They have much lower home-ownership rates in early adulthood than any other post-war cohort, and – outside the public sector – have much less access to generous Defined Benefit pension schemes than previous generations did at the same age.  

Other findings include: 

  • Those born in the early 1980s were the first post-war cohort not to enjoy higher incomes in early adulthood than those born in the previous decade. This is partly the result of the overall stagnation of working-age incomes, but it also reflects the fact that the Great Recession hit the pay and employment of young adults the hardest.
  • Those born in the early 1980s have much lower home-ownership rates in early adulthood than any generation for half a century. At the age of 30, only 40% of those born in the early 1980s were owner-occupiers, compared to at least 55% of the 1940s, 1950s, 1960s and 1970s cohorts.
  • In their late 20s, renters born in the early 1980s spent nearly 30% of their net income on housing costs (largely rents) on average, compared to 15% for homeowners (largely mortgage interest). At the same age, renters and homeowners born in the 1960s both spent around 20% of their income on housing costs on average. Hence, the decline in homeownership has been accompanied by a divergence in the costs paid by renters and homeowners.
  • Outside of the public sector, those born since 1970 have much less access to generous Defined Benefit (DB) pensions than previous generations did. In their early 30s, less than 10% of private-sector employees born in the early 1980s were active members of a DB scheme, compared to more than 15% of those born in the 1970s and nearly 40% of those born in the 1960s. The recent introduction of ‘auto-enrolment’ means that younger cohorts have higher overall pension membership than their predecessors did but at much lower levels of generosity.

The underlying data for this briefing note can be found here.

]]> Thu, 29 Sep 2016 00:00:00 +0000
<![CDATA[The gender wage gap]]> "If you’re a woman, you will earn less than a man." - From Theresa May’s first statement as Prime Minister
"Last year Britain was ranked 18th in the world for its gender pay gap ... We can and must do far better." - From Jeremy Corbyn’s campaign speech in July 2016

Gender wage differentials remain substantial and, as evidenced by the quotations above, a hot topic in policy debate. Inequalities between men and women are clearly of direct interest in their own right. In addition, poverty is increasingly a problem of low pay rather than lack of employment. The proportion of people in paid work is at a record high, and female employment has risen especially quickly, particularly among lone parents. Two-thirds of children in poverty now live in a household with someone in paid work.3 In an age when the main challenge with respect to poverty alleviation is to boost incomes for those in work, and when so many more women are in work than in the past, understanding the gender wage gap is all the more important.

This briefing note is the first output in a programme of work seeking to understand the gender wage gap and its relationship to poverty. Section 1 sets out what we mean by the gender wage gap, how it differs according to education level and how it has evolved over time and across generations. Section 2 provides some descriptive evidence on how the gender wage gap relates to the presence of dependent children and the employment outcomes associated with that.



]]> Tue, 23 Aug 2016 00:00:00 +0000
<![CDATA[The puzzle of graduate wages]]> The UK higher education sector has expanded remarkably over the past three decades. In 1993, 13% of 25- to 29-year-olds had first degrees or higher degrees. By 2015, this had roughly tripled to 41%. Naturally, one may wonder whether the big expansion has reduced the economic returns to having a first degree. We have all heard stories about graduate unemployment and graduates employed in low-wage jobs. But what do the data show and what can we learn from history?

This briefing note will document the historical trends of rising graduate numbers and their relative wages, and provide economic intuition for what is driving these trends. Understanding the past will be helpful in thinking about the future: if the proportion of graduates continues to increase (which is rather likely given current policies), will it lower graduate earnings?

  • Fact 1: The UK has seen a rapid increase in the proportion of young people with degrees over the past three decades. Comparing across birth cohorts, the sharpest increase in the graduate proportion occurred between those born in the late 1960s and those born in the late 1970s.

Percentage of 25- to 29-year-olds with first degrees or above, by birth cohort and gender

Percentage of 25- to 29-year-olds with first degrees or above, by birth cohort and gender

Source: Authors’ calculations from Labour Force Survey 1992–2015.

  • Fact 2: Despite the recent fall in the average graduate real wage, their wage relative to school-leavers’ has remained relatively unchanged. Indeed, at any given age, the wage differential between graduates and school-leavers has stayed essentially unchanged across birth cohorts.

Median real hourly wage of 25- to 29-year-olds, by education

Median real hourly wage of 25- to 29-year-olds, by education

Source: Authors’ calculations from Labour Force Survey 1992–2015. The deflator is the Consumer Price Index, ONS series D7BT.

]]> Thu, 18 Aug 2016 00:00:00 +0000
<![CDATA[An evaluation of different ways to incentivise citizens to co-produce public services in Lambeth]]> Reductions in budgets for public services are forcing all areas of government to consider how we best deliver public services to meet these new fiscal conditions. One potential solution is to engage citizens to assist in the production of services with government officials. This method, known as ‘co-production’, shares the burden of cost whilst capitalising on the skills of the citizenry. 

The viability of this solution for government services in the UK is an open question. Generating empirical evidence and investigating the appropriate design of such a scheme requires a government organisation ready to undertake the appropriate research. US states have frequently trialled different approaches to public service delivery, with successful examples taken up by other states. To date, however, there has been limited use of rigorous evaluation methods in evaluating the organisation of government in the UK and determining ‘what works’. 

The UK’s local councils have the potential to be laboratories for effective public policy in the same way as the US states are. In this project, we have partnered with Lambeth Council to design a randomised controlled trial that tests the efficacy of different incentives for citizens to involve themselves in the co-production of public services.

]]> Mon, 11 Jul 2016 00:00:00 +0000
<![CDATA[Improving CLTS targeting: evidence from Nigeria]]> Many low-income countries face the hefty challenge of increasing sanitation coverage, in both rural and urban areas, which demand di fferent solutions. In response, governments, with support from international agencies, bilateral donors and non-government organisations, are deploying a range of programmes and policies to accelerate progress towards the new global goals. Community-led total sanitation (CLTS) is one popular approach. CLTS works with an entire community to identify the negative e ffects of poor sanitation, especially the practice of open defecation, and empowers them to collectively find solutions. CLTS is understood to be more suitable for small, rural and homogeneous communities, however it is still considered an appropriate solution for more urbanised areas.

The Institute for Fiscal Studies and WaterAid have co-authored this brief which provides quantitative evidence to support this conjecture and bring forward a simple rule of thumb that allows more efficient programme targeting. We suggest that using this information can improve the targeting of CLTS in Nigeria, and possibly other countries, freeing up scarce resources to identify and test complementary sanitation approaches suitable for more urbanised communities.

Please also see WaterAid's blog: CLTS in urbanised areas: is it time to stop tweaking and start targeting?

]]> Fri, 03 Jun 2016 00:00:00 +0000
<![CDATA[The changing composition of UK tax revenues]]> In this IFS Briefing Note we look at the changing composition of UK tax revenues between 2007-8 and 2020-21. 




]]> Tue, 26 Apr 2016 00:00:00 +0000
<![CDATA[The budget of the European Union: a guide]]> On 23 June 2016, voters in the UK will be asked to decide whether they wish to remain in the European Union (EU) or leave. This decision will have profound economic implications, particularly given the importance of EU membership to trade and immigration. Leaving the EU would affect UK GDP and hence the level of tax revenues and the state of the public finances.  

Membership of the EU also has a more direct impact on the UK’s public finances, since the UK is obliged to make contributions towards the EU’s budget, and benefits from spending by the EU in the UK that might otherwise have to be met by tax revenues. As is well known, the UK is a net contributor to the EU budget since the UK’s contributions to the EU budget exceed the amount that the EU spends in the UK, even after the rebate on its contribution that the UK has enjoyed since 1984. These impacts of EU membership on the public finances are easiest to calculate, but not the most important: if leaving the EU significantly increased or reduced national income, the impact on the public finances would dwarf the UK’s current overall net contribution (around £5.7 billion in 2014).

This report is the first of several that the IFS will produce in the run up to the EU referendum that will look at these public finance and budgetary issues. In it we set out the EU’s budget process, describe the EU’s different sources of revenue and items of expenditure and evaluate the rules underlying these, and compare the contributions and receipts of the 28 EU member states and their overall net positions. By bringing the information together and explaining it in a clear and concise way, we hope this ‘guide’ helps demystify the EU budget and how it works – although, as we shall see, the workings of some major parts of the budget are less than transparent.  

]]> Wed, 06 Apr 2016 00:00:00 +0000
<![CDATA[Using taxation to reduce sugar consumption]]> In the recent Budget, the Chancellor introduced a tax on the sugar content of soft drinks, citing concerns about childhood obesity. This tax will be introduced in 2018 and will not apply to fruit juices or milk-based drinks. It has followed calls from various bodies for intervention to reduce people’s sugar consumption. In this briefing note, we provide some descriptive evidence on the main sources of dietary sugar and we lay out some of the economic issues related to the introduction of a tax on sugar.

The key points in this note are:

  • In the recent Budget, the Chancellor introduced a tax on the sugar content of soft drinks, citing concerns about childhood obesity. This tax will be introduced in 2018 and will not apply to fruit juices or milk-based drinks.
  • Government intervention to reduce sugar intake is potentially justified if there are costs associated with consumption that are not taken into account by the individual when choosing what to eat – for example, the publicly-funded health costs of treating diet-related disease or unanticipated future health problems.
  • The extent of these costs is likely to vary across individuals and potentially across different types of products.
  • Corrective taxes, such as the kind levied on cigarettes, alcohol, fuel and other goods that are thought to have high social costs, should aim to raise the price to bring the costs perceived by an individual into line with the true costs associated with their consumption.
  • An appropriately-defined tax base can help to ensure that a tax is better targeted at socially costly consumption. The tax base will determine the way that the tax changes relative prices faced by individuals, and hence how they switch across products in response.
  • A tax levied on sugary soft drinks has the advantage that reduction in consumption of these products is not likely to directly adversely impact other aspects of diet quality. However, its effectiveness at reducing sugar consumption will depend on the products towards which people switch.
  • Carbonated and non-carbonated soft drinks account for on average around 17% of the added sugar that households purchase. Therefore, a tax imposed on these products would target only a fraction of the average household’s total added sugar purchases.
  • However, households that purchase the largest amounts of sugar get around twice as much of their sugar from carbonated and non-carbonated soft drinks as households that purchase the lowest amounts of sugar (based on a comparison of the top 20% and the bottom 20% of households’ share of calories from processed added sugar), making a soft drinks tax potentially well targeted.
  • In addition, households with children purchase on average around 50% more of their added sugar from carbonated and non-carbonated soft drinks, compared with households without children, which also suggests that a soft drinks tax could potentially be well targeted.
  • A broader-based tax levied on a wider range of sugary products would raise the price of products that collectively account for a larger fraction of added sugar, but is likely to be less well targeted – for instance, potentially strongly impacting consumers for whom the rationale for government intervention is weak.


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<![CDATA[Funding the English & Welsh police service: from boom to bust?]]> Spending on the police in England and Wales was cut by 14% in real terms between 2010–11 and 2014–15. This briefing note, funded by the Economic and Social Research Council, places these spending cuts in the context of the large spending increases over the 2000s, and explores the differences between police forces in how they fared over these two periods.

Executive summary

  • Police spending in England and Wales is financed from two main sources: grants from central government, and a component added to local council tax called the police precept. Some police forces are much more reliant on grant funding than others. For example, in 2010–11, Surrey Police received 54% of its revenue from grants, while Northumbria Police received 88%.

  • Between 2000–01 and 2010–11, total police spending increased by 31% in real terms. This was mainly due to increases in precept revenues, which increased from 17% of total revenues to 25%.

  • The forces that saw the biggest increases in police spending over the 2000s were those that increased revenues from the precept by the most. North Yorkshire more than tripled its precept revenues between 2000–01 and 2010–11 and saw overall revenues increase by more than 50%, whereas Northumbria increased precept revenues by only a third and saw overall revenues increase by just 14%.

  • In marked contrast to the 2000s, police grants were cut by 20% in real terms between 2010–11 and 2014–15, and total police spending fell by 14%. Because some forces are much more reliant on grant funding than others, the cuts to spending power varied substantially across forces: Surrey Police saw its revenues fall by 10% between 2010–11 and 2014–15, while Northumbria Police saw its revenues fall by 19%.

  • The forces least reliant on grant funding in 2010–11 were also those that raised most revenues from the precept over the 2000s. Therefore, the forces that saw the biggest cuts to spending between 2010–11 and 2014–15 also typically saw the smallest increases over the 2000s.

  • The forces that increased their precept revenues most over the 2000s generally had lower levels of spending per person in 2000–01. This meant there was convergence in levels of police funding per person across England and Wales between 2000–01 and 2014–15.

  • Why some forces increased precept revenues by so much more than others remains an important question. It could be a result of the formula for allocating grants not adequately reflecting relative need. Or it could be due to local preferences. Understanding these different motivations will be crucial for the Home Office as it seeks to reform how grant funding is allocated between forces going forward.
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<![CDATA[Social Housing in England: A Survey]]> This briefing note provides an overview of the social housing system. Except where stated otherwise, it focuses on the system in operation in England: many of the institutional and policy details differ in the other nations of the UK, and a full treatment of those is beyond the scope of this survey. However, some of the basic facts about social housing can be provided at a Great Britain or UK level, and we do that where possible (making clear the distinction). This note accompanies a detailed report analysing the choice over the level of rents charged to tenants in the social housing sector. Chapter 2 of that report, which provides some necessary policy and institutional background, is an abridged version of this briefing note.

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<![CDATA[Response to the government’s consultation on freezing the repayment threshold]]> This briefing note was submitted to The Department for Business, Innovation and Skills public consultation on 14 July 2015.


In the Summer Budget on 8 July 2015, the Chancellor announced plans for several important changes to higher education funding and student support. These reforms are analysed in detail in Britton, Crawford and Dearden (2015).  One of the proposed reforms was a plan to freeze the income threshold above which student loan repayments are made in nominal terms at its current level (£21,000 per year in 2016 prices) for 5 years.  The Department for Business, Innovation and Skills launched a public consultation regarding the proposal on 22 July 2015. This short note extends the work of Britton, Crawford and Dearden (2015), analysing the likely implications of the proposed changes for students entering university in 2016-17.



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<![CDATA[The outlook for the 2015 spending review]]> On 25th November the government will announce the results of its 2015 Spending Review, allocating spending between government departments for the four years 2016-17 to 2019-20. This background briefing note sets out the constraints facing the Chancellor, given the plans for the public finances that he published in the July Budget.

An accompanying online calculator allows you to act as Chancellor and conduct your own Spending Review. Complete with data visualisation and infographics, the interactive tool guides you through the headline plans the Chancellor has made, and lets you make your own decisions about how to allocate spending between government departments.

Visit the online guide and calculator

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<![CDATA[An assessment of the potential compensation provided by the new ‘National Living Wage’ for the personal tax and benefit measures announced for implementation in the current parliament]]> This briefing note, prepared for the House of Commons Treasury Select Committee, documents the estimated distributional impact of the tax and benefit changes that have been announced for implementation in the current parliament. It then considers the extent to which households might expect the net losses from these changes to be offset through increased wages as a result of the large increase in the minimum wage for those aged 25 and over that was announced in the July 2015 Budget. 

Executive summary

  • A package of changes to the tax, tax credit and benefit system has been announced for implementation in the current parliament as part of the government’s deficit reduction programme. These will reduce household incomes significantly, particularly for those towards the bottom of the income distribution. The July 2015 Budget also announced a substantial increase in the national minimum wage for those aged 25 and over, which the Chancellor described as a new “National Living Wage” (NLW).

  • If the NLW were to have no effect on GDP, employment or hours of work it would offset 27% of the drop in household incomes from the impact of net tax and benefit reforms. In fact, as the Office for Budget Responsibility stresses, the NLW is likely to depress GDP and employment, and the money for it has to come from somewhere so this can be taken as a “better case” scenario, at least in the short term.

  • The new NLW offers such little compensation because the boost to gross wages is smaller than the announced fiscal tightening and almost one-third of the increase in gross wages goes to the Treasury in higher tax receipts and lower benefits and tax-credit entitlements.

  • Among the 8.4 million working age households who are currently eligible for benefits or tax credits who do contain someone in paid work the average loss from the cuts to benefits and tax credits is £750 per year. Among this same group the average gain from the new NLW, is estimated at £200 per year (in a “better case” scenario). This suggests that those in paid work and eligible for benefits or tax credits are, on average, being compensated for 26% of their losses from changes to taxes, tax credits and benefits through the new NLW.

  • The average losses from tax and benefit changes in deciles 2, 3 and 4 of the household income distribution are £1,340, £980 and £690 per year, respectively. These same groups are estimated to gain £90, £120 and £160 from the new NLW (again on a “better case” scenario). This suggests that a “better case” estimate of the compensation these groups are receiving is 7%, 13% and 24% respectively, on average.

  • There may be strong arguments for introducing the new NLW, but it should not be considered a direct substitute for benefits and tax credits aimed at lower income households.
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<![CDATA[Analysis of the higher education funding reforms announced in Summer Budget 2015]]> In the Summer Budget of 2015, the Chancellor announced some further changes to higher education funding and student support. This briefing note assesses each of these reforms in turn. The authors start by providing a brief overview of the model underlying our estimates. Next they discuss the implications of the removal of maintenance grants for students and the government, followed by the likely implications of the proposed changes to the repayment threshold, fees and the discount rate, which will all be subject to public consultation. The note ends with some brief conclusions.

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<![CDATA[Mobility of public and private sector workers]]> There were large cuts to the public workforce over the last parliament during a period of fiscal consolidation. The public workforce fell by 375,000 between the start of 2010 and the end of 2014. The pace of public workforce cuts is likely to accelerate over the new parliament. Conservative party plans outlined in their manifesto imply a further reduction in the public workforce of 580,000 between 2014–15 and 2018–19, unless the government imposes further public pay restraint.

In this Briefing Note, funded by the Joseph Rowntree Foundation and the Economic and Social Research Council (ESRC), we look at the movement between jobs, or ‘mobility’, of workers in the public and private sectors.

We set out the extent to which reductions in the public workforce to date have been delivered by reducing net inflows from outside the labour force (freezing recruitment of new workers and not replacing workers who move to non-employment) and increasing net outflows to the private sector (more workers moving from the public sector to the private sector than moving in the other direction).

We also explore the extent to which workers change jobs within sectors and move around the country. Both these forms of job mobility provide evidence on how the fluidity and flexibility of labour markets are changing over time and form a useful comparison in order to judge whether across-sector moves are relatively common or not. We might also expect these forms of job mobility to differ between the public and private sectors because of differences in the transferability of skills within sectors and the nature of rewards. 

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<![CDATA[Taxes and benefits: the parties’ plans]]> Click here to download the Executive Summary only.

The last five years have seen considerable policy activity in the tax and benefit sphere: in total, some £56 billion per year of giveaways and £89 billion per year of takeaways by 2015–16. Most of the main tax reforms have simply changed rates or thresholds within current structures – the increase in the main rate of VAT, cuts to the main corporation tax rate, real cuts to the rates of fuel duties and the big increase in the income tax personal allowance being the most important. Only for pensions and savings has there been a significant reshaping in terms of what is taxed and what is not. Changes to benefits have mostly been straightforward cuts in generosity, with more significant structural reform coming in the next parliament – the introduction of the single tier pension, the introduction of universal credit and the replacement of disability living allowance (DLA) with personal independence payment (PIP).

As for what is to come, there are important areas of agreement between the main UK parties. There is apparently a huge amount of money to be extracted through a clampdown on tax avoidance (mysteriously missed by all previous clampdowns). There is yet more money to be extracted from those on very high incomes saving in a private pension. The main rates of income tax, NICs and VAT will not be increased. The ‘triple lock’ on indexation of the basic state pension will remain and most pensioner benefits will be protected. There is also a shared lack of any attempt to paint a coherent strategy for tax reform, a shared desire to impose further, often absurd, complications to the tax system, and a shared lack of willingness to set out specific benefit measures which chime with the parties’ rhetoric. On that latter point, on the one hand the Conservatives have spent two years promising substantial additional benefit cuts of £12 billion a year whilst failing to come up with more than 10% of that figure in actual cuts. On the other hand Labour’s promised ‘toughness’ involves reducing spending by almost nothing by taking winter fuel payments from the small number of pensioners subject to the higher rates of income tax, and, most likely, literally nothing by limiting the uprating of child benefit rates.

There are significant differences between the parties too. The Conservatives are promising significant income tax cuts through further increases in the personal allowance and an increase in the point at which higher rate tax becomes payable. The first of these ambitions is shared by the Liberal Democrats while the Labour manifesto is silent on these points. Labour and the Liberal Democrats (and the SNP) share a desire to impose a ‘mansion tax’, not a policy adopted by the Conservatives. Labour (and the SNP) would return the top rate of income tax to 50%. The Conservatives are alone in saying they would seek big cuts in benefit spending and generosity.

In this summary we look at the main proposed changes to income tax, mansion tax, other taxes, and benefits in turn, with a particular focus on Labour and the Conservatives. The main body of this document then examines most of the specific tax and benefit policies of Labour, Conservatives and Liberal Democrats in some detail.


Watch a recording of the briefing at which the note was launched here:

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<![CDATA[Extending Right to Buy: risks and uncertainties]]> The flagship new announcement in the Conservative Party manifesto last week was a major extension of Right to Buy (in England) to cover 1.3 million housing association (HA) tenants. The Conservatives also announced a second, distinct policy of requiring councils (referred to here as local authorities, or LAs) to sell their most expensive properties as they become vacant, which they estimate would raise £4.5 billion per year. The two policies are related because part of the revenue raised from sales of expensive LA properties will be used to pay for the extension of Right to Buy – with the rest funding a commitment to replace properties sold on a ‘one-for-one’ basis and to create a £1 billion ‘Brownfield Regeneration Fund’.

This briefing note, which is part of IFS’s election analysis funded by the Nuffield Foundation, sets out what we know about these two policies. We start in Section 2 by providing some context in terms of the impact of Right to Buy on the social housing sector over time and how housing associations have been (largely) exempt from Right to Buy. In Section 3, we describe the detail of the two Conservative Party proposals. Section 4 attempts to shed light on some of the questions left open by this announcement: the cost of the Right to Buy discounts, the amount that can be raised from sales of expensive LA properties, and the likely cost of funding the proposed ‘one-for-one’ replacement of sold social housing. Section 5 concludes. 

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<![CDATA[Post-election austerity: parties’ plans compared]]> In this election briefing note we compare and contrast the fiscal plans laid out by the four political parties that are widely predicted to win the most seats in the forthcoming UK general election: the Conservatives, Labour, the Liberal Democrats and the Scottish National Party (SNP). All these parties are proposing reductions in borrowing relative to current levels, though they appear to differ in what they think a suitable medium term level of borrowing is and how quickly they wish to get to that level of borrowing (and, therefore, in how quickly they want debt to fall).

The parties also differ in the extent to which they think that a borrowing reduction should be achieved through tax rises, cuts to social security spending, or cuts to spending on public services. In this note we compare the composition of the future tightening planned by the parties – to the extent that we know what their plans are. We also draw attention to what has been left unsaid.

Watch a recording of the briefing at which the note was launched here:

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<![CDATA[The link between childhood reading skills and adult outcomes: analysis of a cohort of British children]]> This briefing note builds on previous work by Crawford and Cribb (2013) to investigate the link between children’s reading skills at age 10 and their outcomes as adults using data from the British Cohort Study (a survey of individuals born in one week of April 1970). We find that reading skills are associated with significant increases in gross hourly wages and gross weekly earnings, particularly at older ages (ages 38 and 42), but less consistent evidence for strong links between reading skills in childhood and other outcomes in adulthood, including the likelihood of being in work, self-reported health status and the intergenerational transmission of reading skills. We also find some suggestive evidence that the link between reading skills in childhood and wages and earnings in adulthood is stronger amongst those from poor backgrounds. Overall, this note provides suggestive evidence that improving reading skills in childhood may be one route through which earnings potential in adulthood could be increased, although it should be noted that these estimates are associations rather than evidence of causality.

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<![CDATA[Schools spending]]> This briefing note focuses on changes in schools spending in England over time, comparing these with other areas of education spending, and examines how reforms to school funding have affected different groups of schools.  

  • Current or day-to-day spending on schools in England has been relatively protected both compared with other areas of public service spending and compared with other areas of education spending under the coalition government. Between 2010–11 and 2014–15, current spending on schools has risen by 3.0% in real terms and by 0.6% in terms of real spending per pupil. This compares with a real-terms cut of 13.6% to the age 16–19 education budget and a large real-terms cut to capital spending (across all phases of education) of about one-third. Current public service spending was cut by just over 8% in real terms.
  • The coalition government has made a number of important reforms to the school funding system in England, including: the introduction of the pupil premium; simpler school funding formulae, which help ensure local authority maintained schools, academies and free schools are funded on a similar basis; and giving schools more financial autonomy and responsibility.
  • Even before the pupil premium, there was already a substantial level of funding targeted at deprivation. In 2010–11, funding per pupil was 35% higher amongst the most deprived set of primary schools than amongst the least deprived ones, and it was 41% higher amongst the most deprived secondary schools than amongst the least deprived. By 2014–15, these figures had increased to about 42% and 49%, respectively, as funding per pupil rose more strongly amongst more deprived schools as a result of the pupil premium.
  • As well as a relatively generous settlement in the current parliament, squeezes on public sector pay mean that the actual costs faced by schools are likely to have increased by less than overall measures of economy-wide inflation. This is probably an important explanation for why the school workforce has not fallen since 2010. The number of teachers has held steady at 450,000 and the number of teaching assistants has actually increased from 210,000 in 2010 to reach 240,000 by 2013.
  • There are likely to be some significant cost pressures on schools’ spending over the next parliament. First, overall pupil numbers are expected to grow by 7% between 2016 and 2020. Second, the cost of employing staff for schools is likely to rise. There will be upward pressure on public sector pay levels in the next few years if private sector earnings continue to recover. The Office for Budget Responsibility (OBR) currently expects public sector pay per head to rise by 14.2% between 2014–15 and 2019–20. Additional employer pension contributions and higher National Insurance contributions (due to the end of contracting out) will further push up costs. The level of economy-wide inflation as measured by the GDP deflator is currently expected to be 9.1% between 2014–15 and 2019–20. If we account for the end of contracting out and increased employer pension contributions, we estimate that costs faced by schools will increase by 11.7% between 2014–15 and 2019–20. This increases to 16.0% if we further account for the OBR’s assumptions for likely growth in public sector earnings.
  • Labour and the Liberal Democrats have committed to protecting the age 3–19 education budget in real terms, though neither have said how this will be split across different parts of the budget. Meanwhile, the Conservatives have committed to protecting cash school spending per pupil. In practice, these commitments might imply similar overall settlements for schools if nominal spending increases are allocated equally across all areas by Labour and the Liberal Democrats (and assuming the protections are only just met). However, all could imply real-terms cuts to school spending per head of 7% between 2015–16 and 2019–20. This increases to 9% if we account for increases in National Insurance and pension contributions and to 12% if we also account for the OBR’s assumption for likely growth in public sector earnings. This would be less generous than the real-terms increase in spending per pupil seen over the current parliament. There are clearer differences on proposals for education spending outside schools, such as 16–19 education, which has already seen large cuts.

The briefing note forms part of the IFS election 2015 analysis, funded by the Nuffield Foundation.

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<![CDATA[The coalition government’s record on tax]]> In this briefing note, we assess the coalition government’s reforms to the tax system. Although it implemented some large tax rises early in the parliament – an increase in the main rate of VAT and in all rates of National Insurance contributions (NICs) – the government has also managed to find scope for significant tax cuts. Just three of these – increases in the income tax personal allowance (net of reductions in the higher-rate threshold), cuts to the main rate of corporation tax, and real-terms cuts to fuel duties – have a combined cost of £19.5 billion in 2015–16. But the coalition’s changes to the tax system go far beyond that, with a large number of smaller measures constituting the bulk of its activity.

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<![CDATA[Central cuts, local decision-making: changes in local government spending and revenues in England, 2009-10 to 2014-15]]> This briefing note uses data from the Department for Communities and Local Government (DCLG) to delve into a number of questions about how local governments in England have responded to the reductions in their revenues. They have been forced to cut back significantly on service spending, but not all local authorities have been affected equally or reacted in the same way.

  • The note focuses on net spending by local authorities on public services. We exclude spending on police and fire and rescue as this is not directly under the control of single-tier and county councils. We also exclude spending on education, public health and a small component of social care as local authorities’ responsibilities for these areas have been changing over time. During this parliament, this measure of spending by local authorities in England has been cut significantly in real terms. Between 2009–10 and 2014–15, it was cut by 20.4% after accounting for economy-wide inflation. Taking into account population growth over this period, spending per person was cut by 23.4%.
  • These cuts to local authority spending were similar in magnitude to those seen on average across central government departments outside protected areas such as the NHS, schools and official development assistance.
  • Local authorities have had to cut spending in the face of falls in their main sources of revenue. Grants from central government to local government (excluding housing benefit grant and those specifically for education, public health, police, and fire and rescue services and the housing benefit grant) have been cut by 36.3% overall (and by 38.7% per person) in real terms between 2009–10 and 2014–15. Total council tax revenues have grown slightly in real terms over this period (3.2%), although this still represents a decline of 0.7% per person. Taking grants and council tax revenues together, local authorities’ total revenues have fallen by 19.9% overall (or 22.9% per person) in real terms. Council tax revenues funded just over half of local government spending in 2014–15, up from 41% in 2009–10.
  • Even though revenues have fallen significantly, on average local authorities have spent less than they received from grants and council tax over the last five years, meaning that on average they have increased their reserves rather than drawn from them. The average increase in reserves across local authorities in England was an increase equal to 5% of annual spending in 2009–10.

The size of cuts has varied across the country

  • While the average cut to local authority net service spending per person (excluding education, public health, police, and fire and rescue) was 23.4%, the change seen by individual local authorities ranged from a maximum reduction of 46.3% per person (in Westminster) to a reduction of 6.2% per person (in North East Lincolnshire).
  • Cuts to net service spending have tended to be larger in those areas that were initially more reliant on central government grants (as opposed to locally-raised revenues) to fund spending – these are areas that have, historically, been deemed to have a high level of spending need relative to their local revenue-raising capacity. The cuts to spending per person were also higher on average in areas that saw faster population growth.
  • As a result, London boroughs, the North East and the North West have seen the largest average cuts to spending per person. Since these regions initially had the highest level of spending per person, there has been some equalisation in the average level of local authority spending per person across regions over the last five years. In 2009–10, spending per person was on average 80.1% higher in London than in the South East; by 2014–15 – with London having seen spending cuts that were nearly twice as deep as those seen in the South East – this differential had fallen to 48.0%.
  • Since central government grants were cut much more deeply than council tax revenues, it is perhaps not surprising that those authorities for which grants made up a larger share of income saw larger cuts to their overall spending power. However, up to 2013–14 at least, the mechanism for allocating government grants was intended to take account of differences in local need and local revenue-raising capacity. But we can find no evidence that the formula actually operated in this way between 2009–10 and 2013–14. Indeed, there seems to have been no greater protection of more needy areas over this period than there was in 2014–15 when the new system for allocating grants – which explicitly does not account for changing relative needs – was introduced.

Some services have been cut more than others

  • Social care was the single largest component (comprising 47.2%) of local service spending in 2009–10 (excluding education, police and fire services). It is also one of the areas that have experienced smaller-than-average cuts in spending per person over this parliament. Between 2009–10 and 2014–15, net spending per capita on social care was cut by 16.7%.
  • Some of the service areas that saw the largest cuts to net spending were planning and development (which was cut to less than half its original level), regulation and safety, housing, and transport (all of which were cut by at least 30%). Net local authority spending on transport was cut by 45% in London, and by between a quarter and a third in other areas of the country, although transport providers offset some of this cut by raising fares.
  • There was variation across the country, however, in which services different local authorities chose to focus the cuts on. The vast majority of local authorities chose to cut social care spending by less than other service areas. But prioritisation of other service areas has varied: for example, most areas have cut housing spending heavily but a minority of areas (particularly in London) have actually afforded it relative protection.

Planned cuts for 2015–16

  • Local authorities are expected to face further cuts to revenues per person of 4.1% in 2015–16 (excluding specific grants for mandatory housing benefit payments and education, public health, fire and police services), meaning that the cumulative cut to revenues per person since 2009–10 will be 26.1%. This assumes that all councils freeze council tax rates (and accept the ‘freeze grant’ from central government) next year.
  • The local authorities that have seen the largest cuts to revenues per person since 2009–10 are also those expected to see the largest cuts in 2015–16. London boroughs face a cut to revenues per person of 6.3%, which compares with 1.9% for shire counties.
  • Local authorities differ in their ability to offset the cuts to their grants by increasing council tax revenues, because a given increase in council tax rates would increase overall revenues by less for councils that are more grant-reliant. For example, a 2% increase in council tax rates would, on average, increase revenues per person by 0.3% for London boroughs, compared with 0.5% for shire counties. This may explain why London boroughs have been the most likely, over recent years, to accept the council tax freeze grants, while unitary authorities have been the least likely to do so.

Future pressures

  • There are likely to be further cuts to public service spending, and therefore local authority spending, over the next parliament. Future cuts may well be focused on the same local authorities that have experienced the largest cuts over this parliament.
  • The new system for allocating central government grants essentially applies a uniform cut to all authorities’ grants, meaning that those with less local revenue-raising capacity will see larger cuts to their total spending power. These areas have also, on average, seen the largest cuts to spending power over this parliament.
  • The new system also will not account for differences in population growth across areas. This means that those areas that see the fastest population growth will (other things equal) see the sharpest falls in grants per head. Official population projections suggest that the eight local authorities expected to have the fastest population growth over the next five years are all London boroughs, which also saw the fastest growth over the last five years.
  • Social care spending is already the single largest activity undertaken by local authorities, comprising more than half (53.1%) of total local authority spending (excluding education, public health, police and fire services) in 2014–15, and it has been relatively protected from cuts over this parliament. However, pressures on this area of service provision are likely to continue to grow over the next parliament, as the Office for National Statistics (ONS) projects that the population aged 75 and over will grow by 13.9%, much faster than overall population growth.
  • A future government could choose to increase spending on local government, although – since all three main UK parties are committed to reducing borrowing over the next parliament – this would likely have to come at the cost of reducing spending (or raising taxes) elsewhere.
  • Another option for easing the pressure on some local authorities would be to increase the cap on council tax rises before a local referendum is required (which is set at 2% for 2015–16) and/or change the mechanism for allocating central government grants to distribute these in a way that implies more equal cuts to local authorities’ total revenues.
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<![CDATA[Living standards: recent trends and future challenges]]> This briefing note examines what has been happening to living standards and unpicks the main reasons for these trends. It looks both at living standards on average and at the considerable variation in trends across different parts of the population. 

  • The coalition government took office after the Great Recession, just as household incomes were beginning their subsequent and inevitable decline. It would be misleading to attribute all trends in living standards that occurred before May 2010 to Labour and all trends thereafter to the coalition.
  • We project that real (RPIJ-adjusted) median household income is at around the same level in 2014–15 as in 2007–08 (before the financial crisis), and about 2% below its 2009–10 peak.
  • Having continued to rise slowly during the recession itself, real median household income then fell by 4.0% from peak in 2009–10 to trough in 2011–12, driven by falls in workers’ pay and in employment. This was a larger peak-to-trough fall than occurred around the early 1990s recession (1.2%), but smaller than in the early 1980s (5.7%).
  • Since then, employment has recovered strongly but real pay, and hence average income, has not. This is consistent with the absence of productivity growth since 2011. Meanwhile, the coalition has implemented a large package of tax and benefit measures taking money away from households in response to the structural budget deficit caused or revealed by the crisis.
  • The slow recovery in household incomes has been more remarkable by historical standards than the peak-to-trough fall. We project that median household income grew by just 1.8% in total between 2011–12 and 2014–15. In contrast, the first three years of recovery in the early 1980s and early 1990s saw median income grow by 9.2% and 5.1% respectively.
  • Household consumption has also been very slow to recover by historical standards. Consumption per head of non-durables (things such as food and fuel that are bought and consumed roughly straightaway) was 3.8% lower in 2014Q3 than in 2008Q1. At the same point after the 1980s and 1990s recessions, it was 14.4% and 6.4% above pre-recession levels respectively. This might reflect households’ perceptions that their income prospects have been permanently damaged by the crisis and that a significant cut to their spending is therefore required.
  • Assuming all households face the same inflation rate, income inequality is lower in 2014–15 than it was in 2007–08. This is explained by changes between 2007–08 and 2012–13, when earnings fell relative to benefits. Since 2012–13, incomes are projected to have fallen towards the top and bottom of the distribution but risen across the middle, in line with the distributional impact of recent tax and benefit reforms.
  • However, low-income families have faced higher-than-average inflation since 2007–08. This is mostly due to price changes in the period up to and including 2009–10: these families were hit harder by rising food and energy prices, and benefited less from falling mortgage interest rates. When this is taken into account, the changes in real incomes between 2007–08 and 2014–15 look similar across most of the income distribution.
  • The incomes of older individuals have caught up with those of the rest of the population in recent years, while living standards have fallen the most for young adults. After adjusting for group-specific inflation, median income among those aged 60 and over is projected to be 1.8% higher in 2014–15 than in 2007–08, compared with a 2.5% fall for those aged 31–59 and a 7.6% fall for those aged 22–30.
  • In the long run, policies that spur productivity growth will have the most significant effect on living standards. Over the course of the next parliament, the choices that the next government makes about the shape and size of any further fiscal consolidation will also affect how the living standards of different groups change. 

This briefing note forms part of the IFS election 2015 analysis, funded by the Nuffield Foundation.

]]> Wed, 04 Mar 2015 00:00:00 +0000
<![CDATA[Labour’s higher education funding plans]]> This briefing note looks at the implications of Labour's proposals for higher education funding plans.

  • On 27 February 2015, Labour announced its much-anticipated policy to reduce the undergraduate tuition fee cap to £6,000 per year for students in England. Alongside this change, it announced an increase in the interest rate charged on loans after graduation amongst high-income graduates, as well as a rise in average maintenance grants. University funding would be held constant under its proposal, with additional teaching grants distributed to universities to offset the lower fee income that they would receive.
  • Mid- to high-income graduates are the primary beneficiaries of this reform, with the very highest earners benefiting the most, despite the rise in interest rates that they would face. This is because high-earning graduates are the most likely to repay their loan in full under the current system; hence, they experience the largest reduction in repayments as a result of the lower fee cap (which the higher interest rate does not offset). Most lower-earning graduates will be unaffected.
  • The introduction of the £9,000 per year tuition fee cap in 2012 appears to have had little or no effect on applications to, or participation in, higher education (HE) amongst full-time students. For this group, it is therefore unlikely that a reduction in the cap to £6,000 will boost enrolment. On the other hand, there have been large reductions in part-time enrolment. It is possible that the cut in the cap could help those numbers recover.
  • Taken in isolation, this policy would slightly weaken the public finances. Debt will be permanently higher in the long run as a result of replacing fee loans with teaching grants, since some of the loans would have been repaid while grants are not.
  • Based on current estimates of future graduate loan repayments, we estimate that the changes made to the HE finance system would result in an increase in the long-run taxpayer contribution to higher education of around £1,000 per student per year (£3,000 per student per degree) in today’s money. For a cohort of 350,000 students, this is an increase in taxpayer support for higher education (resulting in an increase in public debt in the long run) of around £1 billion in today’s money. The long-run cost of this policy relative to the current system, however, depends crucially on future graduate loan repayments, which are highly uncertain.
  • In the absence of any other policy changes, Labour would have to find around £3.2 billion from net tax rises or spending cuts to pay for the full difference between current fees and the new £6,000 per year cap (which we assume all universities would charge) if borrowing is to be left unchanged in the short run.
  • The Labour party proposes to avoid these effects by implementing a permanent tax increase through restricting tax relief available on pension contributions. This would more than offset the long-term increase in government debt created by the HE policy changes.
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<![CDATA[Corporation tax changes and challenges]]> Corporate tax has rarely received as much attention as in recent years. The coalition government has enacted a series of policy changes – the most prominent being an 8 percentage point cut in the main rate – with an explicit aim of increasing the competitiveness of the UK’s corporate tax system. Concurrently, there have been prominent debates about the types of policies individual governments use to attract mobile investments, about corporate tax avoidance and about how the international corporate tax system can be improved.

In this election briefing note, we review the policy changes since 2010 and assess where this leaves the UK regime in an international context. Despite the large number of changes in this parliament, challenges remain for the next government. In particular, the UK has a corporate tax base that embeds a number of distortions, we are likely to face further international competitive pressure and we must balance the desire to be competitive with the aim of cooperating with international attempts to reduce avoidance. 

This briefing note forms part of the IFS election 2015 analysis, funded by the Nuffield Foundation.

]]> Thu, 26 Feb 2015 00:00:00 +0000
<![CDATA[Housing: trends in prices, costs and tenure]]> This briefing note looks at changes in the cost of housing for different groups, distinguishing between the purchase price of houses, regular spending on housing costs, and concepts of ‘affordability’ with respect to both house purchases and regular housing costs. It then looks at changes in housing circumstances, with a focus on tenure and dwelling size, and considers how these might be related to trends in prices and the balance of demand and supply. It concludes by reflecting on the policy challenges that these trends present.

This briefing note forms part of the IFS election 2015 analysis, funded by the Nuffield Foundation.

]]> Thu, 19 Feb 2015 00:00:00 +0000
<![CDATA[The right to buy public housing in Britain: a welfare analysis]]> This briefing note examines the Right to Buy policy in the United Kingdom, by which council tenants could buy their council properties at a discounted price, and the subsequent extension of the policy to most forms of social housing. This policy constituted the largest source of privatisation revenue to HM Treasury, especially in the 1980s, exceeding the revenues from all other individual privatisations. It was responsible for one of the biggest transformations of housing tenure of households in the UK’s history. The briefing note shows how the Right to Buy policy might be evaluated using economic principles; a formal theoretical economic model of housing tenure choices in the presence of Right to Buy is contained in an associated working paper published by IFS. 

]]> Tue, 17 Feb 2015 00:00:00 +0000
<![CDATA[Benefit spending and reforms: the coalition government's record]]> The coalition government has implemented changes to the benefit system that mean spending in 2015–16 will be £16.7 billion (7%) lower than it would otherwise have been. Real terms benefit spending, however, is forecast to be almost exactly the same in 2015–16 as it was in 2010–11, at £220 billion. This reflects the effect of underlying economic and demographic factors which are pushing up spending – most importantly an ageing population, but also weak wage growth and rising private rents.

Of course there have been some controversial benefit cuts. But, most of the major structural changes, such as universal credit, have run into problems, and are yet to be delivered. So far then, the reforms actually in place represent an evolution of the systm rather than revolution promised. These are among the findings of a new Election Briefing Note on the coalition’s reforms to the benefit system, part of a programme of work at the IFS in the run up to the election, funded by the Nuffield Foundation.

]]> Wed, 28 Jan 2015 00:00:00 +0000
<![CDATA[The effect of the coalition’s tax and benefit changes on household incomes and work incentives]]> The coalition government has introduced a large number of tax and benefit changes during its five years in office. In this briefing note, we examine the effect of all these changes on households' disposable incomes. In other election briefing notes, we will describe these changes, their individual merits and how they change the shape of the tax and benefit system as a whole.

This briefing note forms part of the IFS election 2015 analysis, funded by the Nuffield Foundation.

]]> Fri, 23 Jan 2015 00:00:00 +0000
<![CDATA[Fiscal aims and austerity: the parties’ plans compared]]> Each of the three main UK political parties has stated an objective for reducing borrowing over the next parliament. Somewhat oddly, each of these targets would allow a looser fiscal position in the medium-term than is currently planned by the coalition government. However, the coalition government’s ‘plans’ are predicated on a large, as yet unspecified, spending cut. Therefore, while each of parties could meet their fiscal targets while running slightly looser fiscal policy that planned by the coalition government, they would still need to announce further details of net tax increases, cuts to social security spending, or further cuts to departmental budgets in order to make their sums add up. This briefing note describes each of the three main parties' proposed fiscal targets and sets out the trade-offs that each of the parties face between tax increases, benefit cuts, and cuts to departmental spending.

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<![CDATA[The Smith Commission’s proposals – how big a change do they represent? And what questions remain to be addressed?]]> On 27 November 2014, the Smith Commission published proposals for further devolution of powers to Scotland. We now know what is to be devolved – the UK and Scottish Government now have the more prosaic task of implementing the changes. Getting the details of how the taxes and welfare are devolved will be crucial. In this Briefing Note, funded by the ESRC through Centre for Microeconomic Analysis of Public Policy at IFS, we analyse some of these ‘technical’ issues (and critically appraises the Smith Commission proposals more generally). In it we suggest a solution to one of the most difficult issues the Commission did not tackle – how to adjust the block grant given to Scotland when more taxes and spending are devolved. We also question some of the recommendations of the Commission – arguing that implementing them in practice might not always be feasible or fair. This observation provides a summary of these “big issues”.  

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<![CDATA[Child and working-age poverty in Northern Ireland over the next decade: an update]]> The UK government has ambitious, legally-binding targets to reduce child poverty by 2020–21. This briefing note updates previous IFS projections of how these poverty measures are likely to evolve in Northern Ireland and the UK as a whole between 2013–14 and 2020–21 under current policies and forecasts about how the economy will evolve over this period. As in previous work, we find that the targets will be missed by a wide margin under current policies as cuts to benefits and tax credits for those of working age are brought in and a recovery in earnings increases the incomes of middle-income households by more than the incomes of the poor. This will be slightly offset by the introduction of universal credit, which will tend to make poverty increase less quickly. We project that increases in poverty will be particularly large for Northern Ireland, mainly because employment growth is forecast to be considerably slower in Northern Ireland than elsewhere in the UK, most notably than in London and the East and South-East of England. 

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<![CDATA[The social security system: long-term trends and recent changes]]> The British welfare state has changed dramatically in size and shape over the 70 years since the Beveridge Report. The share of national income spent on social security has increased more than threefold, from around 4% of national income in 1948–49 to nearly 13% in 2013–14. Spending on social security now makes up around 30% of total government expenditure. And having started with a focus on the old, ill and unemployed, the system now also supports the incomes of many low-income working families, particularly those with children. In addition to these long-run trends, the welfare state has undergone a significant reshaping in recent years, as a result of the fiscal consolidation. By the end of the parliament, reforms introduced by the current government will have reduced social security spending on those of working age by around £20 billion a year (relative to estimated spending on an unreformed system) while leaving pensioners broadly unaffected. This briefing note describes both long run trends and more recent changes, providing an overview of the evolution of the British benefits system over the last half-century.     

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<![CDATA[Business as usual? The Barnett formula, business rates and further tax devolution]]> This briefing note takes a step back from the big questions about whether there should be further tax devolution and whether there should be a move to a needs-based formula. Instead, it focuses on the more technical – but important – question of how devolved taxes should interact with the block grant and the Barnett formula. And, more specifically, it examines how the formula interacts with business rates, which are already fully devolved to Scotland and Northern Ireland and are set to be fully devolved to Wales from April 2015. This is important because it has implications for the debate about ‘fair funding’ and lessons for how to adjust funding mechanisms as further taxes are devolved.

The current treatment of business rates by the Barnett formula for Scotland and Northern Ireland is flawed, and could be reformed to better meet the stated policy aims. The calculations presented in this paper suggest that these flaws have resulted in Scotland receiving around £400 million more and Northern Ireland around £130 million more in funding this year than they would have if a ‘corrected’ version of the formula had been in place when the fiscal consolidation began in 2010. By next year, 2015–16, these figures will have grown to £600 million extra for Scotland and £200 million extra for Northern Ireland. In the context of block grants and business rates revenues that together total around £30 billion and £11 billion, respectively, this means funding will be over 2% higher than it would have been had a ‘corrected’ Barnett formula been introduced in 2010. Put another way, the cuts Scotland and Northern Ireland will have had to deliver between 2010–11 and 2015–16 will be more than one-fifth smaller than if the ‘corrected’ formula had been in place during this period.


The appendix is available to download here.

]]> Wed, 12 Nov 2014 00:00:00 +0000
<![CDATA[Employment of older people in England: 2012–13]]> There are many reasons to be interested in the employment of older people. At a micro level, income from employment could help individuals to top up other sources of ‘retirement’ income. There is also some evidence that continuing to engage in intellectually engaging tasks (for example, through work) into older age can help to preserve cognitive functioning. At a macro level, older people make up a large and increasing share of the population and thus their labour supply fundamentally affects England’s productive capacity.

In this briefing note we use data from the Labour Force Survey (LFS) and the English Longitudinal Study of Ageing (ELSA) to describe patterns of employment and self-employment among people aged between 50 and 74 in England in 2012–13. We focus on England because, unfortunately, comparable data on the circumstances of older people in the rest of the UK are not currently available. While the LFS covers the whole of the UK, ELSA – which provides detailed information on the wealth, health and other characteristics of older people – covers only England.


Click here to download supplementary data.  

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<![CDATA[Financial support for HE students since 2012]]> This briefing note addresses the following questions:
1. How much financial support will be available to undergraduate students entering university in 2014?
2. How does it vary across different types of students (e.g. by income) and groups of universities?
3. How does it compare to preceding cohorts, who enrolled in 2012 and in 2013?
4. What are the effects of recent policy changes on universities’ design of financial support schemes? In particular, how have universities responded to the unexpected cut to the NSP for the 2014 cohort (which was announced after universities made plans of student support schemes)?

The authors gratefully acknowledge funding from the Nuffield Foundation and the ESRC. This briefing note and accompanying observation are based on an earlier paper on the National Scholarship Programme and Bursaries, part of a project funded by the Nuffield Foundation. Our most recent analysis, taking into account the 2013 and 2014 Office for Fair Access (OFFA) agreements was funded by the ESRC though the ESRC Centre for the Microeconomic Analysis of Public Policy (CPP; grant number ES/H021221/1). The Nuffield Foundation is an endowed charitable trust that aims to improve social well-being in the widest sense. It funds research and innovation in education and social policy and also works to build capacity in education, science and social science research. The Nuffield Foundation has part-funded this project, but the views expressed are those of the authors and not necessarily those of the Foundation. More information is available at

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<![CDATA[Workplace pensions and remuneration in the public and private sectors in the UK]]>
There has been considerable interest in recent years in the level of pay in the public sector, and how it compares to that in the private sector, particularly in a context in which the coalition government is limiting nominal growth in public sector pay as part of its fiscal consolidation strategy. However, pay in the form of a wage or salary is not the only form of remuneration that employees receive. The promises made by employers in the form of pension rights, or the contributions made by employers to pension schemes, are an important form of remuneration, albeit of a deferred form, and one that varies between the public and private sectors.

In this briefing note, we estimate the value of employer-provided pensions and compare their value between public and private sector workers, and over time. We then assess what effect the incorporation of the value of workplace pensions has on the estimated differential between remuneration in the public and private sectors when measured just using pay. We also document how this changes over time and how it varies across different groups of the population.

]]> Fri, 10 Oct 2014 00:00:00 +0000
<![CDATA[The distributional effects of the UK government’s tax and welfare reforms in Wales: an update]]> This report is an updated analysis of the personal tax and benefit reforms implemented, or due to be implemented, by the UK’s coalition government from when it was elected in May 2010 up to and including April 2015. This includes those measures that had been pre-announced by the previous Labour government which the new government chose to implement. Attention is restricted to personal tax and benefit reforms alone: it does not examine the impact of reforms to corporation tax and other taxes formally paid by businesses, nor the impact of changes to spending on public services.


Word version of the report

Welsh translation of the report (pdf)

Welsh translation of the report (word)

]]> Wed, 02 Jul 2014 00:00:00 +0000
<![CDATA[Taxation, government spending and the public finances of Scotland: updating the medium term outlook]]> The potential consequences of independence for taxation, public services, and the welfare system in Scotland are a key battleground in the ongoing campaigning ahead of the independence referendum this September. This briefing note provides a summary of the key findings of recent IFS research on Scotland, including the medium-term outlook for Scotland's public finances. In doing this, it also updates the figures to take into account the latest data on taxation and spending contained in the Scottish government’s latest Government Expenditure and Revenues Scotland (GERS) publication covering 2012–13; and updated forecasts from the Office for Budget Responsibility’s (OBR) March 2014 Economic and Fiscal Outlook.

Additional data relating to section 4 are available here.

]]> Wed, 04 Jun 2014 00:00:00 +0000
<![CDATA[Policies for an independent Scotland? Putting the Independence White Paper in its fiscal context]]> The potential consequences of independence for taxation, public services, and the welfare system in Scotland are a key battleground in the ongoing campaigning ahead of the independence referendum this September. In its White Paper, the Scottish Government sets out a number of tax and spending changes that it argues would lead to a fairer and more economically successful Scotland. In this Briefing Note we discuss a number of the most significant policy changes suggested, and place them in the context of the fiscal backdrop that an independent Scotland looks likely to inherit.

]]> Wed, 04 Jun 2014 00:00:00 +0000
<![CDATA[Characteristics of those directly affected by the 2014 Budget pension reforms]]> The 2014 Budget announced fundamental changes to private pensions in the UK, removing restrictions on how individuals could withdraw funds from their defined contribution (DC) pensions. Under the current rules, many people with a DC pension are forced to use their accumulated pension to buy an annuity by the age of 75, or else face a 55% tax rate on the withdrawn income. From April 2015, such restrictions are now set to be removed, increasing flexibility for some individuals with DC pensions.

This Briefing Note summarises the characteristics of those who are most likely to be directly affected by these announced changes to the pensions system. We restrict our attention to those who might be affected in the immediate future, using survey data from the English Longitudinal Study of Ageing (ELSA).The survey’s rich mix of information on pensions, other types of wealth, demographics, other socio-economic characteristics and individuals’ expectations allows us to estimate the proportion of people affected by the increase in flexibility. It also allows us to investigate the characteristics of those individuals most likely to be affected by the reforms, which should inform anyone trying to predict the short-term response to the policy changes.

This Briefing Note accompanies the Observation Budget 2014 pension reforms: increased flexibility, but for whom?.

This briefing note was updated on 4 June 2014 with minor changes to tables 3.2 and 3.3.

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<![CDATA[Measuring house prices: a comparison of different indices]]> House price indices are some of the most closely watched economic indicators in the United Kingdom. This has been particularly true since early 2013 due to the stronger-than-expected growth in house prices and housing demand. This growth takes place against a background of several government initiatives to stimulate the housing market – most notably the introduction of the policy of Help to Buy, which was designed to allow those with small down payments to purchase a home.

With the extension to one of the components of the Help to Buy policy announced in the March 2014 Budget, the current and prospective trajectory of house prices continues to be an important issue. However, whilst there is no doubt that house prices are on a general upward trend, exactly how fast house prices are increasing and whether they have attained their previous peak are less clear. This briefing note is designed to shed some light on these issues.

This briefing note is accompanied by the observation House prices: what do the statistics really mean?.

]]> Fri, 09 May 2014 00:00:00 +0000
<![CDATA[The public sector workforce: past, present and future]]> As in all advanced economies, the public sector is a sizeable employer in the UK. At its most recent high-point in 2010, the public sector employed about 6.1 million workers, or 20% of all UK workers. The public sector pay bill also makes up a large element of public spending, accounting for well over half of current or day-to-day spending at the latest count. With the government in the process of making significant cuts in departmental spending as part of a fiscal consolidation aimed at helping to bring the public finances back on to a sustainable path, cuts to the total pay bill and workforce are essentially unavoidable. Indeed, the OBR forecast is that the level of general government employment will fall by 1.1 million as a result of expected cuts to public spending between 2010–11 and 2018–19. With schools and NHS spending relatively protected from spending cuts, these workforce cuts are likely to be focused on other areas of spending, changing the shape of both public spending and the public workforce.

In this briefing note, we combine various data sources to provide for the first time a consistent picture on how the size and composition of the public sector workforce has changed over the past 50 years. This initial descriptive piece forms part of a larger project that will provide further detailed analysis of the differences in the remuneration packages of public and private sector workers, as well as the mobility of workers between sectors and different areas of the country.

]]> Fri, 14 Feb 2014 00:00:00 +0000
<![CDATA[Child and working-age poverty in Northern Ireland over the next decade: an update]]> previous IFS projections of child and working-age poverty in Northern Ireland and the UK as a whole from 2012-13 to 2017-18, and in 2020-21. These projections take into account revised macroeconomic forecasts from the Office for Budget Responsibility (OBR) published alongside Budget 2013, new forecasts of employment and earnings growth provided by Oxford Economics, and new tax and benefit policy announcements, and make use of more recent data on the UK household population.]]> Wed, 15 Jan 2014 00:00:00 +0000 <![CDATA[Gluttony in England? Long-term change in diet]]> There has been a marked increase in body weight across much of the developed world. This has taken place, even though data suggest that there has not been an increase in calories consumed. This leads to a puzzle. If calories are declining, why are people gaining weight?

Changes in the nature of work and leisure, housework and other activities have led to substantial reductions in the strenuousness of daily life. In ongoing work, we are investigating how changes in purchased foods correspond to changes in time use and the strenuousness of activities. It appears that weight gain has resulted from a faster decrease in activity levels than in calories consumed, leading to an excess of calories.

The aim of this research is to help inform policy by increasing our understanding of the factors that have driven the rapid rise in obesity. The results do not say that food is not a problem, but that we need to consider both - calories ingested and calories expended.

]]> Mon, 04 Nov 2013 00:00:00 +0000
<![CDATA[Food expenditure and nutritional quality over the Great Recession]]>

We also investigate how the nutritional quality of the foods that households purchase has changed over this period. We find that, on average, across a number of measures, the nutritional quality of foods purchased declined from 2005-07 to 2010-12. Households substituted towards less healthy food types, mainly towards processed foods and away from fruit and vegetables. However, they also shifted towards healthier food products within food types (for example, the average saturated fat content of processed food declined).

There are differences across households. Households with young children cut back on calories purchased by more than other household types. Pensioners reduced calories purchased by more than non-pensioner households without children. All household types reduced their real expenditure per calorie, with the average reduction being largest for households with young children.

Changes in the average nutritional quality of foods purchased also varied by household type. Pensioners, households with young children and single-parent households experienced a larger decline in the nutritional quality of the foods they purchased. This was partly due to greater substitution towards processed food and away from fruit and vegetables, which contributed towards increases in the intensity of saturated fat and sugar in their purchases.]]> Mon, 04 Nov 2013 00:00:00 +0000 <![CDATA[Taxing an independent Scotland]]> This Briefing Note looks at the way that tax revenue in Scotland is currently delivered and at the reform options that would be open to an independent Scotland.

Note: This Briefing Note has been slightly revised to correct small errors in some cash figures in section 2 (repeated in the Executive Summary) where an incorrect factor had been used to convert 2011-12 revenue figures to 2013-14 prices. All changes are of less than 1% and do not materially affect any of the analysis or conclusions.

]]> Tue, 29 Oct 2013 00:00:00 +0000
<![CDATA[Government spending on public services in Scotland: current patterns and future issues]]>
  • describes the big picture for public spending in Scotland and compares the amount spent with that in the rest of the UK;
  • examines how the amount spent on different service areas compares with the average for the UK as a whole and sets out some causes and consequences of these differences;
  • looks at how spending on different public services has changed over time;
  • discusses the options and issues in public service spending if Scotland were to vote for independence.]]> Thu, 19 Sep 2013 00:00:00 +0000 <![CDATA[Government spending on benefits and state pensions in Scotland: current patterns and future issues]]> There has been a growing debate about how the benefits system (that is, the system of state benefits, pensions and tax credits) may be affected if Scotland becomes independent. This debate takes place at a time when the benefits system that Scotland currently shares with the rest of the UK is going through some major changes – such as the replacement of most means-tested benefits for working-age recipients by the new universal credit – and facing substantial cuts as part of the fiscal consolidation. The Scottish government has said it plans to reverse at least some of the cuts if Scotland were to become independent. It also plans to consult upon the principles and policies an independent Scotland should follow, which may result in broader changes to the benefits system. This briefing note aims to describe the patterns of benefit expenditure in Scotland and set out a number of issues for the future.

    ]]> Wed, 31 Jul 2013 00:00:00 +0000
    <![CDATA[Price-based measures to reduce alcohol consumption]]> In this briefing note, we compare the effectiveness of the proposed minimum unit price and quantity discount ban to an alternative policy which reforms and significantly simplifies the structure of excise taxes levied on alcohol. We use detailed information on the off-trade alcohol purchases of a large number of households over a year to assess whether the reforms would target heavy drinkers, a group who are of particular policy concern because of harms they cause to themselves and others by their alcohol intake. We argue that a reformed tax system could be even better targeted on this group than a minimum unit price, and that a quantity discount ban is poorly targeted. We also show that a tax reform could generate additional tax revenue for the Exchequer, whereas a minimum unit price would raise revenue for alcohol retailers and manufacturers and reduce tax revenue.

    If government wants to reduce alcohol consumption among heavy drinkers then it would be better advised to concentrate on reforming the excise duty system that already exists rather than to introduce a new system of minimum pricing.

    See also the Observation Reforms to alcohol taxes would be more effective than minimum unit pricing and the presentation Price-based measures to reduce alcohol consumption .


    ]]> Mon, 18 Mar 2013 00:00:00 +0000
    <![CDATA[Better Budgets: making tax policy work]]> Taxes, like death, are unavoidable. But we can design our taxes. We are not bound to have a tax system as inefficient, complex, and unfair as our current one. To improve things, we need to see the system as a whole, we need to design the system with a clear understanding of the population and economy on which it operates, and we need to apply economic insights and evidence to the design. We also need a much more informed public debate and a much better set of political processes than the ones we currently have.

    This publication is related to the observation Making tax policy


    ]]> Wed, 20 Feb 2013 00:00:00 +0000
    <![CDATA[Autumn Statement 2012: more fiscal pain to come?]]> Mon, 26 Nov 2012 00:00:00 +0000 <![CDATA[Scottish independence: the fiscal context]]> This is the first output of a new project at IFS, funded by the Economic and Social Research Council (ESRC), looking at some of the fiscal choices that might face Scotland should it choose independence following the 2014 referendum.

    This work will be presented at a David Hume Institute seminar in Edinburgh on Monday 19 November. ]]> Mon, 19 Nov 2012 00:00:00 +0000 <![CDATA[Socio-economic gaps in HE participation: how have they changed over time?]]> This Note examines what happened to HE participation overall and at highstatus institutions following the increase in tuition fees (and accompanying changes to student support and other policies designed to 'widen' participation) that occurred in 2006-07.

    ]]> Thu, 08 Nov 2012 00:00:00 +0000
    <![CDATA[Fees and student support under the new higher education funding regime: what are different universities doing?]]> This briefing note contains the first in-depth analysis of the new student support arrangements following the changes to the higher education finance regime introduced in September 2012.

    ]]> Thu, 08 Nov 2012 00:00:00 +0000
    <![CDATA[A dynamic perspective on how the UK personal tax and benefit system affects work incentives and redistributes income]]> Tue, 16 Oct 2012 00:00:00 +0000 <![CDATA[Local government expenditure in Wales: recent trends and future pressures]]> The UK is part-way through significant real-terms reductions in government expenditure as it attempts to deal with the large hole in its public finances. Local government expenditure is not immune from the cuts, and in the 2012 Green Budget, IFS researchers examined the cuts made in 2010−11 and planned in 2011−12 by local authorities in England. This report focuses instead on Wales, and examines both the cuts made to date (up to and including 2012−13) and some scenarios for how much local authorities may have to spend in the period up to 2020−21. It also contains a brief discussion of the economic and fiscal situation and two other important public policy issues for the coming years: changes to the welfare system – which are also intended to reduce public spending – and demographic change.

    To view the data used in this report click here

    ]]> Fri, 05 Oct 2012 00:00:00 +0000
    <![CDATA[Pensioners and the tax and benefit system]]> This paper was commissioned by the Nuffield Foundation to aid discussion about ways in which the proposals produced by the Dilnot Commission on the Funding of Care and Support could be funded. These proposals would provide a greater degree of insurance against the costs of residential care, which would tend to be welfare-improving as individuals tend to be risk-averse. They also strengthen incentives to save for retirement.

    ]]> Tue, 26 Jun 2012 00:00:00 +0000 <![CDATA[Reforming Council Tax Benefit: options for Wales]]> Thu, 21 Jun 2012 00:00:00 +0000 <![CDATA[ Jubilees compared: incomes, spending and work in the late 1970s and early 2010s]]> Mon, 04 Jun 2012 00:00:00 +0000 <![CDATA[Fund holdings in defined contribution pensions]]> Mon, 26 Mar 2012 00:00:00 +0000 <![CDATA[Tax and benefit reforms due in 2012-13, and the outlook for household incomes]]> This Briefing Note is intended to provide background to the Chancellor's Budget on 21 March 2012. It first gives an overview of the tax and benefit reforms currently planned for the coming financial year and their likely impact on household incomes. It then considers the outlook for household incomes in the near future more broadly, given current macroeconomic forecasts of variables such as employment and earnings as well as planned tax and benefit policy.

    ]]> Thu, 08 Mar 2012 00:00:00 +0000
    <![CDATA[Why did Britain's households get richer? Decomposing UK household income growth between 1968 and 2008-09 (IFS analysis for the Resolution Foundation)]]> Average UK household income has almost doubled in real terms over the past forty years. This report asks 'From where has the growth in household income come?' and answers this by documenting and analysing the various factors that have contributed to this growth.

    ]]> Mon, 05 Dec 2011 00:00:00 +0000
    <![CDATA[Alcohol pricing and taxation policies]]> Recently, a range of policies that would affect alcohol prices have been introduced or considered. Following an announcement in the March 2011 Budget, higher taxes on strong beers (above 7.5% alcohol by volume) and reduced taxes on low-strength beers (of 2.8% ABV or less) came into force in October 2011. A ban on 'below-cost' sales of alcohol (where 'cost' is defined as the total tax - duty and VAT - due on the product) is set to be introduced for England and Wales, though the timetable is not yet clear. And following their victory in the 2011 Scottish Parliamentary election, the SNP have committed to introduce a minimum price per unit of alcohol, following an unsuccessful attempt to do so in 2010. This Briefing Note uses detailed data recording off-licence alcohol purchases for a large sample of households to assess which types of alcohol products, retailers and consumers would be most affected by these different reforms.

    ]]> Thu, 24 Nov 2011 00:00:00 +0000
    <![CDATA[School funding reform: an empirical analysis of options for a national funding formula]]>

    In this Briefing Note, we describe the options for a national funding formula for schools and examine how different options would affect the finances of different schools or areas of the country. Our analysis is based on data held by the Department for Education (DfE) and this work has been supported by the Esmée Fairbairn Foundation.

    ]]> Fri, 18 Nov 2011 00:00:00 +0000
    <![CDATA[Does when you are born matter? The impact of month of birth on children's cognitive and non-cognitive skills in England]]> It is well known that children born at the start of the academic year tend to achieve better exam results, on average, than children born at the end of the academic year. This matters because educational attainment is known to have long-term consequences for a range of adult outcomes. But it is not only educational attainment that has long-lasting effects: there is a body of evidence that emphasises the significant effects that a whole range of skills and behaviours developed and exhibited during childhood may have on later outcomes. There is, however, relatively little evidence available on the extent to which month of birth is associated with many of these skills and behaviours, particularly in the UK.

    The aim of this report is to build on this relatively limited existing evidence base by identifying the effect of month of birth on a range of key skills and behaviours amongst young people growing up in England today, from birth through to early adulthood. This work will extend far beyond the scope of previous research in this area - in terms of both the range of skills and behaviours considered, and the ability to consider recent cohorts of children - enabling us to build up a more complete picture of the impact of month of birth on children's lives than has previously been possible.


    Authors interested in estimating the impact of month of birth often take advantage of a technique known as regression discontinuity design. A brief overview of the method and some of the ways it has been applied to this topic in different disciplines can be found here.

    ]]> Tue, 01 Nov 2011 00:00:00 +0000
    <![CDATA[Trends in education and schools spending]]> Until recently, education spending has enjoyed healthy year-on-year increases, but that is set to change. Along with most areas of government spending, education spending is set to shrink over the current Spending Review period. What will be the size of the total cuts and how will they be shared across different areas of education spending? Somewhat surprisingly, the answers to these questions cannot be easily found in current data published by the government.

    In this Briefing Note, we produce new estimates of the likely cuts to overall public spending on education in the UK up to 2014-15. We have also pieced together various published plans for grants and specific components of education spending. This provides the most comprehensive analysis of the pattern of cuts across different areas of education spending published to date. We also analyse which types of schools are likely to see the largest increases in funding and which are likely to see real-terms cuts.

    ]]> Tue, 25 Oct 2011 00:00:00 +0000
    <![CDATA[The impact in 2012-13 of the change to indexation policy]]> The inflation figures for September 2011 released this week by the Office for National Statistics (ONS) are important, because they affect how the tax and benefit system will look in 2012-13. Most parameters of the personal tax and benefit system - such as income tax thresholds and benefit amounts - and public sector pensions are typically increased each April in line with the rate of annual inflation measured in the previous September .

    These indexation policies matter a lot. They affect changes in indexed parameters every year, so the effects of indexation policy accumulate over time, and their impacts on the levels of (for example) benefits can soon become very large.

    ]]> Tue, 18 Oct 2011 00:00:00 +0000
    <![CDATA[The changing composition of public spending ]]> This analysis finds that the shape of the state today is very different from that of 30 years ago. Going forward, spending on health, pensions and long term care is set to rise fast. Just these elements of spending, excluding all the welfare benefits paid to non-pensioners, will reach half of all public spending over the next 50 years unless there is significant reform or unless total spending is significantly increased.

    ]]> Wed, 10 Aug 2011 00:00:00 +0000
    <![CDATA[The impact of tax and benefit reforms by sex: some simple analysis]]> The Equalities Act 2010 puts an obligation on the government to give 'due consideration' to how its policies affect gender inequalities. In this paper, we show some simple ways in which the government could examine the impact of tax and benefit reforms on men and women using household level data that it already has available.

    ]]> Thu, 23 Jun 2011 00:00:00 +0000
    <![CDATA[Living standards during the recession]]> We are used to our incomes rising over time. Since 1961, median (middle) household income before housing costs in the UK has increased by 1.6% per year on average. So over a typical three year period real incomes would rise by about 5%. However, our best estimate is that in the three years from 2008 to 2011 real household incomes will in fact have fallen by 1.6% - the biggest three year drop in real living standards since 1980-83. So households are about 6% worse off than they might have expected had incomes risen in the normal way.

    ]]> Mon, 21 Mar 2011 00:00:00 +0000
    <![CDATA[Universal Credit: a preliminary analysis]]> The government plans to redesign entirely the system of means-tested benefits and tax credits for working-age adults by replacing them all with a single benefit, known as Universal Credit, to be administered by the Department for Work and Pensions. This Briefing Note analyses Universal Credit as set out in the government's White Paper, Universal Credit: Welfare that Works. A Welfare Reform Bill is due to be published later in January 2011, and this should contain more details of how Universal Credit will operate.

    ]]> Wed, 12 Jan 2011 00:00:00 +0000
    <![CDATA[Child and working-age poverty from 2010 to 2013]]> This Briefing Note provides projections of income poverty among children and working-age adults in the UK under current tax and benefit policies. We also estimate the direct impact on poverty of tax and benefit reforms announced by the coalition government. Projections are produced for each year between 2010-11 and 2013-14.

    ]]> Thu, 16 Dec 2010 00:00:00 +0000
    <![CDATA[The Impact of Tax and Benefit Reforms to be Introduced between 2010-11 and 2014-15 in Northern Ireland]]> Immediately following the Spending Review of 20th October, the IFS updated its analysis of the distributional impact of tax and benefit reforms to be introduced between 2010-11 and 2014-15, taking into account the effects of the reforms announced in the Spending Review.2 This did not substantially alter the conclusions from previous analysis by IFS researchers that the impact of the tax and benefit reforms to be introduced over this period was decreasing as a proportion of income within the lowest 90% of households in the income distribution, although it is the very richest households that will lose the most overall. If we were instead to rank households by expenditure, which as we have argued previously might better reflect households' lifetime incomes, losses as a proportion of expenditure again fall as we move up the expenditure distribution

    ]]> Fri, 10 Dec 2010 00:00:00 +0000
    <![CDATA[Higher education reforms: progressive but complicated with an unwelcome incentive]]> Details of the proposed changes to higher education (HE) have been finalised ahead of tomorrow's vote in the House of Commons on the raising of the cap on tuition fees to £9,000. We find that:

    • By decile of graduate lifetime earnings, the Government's proposals are more progressive than the current system or that proposed by Lord Browne. The highest earning graduates would pay more on average than both the current system and that proposed by Lord Browne, while lower earning graduates would pay back less. By decile of parental income, graduates from the poorest 30% of households would pay back less than under Lord Browne's proposed system, but more than under the current system. While all graduates from families with incomes above this would pay more, graduates from the 6th and richest (10th) deciles of parental income would pay back the most under the proposed system.

    • The Government announced today that it will up-rate the threshold above which graduates pay back their loan annually in line with earnings (as was proposed by Lord Browne) rather than at 5 year intervals which makes the system more progressive than originally proposed.

    • The National Scholarship fund - through which the taxpayer will cover the third year of fees for students from low income families who attend universities charging over £6,000 a year - will cost the government money in the short term. But we estimate that in the long term the net impact will be to strengthen the public finances slightly (by around £11m a year) if average fee levels are around £7,500 per year. This is mainly because universities will be required to cover the cost of fees for these students in their first year thereby reducing the taxpayer subsidy.

    • The new system is less transparent than the current system and that proposed by Lord Browne, with a more complex system of student support and interest rates. The new system also generates perverse incentives - for example the National Scholarship fund provides a financial incentive for universities charging over £6,000 a year to turn away students from poorer backgrounds.

    ]]> Wed, 08 Dec 2010 00:00:00 +0000
    <![CDATA[Corporate taxes and intellectual property: simulating the effect of Patent Boxes]]> The tax treatment of intellectual property is currently in the spotlight and there is considerable interest in understanding how taxes affect firms' choices over where to hold patents for tax purposes. In a forthcoming paper, we estimate the responsiveness of European multinationals' patent holdings to corporate taxes. We consider firms' decisions over which subsidiary to hold each of their patents in. This choice is crucial for determining the jurisdiction under which the patent income will be taxed. We consider taxes in the country where intellectual property is held as well as interactions with taxes in the home country via CFC regimes. We simulate the effects of introducing Patent Boxes, in terms of both the location of income and the resulting government revenues, under alternative assumptions about how CFC regimes will interact with Patent Boxes. This Briefing Note summarises the main results from that paper (Griffith, Miller and O'Connell, 2010) and discusses our findings in relation to the current policy issues.

    ]]> Tue, 30 Nov 2010 00:00:00 +0000
    <![CDATA[Introducing a pupil premium: IFS researchers' response to government consultation on school funding arrangements]]> Leading up to the 2010 general election, both the Conservatives and the Liberal Democrats campaigned on the idea of a disadvantaged pupil premium (hereafter, a pupil premium) in the school funding system in England. A commitment to introduce a pupil premium was then included in the coalition's programme for government.

    The main aim of the pupil premium is to narrow the achievement gap between children coming from rich and poor families. To achieve this, it would provide additional money to schools for each pupil from a disadvantaged background, however defined, with the intention of targeting resources more heavily towards schools with a high proportion of disadvantaged pupils, and reducing any disincentive that schools might have to recruit such pupils.

    In July 2010, the Department for Education launched a consultation on school funding arrangements in 2011-12, and their plans for a pupil premium from September 2011 onwards. This briefing note contains the response of IFS researchers to this consultation.

    ]]> Fri, 15 Oct 2010 00:00:00 +0000
    <![CDATA[21st Century Welfare: commentary on, and response to, the Government's consultation on welfare reform ]]> The Department for Work and Pensions (DWP) consultation paper, "21st Century Welfare", argues that there are substantial advantages to having a more integrated benefits and tax credits system: it would reduce the government's administration costs and the amount of money lost to fraud and error, and be simpler for claimants to understand, which might in itself encourage some to enter work. We agree with this assessment, and consider there to be a strong case for integrating all benefits and tax credits into a single benefit. If the Government decides that full integration of the benefits and tax credits system is too drastic a change or not worth the risk of upheaval, then it should seek integration or alignment on a smaller scale wherever possible; we suggest the Government look first at the way that housing benefit and council tax benefit interact with tax credits for those in work.

    The DWP document also suggests that work incentives need to be strengthened. This is a separate issue from simplification and integration: benefits and tax credits could be integrated without altering anyone's entitlement or their financial work incentives, and work incentives could be strengthened within the current set of benefits and tax credits. The DWP document does not specify which groups it is most concerned about, and so it is not possible to suggest what direction reforms might take. Ultimately, strengthening incentives for low earners to work can be done only by paying less money to those who do not work or by paying more money to those with low earnings.

    ]]> Thu, 30 Sep 2010 00:00:00 +0000
    <![CDATA[The impact of introducing a minimum price on alcohol in Britain]]> In this Briefing Note, we use detailed data on the grocery shopping of more than 25,000 households during 2007 to provide descriptive evidence of alcohol purchases from supermarkets and other off-licensed premises retailers. We calculate the impact of a 45p per unit minimum price and describe how different households and retailers would be affected. Our calculations are based on a number of assumptions about consumer and firm behaviour which we discuss; more precise estimates would require estimation of a detailed model of household purchasing and firm pricing decisions. Our figures are based on a sample of households from Great Britain and we consider a minimum price that is applied nationally.

    We estimate that if a policy like this were rolled out across Britain it could transfer £700 million from alcohol consumers to retailers and manufacturers. This contrasts to increases in alcohol taxes, which largely result in transfers to government in the form of much needed tax revenue. In the long-term, it would be desirable to restructure alcohol taxes so that they were based on alcohol strength, thus allowing the tax system to mimic the impact of a minimum price but ensuring the additional revenues went to the Government rather than firms.

    ]]> Tue, 28 Sep 2010 00:00:00 +0000
    <![CDATA[The distributional effect of tax and benefit reforms to be introduced between June 2010 and April 2014: a revised assessment]]> Please note: Section 5 of this note has been substantially revised since the initial publication of the report in August 2010: see Appendix E for a list of the changes. These changes do not affect our assessment of the Budget's progressivity/regressivity in Sections 1-4.

    The June 2010 Emergency Budget set out a number of tax and benefit changes that will be introduced by 2014-15. For the first time, the Budget documentation contained distributional analysis of the changes by household income, which showed that the measures to be introduced between June 2010 and April 2012 were progressive relative to household income, and in his Budget speech the Chancellor used this as evidence that it was a 'progressive Budget'. In our post-budget briefing, we cast doubt on this claim, demonstrating that many of the progressive tax rises that will be introduced over the next two years were announced by the previous Government, and that the Budget measures scheduled to come in between 2012 and 2014 are generally regressive. Moreover, the distributional analysis in the Budget documentation did not include the effects of some cuts to housing benefit, Disability Living Allowance and tax credits that are likely to affect the poorer half of the income distribution more than the richer half.

    In this Briefing Note, we attempt to model the full impact of tax and benefit changes in the Budget, including these additional benefit cuts, on different income and expenditure groups. In Section 4, we show their impact on different sorts of households.

    ]]> Wed, 25 Aug 2010 00:00:00 +0000
    <![CDATA[Cohabitation, marriage and relationship stability]]> In the government's recent State of the Nation report it was asserted that cohabiting parents have an increased likelihood of separating relative to married couples. In this Briefing Note, we critically appraise this statement, building on analysis contained in our recent IFS Commentary, Cohabitation, Marriage and Child Outcomes.

    ]]> Wed, 07 Jul 2010 00:00:00 +0000
    <![CDATA[Private schooling in the UK and Australia]]> The type of school a child attends is known to impact on educational attainment and later life outcomes. But there is very little persuasive empirical evidence (although widespread and varied anecdotal evidence) on why parents opt to take their children outside the state system.

    As part of an international collaboration funded by the Economic and Social Research Council and the Australian Research Council, researchers at the IFS and the Australian National University have sought to address this question by comparing the determinants of private school choice in both Australia and the UK.

    ]]> Thu, 17 Jun 2010 00:00:00 +0000
    <![CDATA[The history of state pensions in the UK: 1948 to 2010]]>

    This Briefing Note describes state pension provision in the United Kingdom from the inception of the basic state pension in 1948, following the Beveridge Report, to Pensions Act 2007 and the plans of the Conservative/Liberal Democrat coalition government. The main objective is to provide a comprehensive description of the rules that currently determine pension benefits as well as those that have been in place in the past. However, we also provide a brief historical overview of the dilemmas facing policymakers when contemplating pension reforms and a summary of the most recent reforms. The history of the UK pension system is the story of a mainly non-contributory system, periodically tempted by the higher replacement rate of social insurance schemes, but always frightened once the costs become apparent. Recent reforms have tilted the system further in the direction of a universal flat-rate benefit, abandoning any social insurance design. This confirms that the main objective of the UK state pension system is to reduce poverty at old age. These flat-rate pensions will also reduce the reliance of the system on means-tested benefits, somewhat reinforcing the Beveridgean design of the system. Given these clarifications, it is unfortunate that the latest reforms have still sought to maintain much of the complex structure of the pre-existing system instead of reforming and rationalising it. However, once issues of transition have been dealt with, there may yet be scope for simplifying the presentation of the rules.

    Historic rates for various parameters of the UK state pension system, discussed in this briefing note, can be found here.

    ]]> Wed, 09 Jun 2010 00:00:00 +0000
    <![CDATA[Pensions and retirement policy]]> This election briefing note reviews the policies that the three main UK political parties have announced in their manifestos that relate to state pensions, private pension saving, public sector pensions, and employment at older ages.

    ]]> Tue, 04 May 2010 00:00:00 +0000
    <![CDATA[Couple penalties and premiums in the UK tax and benefit system ]]> This report analyses the distribution of couple penalties and premiums in the tax and benefit system using a large, statistically representative sample of households. It defines 'couple penalties and premiums' in the tax and benefit system as the change in entitlements to benefits and tax credits and in liability to taxes that occurs when two single people marry, or start to live together as husband and wife. Two adults can almost certainly save on living costs by living together, but unlike some past studies, this study does not attempt to measure the overall financial or non-financial benefits or costs to living as a couple compared with living apart. This study cannot tell us whether couples would be better off living apart than living as a couple, but simply measures how taxes and benefits vary by family situation, an issue of more direct public policy concern. In general, our analysis is not always consistent with past studies of couple penalties and premiums, some of which have tried to measure not just couple penalties and premiums from the tax and benefit system, but also the inherent financial advantage that arises when living as a couple (by comparing equivalised net incomes after housing costs).

    The report uses the phrase 'net state support' to refer to entitlements to benefits and tax credits less liability to taxes. If net state support rises when a couple splits up, then this is called a 'couple penalty'; if net state support falls, this is called a 'couple premium'. In some cases, net state support does not change when a couple splits up, and we say that the tax and benefit system is neutral towards relationship status in these cases. The words 'penalty' and 'premium' are unfortunate, because they suggest that couple penalties are undesirable and couple premiums desirable. Although policymakers may make that judgement, they may also make alternative judgements.

    ]]> Thu, 29 Apr 2010 00:00:00 +0000
    <![CDATA[Families and children]]> This Election Briefing Note, drawing in part on past notes in this series, analyses the manifesto proposals of the three main political parties in the area of families with children. In particular, it discusses the following policies:

    • Taxes, benefits and tax credits for families with children (section 2);
    • Abolishing the couple penalty in the tax credit system (section 3);
    • Parental leave, pay and flexible working (section 4);
    • Childcare, early years education and education (section 5).

    Other issues which are relevant to families with children, but not covered here, are welfare policy towards lone parents, and schools: these are also discussed in other notes in the series.

    ]]> Thu, 29 Apr 2010 00:00:00 +0000
    <![CDATA[Environmental policy proposals]]> In this election briefing note, we look at the environment policy proposals put forward by the three main UK political parties in their manifestos, as well as the current government's plans for the future.

    ]]> Wed, 28 Apr 2010 00:00:00 +0000
    <![CDATA[Filling the hole: how do the three main UK parties plan to repair the public finances?]]> The financial crisis and the recession have prompted a huge increase in government borrowing over the last two years, as the gap between what the public sector spends and raises from taxes has widened to an extent not seen since the Second World War. This Briefing Note examines what the parties have said (explicitly and implicitly) about the scale, timing and composition of the fiscal repair job ahead, teasing out the differences and similarities.

    ]]> Tue, 27 Apr 2010 00:00:00 +0000
    <![CDATA[Taxes and benefits: the parties' plans]]> In the period since the impact of the financial crisis became apparent in its public finance forecasts, the current Labour government has announced and legislated for a number of net tax increases and benefit cuts to take effect over the course of the coming parliament to help reduce government borrowing. Labour has made no significant additional proposals in its manifesto. The Conservatives have accepted the bulk of Labour's proposals, but have also announced a very small additional benefit cut and a more substantial net tax cut to be paid for by cuts in spending on public services. The Liberal Democrats propose an additional cut in benefits than the Conservatives and a modest net tax increase rather than a net tax cut. The modest net tightening relative to Labour's plans masks much larger gross giveaways and takeaways in the most far-reaching of the three packages.

    This note discusses these various proposals, looking at their economic and administrative merits, their distributional impact and their effect of incentives to work and save.

    ]]> Tue, 27 Apr 2010 00:00:00 +0000
    <![CDATA[Education policy]]> In his speech to the Labour Party conference in October 1996, Tony Blair famously stated that his three main priorities for government would be 'education, education, education'. A commitment to increasing education spending as a share of national income over the course of the parliament was then included in the Labour Party's general election manifestos in 1997, 2001 and 2005.

    In this general election briefing note we examine trends in education spending under Labour as well as plans going forwards. We then discuss policy and key trends under Labour to date and policy proposals from the three main UK political parties in each of the following areas of education policy: early years; schools; and higher education. For the most part we focus on education policy in England only, though we do discuss trends in UK education spending in Section 2.

    ]]> Mon, 26 Apr 2010 00:00:00 +0000
    <![CDATA[Productivity, innovation and the corporate tax environment]]> We focus on changes to the corporate tax environment alongside direct policies that aim to correct market failures. To begin, we highlight the main policies that have been introduced by Labour governments since 1997 and the main policies being proposed by the three main UK parties in the run-up to the 2010 election.

    ]]> Fri, 23 Apr 2010 00:00:00 +0000
    <![CDATA[UK productivity in the recession]]> In this Briefing Note, we briefly describe trends in UK productivity over the recent recession - which ran from the first quarter of 2008 to the last quarter of 2009 - and how they compare with those in the US.

    Section 2 describes the path of output and hours worked, and shows how this has translated into labour productivity. Section 3 compares the changes in hours worked and the number of workers. Section 4 concludes.

    ]]> Fri, 23 Apr 2010 00:00:00 +0000
    <![CDATA[Welfare reform and the minimum wage]]> This Briefing Note reviews developments in welfare policy under the current government and analyses the manifesto proposals of the three main political parties in this policy area. In some cases, we refer to statements made by the parties outside of their manifestos, in order to interpret or flesh out the detail of their proposals (we indicate this in the text). Note that many of the Labour Party's manifesto statements reflect existing government policy (again, we indicate this in the text where appropriate).

    Other notes in this series will compare the three main parties' proposals on taxes and benefits, education policy and pensions.

    ]]> Wed, 21 Apr 2010 00:00:00 +0000
    <![CDATA[Environmental policy since 1997]]> In this note, we will examine Labour's record on environmental policy since 1997. We begin in section 2 with a relatively broad overview of the environmental record, looking at key outcomes on environmental taxes, expenditures and emissions. Section 3 then looks in detail at policy developments and outcomes in three areas: energy, transport and waste management. Section 4 assesses the coherency of current environmental policy and section 5 concludes.

    ]]> Tue, 20 Apr 2010 00:00:00 +0000
    <![CDATA[The public finances: 1997 to 2010]]> This general election briefing note looks at how overall levels of borrowing and debt changed between 1997 and 2010. Some discussion is, necessarily, included of trends in taxation and spending; however, readers who are particularly interested in the levels of taxation and spending during Labour's period in office may also wish to refer to two other notes in this series of IFS Election 2010 Briefing Notes. Section 2 describes how the UK public finances evolved between 1997 and 2007 (prior to the financial crisis). It then compares this to the pattern observed during the period of Conservative governments from 1979 to 1997 and to the trend seen in other industrial countries. Section 3 carries out the same analysis, but for the period between 2007 and 2010, when the financial crisis and associated recession adversely affected the public finances of the UK and of many other countries.

    ]]> Mon, 19 Apr 2010 00:00:00 +0000
    <![CDATA[Public spending under Labour]]> Even more than in previous elections, the appropriate size of the state − measured by public spending as a share of national income − is a key issue. This briefing note describes the trends in public spending since Labour came to office in 1997. Section 2 compares the levels of public spending under Labour to date with historical levels and spending in other OECD countries. Section 3 compares the growth in the main components of public spending seen under Labour, both before and after the start of the financial crisis, with growth seen under previous governments. Section 4 considers productivity in public service provision, and how the increased spending under the Labour government compares with changes in measured output.

    ]]> Mon, 12 Apr 2010 00:00:00 +0000
    <![CDATA[The tax burden under Labour]]> This election briefing note examines the evolution of the tax burden over the last 60 years. Section 2 begins by giving an overview of revenues over time. It compares the change in the tax burden since 1997 with historical changes and analyses how it reflects changes in the relative growth rates of revenue and national income. Section 2 also examines how the composition of tax revenues has changed since Labour came to power and compares this to the trend seen over the period in which the Conservatives were in power from 1979 to 1997. Finally this section puts the change in the tax burden since Labour came to power in an international context. Section 3 examines the extent to which changes in the tax burden since Labour came to power can be explained by discretionary policy changes, economic growth and other factors.

    ]]> Mon, 12 Apr 2010 00:00:00 +0000
    <![CDATA[Living standards, inequality and poverty: Labour's record]]> In this Briefing Note, we assess the changes to living standards that have occurred under the first 11 years of the Labour government, setting out how average incomes, income inequality and poverty have changed between 1996-97 and 2007-08 (the latest year for which data on all three are available). We compare these changes with what happened under previous governments.

    ]]> Wed, 07 Apr 2010 00:00:00 +0000
    <![CDATA[Tax and benefit reforms under Labour]]> This Election Briefing Note describes the main tax and benefit reforms since 1997, and shows how they have affected total government revenues. It then goes on to discuss the impact of these reforms on the distribution of income between household types, on work incentives and on the incentive to save. A subsequent Election Briefing Note will examine how Labour's reforms have affected the so-called 'couple penalty' that exists in the tax and benefit system.

    ]]> Wed, 07 Apr 2010 00:00:00 +0000
    <![CDATA[What has happened to 'Severe Poverty' under Labour?]]> This election briefing note surveys a range of data sources and definitions. It finds strong evidence of an increase in the rate of severe poverty since 2004-05, mirroring a rise in the official poverty rate, although the rate of persistent poverty (i.e. where people remain poor for a number of years) does seem to have fallen under Labour, at least until 2007. But the evidence is less conclusive about whether severe poverty is now higher than when Labour came to power.

    ]]> Wed, 07 Apr 2010 00:00:00 +0000
    <![CDATA[Britain's fiscal squeeze: the choices ahead]]> The economic and financial crisis that has unfolded over the last two years has caused a dramatic deterioration in the UK's public finances, with public sector borrowing set to peak this year at a level not seen since the Second World War and public sector indebtedness set to climb to levels not seen since the late 1960s.

    With the next general election less than a year away, the Government and the main opposition parties alike will be under pressure to offer more detailed proposals to repair the public finances. This note discusses some of the key questions all the parties will have to grapple with.

    ]]> Thu, 17 Sep 2009 00:00:00 +0000
    <![CDATA[The distribution of wealth in the population aged 50 and over in England.]]> The tables in this paper present a description of the distribution of wealth amongst those aged 50 and over in England in 2002/3, with the analysis split by a series of different factors. These include: age, education, income, social, with the analysis split by a series of different factors. These include: age, education, income, social class, housing tenure, self-reported health and self-reported disability.

    ]]> Mon, 15 Jun 2009 00:00:00 +0000
    <![CDATA[The distribution of wealth in the population aged 50 and over in England]]> The tables in this paper present a description of the distribution of wealth amongst those aged 50 and over in England in 2002/3, with the analysis split by a series of different factors. These include: age, education, income, social, with the analysis split by a series of different factors. These include: age, education, income, social class, housing tenure, self-reported health and self-reported disability.

    ]]> Fri, 12 Jun 2009 00:00:00 +0000
    <![CDATA[Living standards during previous recessions]]> The current recession is the first that the UK has experienced since the early 1990s. Much has changed since then, and society's collective memory of who fared worst during previous recessions seems likely to have faded. Many workers in their 20s or early 30s have not experienced a recession during their working lives - including both authors of this report, one of whom had just started secondary school at the end of the last recession and the other of whom had just started junior school. This Briefing Note thus aims to document the course of average living standards, and those of particular subgroups in society, during the previous three UK recessions. It will also show what happened to measures of poverty and inequality during these periods.

    ]]> Fri, 08 May 2009 00:00:00 +0000
    <![CDATA[Can more revenue be raised by increasing income tax rates for the very rich? ]]> This Briefing Note discusses how much scope there is to raise revenue from the very rich by increasing income tax rates and assesses in detail the amount of revenue that is likely to be raised by the government's proposed reforms. It extends analysis presented in the 2009 IFS Green Budget and updates some calculations in a submission to the Mirrlees Review. It also discusses information recently released by HM Treasury and HM Revenue & Customs concerning their methodology for calculating how much revenue these reforms will raise. The Briefing Note shows that there is considerable uncertainty over the revenue that could be raised from the very rich by increasing income tax rates, both because we cannot be certain about the distribution of incomes above £100,000 and because we cannot be certain how those affected will respond to the tax increase. It goes on to discuss under what conditions the measures in PBR 2008 could yield as much revenue as the Treasury is forecasting.

    ]]> Mon, 20 Apr 2009 00:00:00 +0000
    <![CDATA[Budget 2009: tightening the squeeze?]]> The outlook for the public finances appears significantly weaker than the Treasury predicted in the November 2008 Pre-Budget Report (PBR). This will have an important bearing on the two key tax and spending decisions that Chancellor Alistair Darling will have to take in his Budget statement on 22 April: whether to announce an additional short-term stimulus to help support the economy and whether to announce an additional long- term tightening to help repair the public finances.

    This Briefing Note sets out illustrative projections for the outlook for government borrowing and debt over the next few years. It then assesses by how much this or a future government might need to cut existing public spending plans and/or increase taxes to ensure that the outlook for public sector borrowing was no worse than that laid out in the PBR.

    The analysis in this Briefing Note builds on the detailed forecasts in the January 2009 IFS Green Budget. It does not re-estimate the Green Budget forecasts, but instead makes some broad-brush adjustments to them to reflect new information and analysis available since the PBR.

    ]]> Mon, 06 Apr 2009 00:00:00 +0000
    <![CDATA[How much do we tax the return to saving?]]> The questions of whether, and if so how much, the return to saving ought to be taxed are of central importance in discussions of how to design or reform the tax system. This Briefing Note provides a description of how the UK tax system treats the return to saving. Some key findings are that:

    • UK households hold their assets in a range of forms that face different tax treatments.
    • These differences in tax treatment can equate to quite big differences in the level of the tax on the return to these assets.
    • Differences in tax treatment can be due to the tax rates that an individual faces, as well as to the types of asset in which he or she chooses to save.
    • Tax rates on the return to assets have generally converged over the last 30 years.

    In order to undertake this description of the tax on the return to assets, it is necessary to address first some conceptual issues concerning how we measure the level of tax on returns. The inclusion of a discussion of these issues means that this note is somewhat more technical - in terms of discussion of taxes and economic concepts, and in terms of arithmetic content - than is typical for an IFS Briefing Note. Nonetheless, the note is intended to be accessible to individuals who are particularly interested in the policy or conceptual issues concerning the taxation of asset returns.

    ]]> Fri, 27 Mar 2009 00:00:00 +0000
    <![CDATA[Proportion of families, and of individuals living in families, who have private incomes exceeding their net income from, the state]]>

    This Briefing Note examines what proportion of families have pre-tax private incomes exceeding net support from the state. The analysis was undertaken using the IFS tax and benefit microsimulation model, TAXBEN, and data from the Family Resources Survey and the Family expenditure Survey.

    ]]> Fri, 19 Dec 2008 00:00:00 +0000
    <![CDATA[The distributional effect of the 2008 Pre-Budget Report]]> The Pre-Budget Report given by the Chancellor on 24th November 2008 contained a number of changes to the tax and benefit system to come into effect at various points over the next three years.

    This briefing note expands on the information provided at a briefing given by IFS researchers on the day after the Pre-Budget Report . It gives details of the changes to taxes, benefits and tax credits directly affecting households, and the total distributional impact of measures announced in PBR 2008 together with pre-announced changes, by income and expenditure decile and household type, at three points in time - January 2009, April 2009 and April 2011.

    It also discusses what PBR 2008 does to our impression of all tax and benefit changes under this Government. Finally, it discusses what PBR 08 did for child poverty in 2010/11 and the likely effects of the income tax changes for those earning more than £100,000 a year.

    ]]> Fri, 05 Dec 2008 00:00:00 +0000
    <![CDATA[The UK public finances: ready for recession?]]> As the UK economy begins to shrink for the first time in 16 years, the two main political parties have been arguing over whether the public finances are stronger or weaker now than they were at the outset of the last recession in 1990 and when Labour came to power in 1997. This note looks at a couple of key indicators of the health of the public finances in historical and international perspective to assess this.

    ]]> Fri, 31 Oct 2008 00:00:00 +0000
    <![CDATA[The 10% tax rate: where next?]]> In Budget 2007, the Government announced the abolition of the 10% starting rate of income tax alongside a wider set of reforms to personal taxes and tax credits to take effect during the period April 2008 to April 2010. Further changes to tax credits and state benefits were announced in PBR 2007 and Budget 2008, some to take effect in 2008-09, some in 2009-10 and others in 2010-11.

    During April 2008, the Government said that it was looking at ways of compensating the net losers from these changes (in practice, those for whom the losses from the abolition of the 10% band exceeded the gains from the other measures). On 13 May it announced a £600 rise in the income tax personal allowance for 2008-09, with a corresponding cut in the higher-rate threshold.

    In the light of these changes, this note looks at:

    • To what extent the rise in the personal allowance, and other measures in Budget 2007, PBR 2007 and Budget 2008, compensate those who lost out from the abolition of the 10% rate of income tax;
    • To what extent the Government's pre-announced changes to personal taxes, tax credits and benefits for 2010-11 provide compensation for these losers over the medium term;
    • What options the Government has for 2009-10 and beyond.

    ]]> Wed, 21 May 2008 00:00:00 +0000
    <![CDATA[Alistair Darling's mini-Budget: can he afford it?]]> The Government's decision on 13 May 2008 to increase the personal income tax allowance by £600 and to reduce the effective upper rate threshold by the same amount for 2008-09 is estimated to cost £2.7 billion (just under 0.2% of national income). The Chancellor, Alistair Darling, told the House of Commons: "I am able to finance this proposal through borrowing this year, ensuring that we do not take money out of the economy at this time."

    The Government maintains that the tax cut:

    • is affordable within the constraints laid down by its fiscal rules; and
    • will provide a useful stimulus to the economy at a time when economic growth is slowing.

    This note briefly assesses these claims.

    ]]> Wed, 21 May 2008 00:00:00 +0000
    <![CDATA[Racing away? Income inequality and the evolution of high incomes]]> This Briefing Note provides an analysis of the characteristics of high-income individuals and how their incomes have evolved over time.

    We begin by setting out recent trends in overall income inequality and why these lead us to focus on the pattern of income growth at the very top of the income distribution. We then present some basic facts about high-income individuals and how they compare with the rest of society (for example, what is their average before-tax income, what is their average tax rate, how much of total personal income do they receive, in what industries do they tend to work?). We then discuss recent trends in their incomes over time and how this pattern compares with that for the rest of the income distribution. We then briefly summarise some recent research on longer-term trends in high incomes. Appendix A will undertake a brief comparison with other sources of information - compensation of executives and measures of personal wealth.

    ]]> Thu, 17 Jan 2008 00:00:00 +0000
    <![CDATA[The 2007 Comprehensive Spending Review: a challenging spending review? ]]> In advance of the publication of the CSR, this briefing note examines what we already know about the CSR settlement, what remains to be announced and what this might imply for government departments and public services.

    ]]> Thu, 04 Oct 2007 00:00:00 +0000
    <![CDATA[A survey of UK local government finance]]> This document provides an overview of the current system of local government finance in the UK. It outlines the structure of local government, summarises the composition of local authority spending, and describes in detail how the spending is financed. It concludes with a brief discussion of options for reform.

    ]]> Tue, 31 Jul 2007 00:00:00 +0000
    <![CDATA[Poverty and inequality in the UK: 2007]]> This Briefing Note provides an update on trends in living standards, income inequality and poverty. It uses the same approach to measuring income and poverty as the government employs in its Households Below Average Income (HBAI) publication. The analysis is based on the latest HBAI figures (published on 27 March 2007), providing information about incomes up to the year 2005-06. The measure of income used is net household weekly income, which has been adjusted to take account of family size ('equivalised'). The income amounts provided below are expressed as the equivalent for a couple with no children, and all changes given are in real terms (i.e. after adjusting for inflation). For the first time in recent years, data are available for the whole of the United Kingdom, not just Great Britain, but data for Northern Ireland are only available from 2002-03. Some comparisons over time are provided for Great Britain only, but others will compare statistics for GB before 2002-03 with those for the UK afterwards.

    PLEASE NOTE: On 23 April 2007, the Department for Work and Pensions announced that an error had occurred when producing the latest Households Below Average Income publication. This Briefing Note was based on the same dataset and therefore suffers from similar errors. In response to revisions announced by the DWP in May 2007, we have now updated our findings in a revised press release and have produced a revised summary.

    ]]> Wed, 28 Mar 2007 00:00:00 +0000
    <![CDATA[Options for a UK 'flat tax': some simple simulations]]>

    In all cases, the tax base is left unchanged. The analysis is conducted for the working-age population only, and in all cases the reforms are designed to be revenue neutral under the strong assumption that people do not change their behaviour in response to the reforms. We examine the effects of the reforms on particular example families and on the overall distributions of income and work incentives.

    ]]> Fri, 11 Aug 2006 00:00:00 +0000
    <![CDATA[Public spending on education in the UK: prepared for the Education and Skills Select Committee]]>

    The note discusses some key issues that have arisen in education spending in the last year. We begin by examining the significance of the Chancellor's statements in Budget 2006 - both regarding school capital expenditure and the pledge to increase funding per pupil in the state sector to that currently seen in the private sector. We then move on to what the Comprehensive Spending Review in 2007 is likely to mean for education, given commitments in other areas of government spending. An Appendix contains some information about overall trends in public spending on education in the UK, and the international context.]]> Wed, 19 Jul 2006 00:00:00 +0000 <![CDATA[Labour supply project: Model application - employment effects of reforms between 1997 - 2002]]> This briefing note presents results from an application of the IFS dynamic labour supply model developed for the HMT and the DWP. The reports from the project (Reports 1-3) presented the background to the final model, its components and the methods of estimation used. In Report 3 we presented the estimated model and results of applying the model to simulate labour market behaviour following a 2p cut in the basic rate of income tax.

    Below, we model the overall effect of a package of tax and benefit reforms: the reforms introduced between 1997 and 2002, i.e. in the first six years of the Labour government. The reforms we model include all the major changes directly affecting the disposable incomes of households.

    Section 2 of this briefing note introduces the changes to the tax and benefit system between 1997 and 2002 which we model in the simulation. Results of the simulation are presented in section 3. Section 4 concludes.

    ]]> Mon, 19 Jun 2006 00:00:00 +0000
    <![CDATA[How many lone parents are receiving tax credits?]]>

    Brewer et al. (2006), who analyse what happened to child poverty between 1998/99 and 2004/05, show that estimates of spending on tax credits received by families with children based on the FRS have been getting increasingly inaccurate over time compared with estimates made by HM Revenue & Customs (HMRC), with around õ billion of spending on tax credits received by families with children going unrecorded by the FRS in 2004/05.

    However, a detailed comparison of estimates of the number of families with children receiving tax credits (or equivalent in out-of-work benefits) based on the FRS with the equivalent estimates based on the government's administrative data is confounded by the fact that HMRC estimates that the government is paying the child tax credit and the equivalent in out-of-work benefits to more lone parents than official statistics suggest live in the UK.]]> Sun, 12 Mar 2006 00:00:00 +0000 <![CDATA[The effect of the working families' tax credit on labour market participation]]> Fri, 24 Feb 2006 00:00:00 +0000 <![CDATA[Background facts and comments on "Supporting growth in innovation: enhancing the R&D tax credit"]]> On 25 October 2005 IFS and HM Treasury hosted a round table discussion that brought together practitioners from business, tax professionals, academics and policy makers from HM Treasury, HMRC and DTI to consider the proposals put forward in the discussion document "Supporting growth in innovation: enhancing the R&D tax credit" published by HM Treasury, DTI and HM Revenue and Customs in July 2005. This IFS briefing note provides some background facts and comments related to the issues raised in the discussion document, and a final section summarises the discussion that took place at the round table.

    ]]> Mon, 21 Nov 2005 00:00:00 +0000
    <![CDATA[Fuel taxation]]>

    Despite the escalator being abandoned, petrol prices have risen once again and the threat of renewed protest has been debated. This Briefing Note updates earlier work (see asterisked footnote below) from the time of the last petrol crisis and considers the extent to which recent increases in prices can be attributed to government policy. It also considers whether there is a case for duties to be changed as a direct result of pump price changes, and examines evidence on the effects of fuel duty changes on different groups of the population.]]> Mon, 06 Jun 2005 00:00:00 +0000 <![CDATA[Higher education funding policy: a guide to the debate]]>

    At their root, all of the parties' proposals aim to increase the level of funding per university student. But the ways in which this will be achieved are very different. This has implications for how well off students will be and how well off future graduates will be, and will also have implications for universities and the taxpayer. All of these issues are explored in this Note.

    The structure of the Note is as follows: Section 2 sets out the key features of the three partiesҍ HE funding policies; Section 3 describes how the numbers behind the different proposals add up, setting out the implications for taxpayers, universities, students and graduates; Section 4 sets out what the figures mean for university funding on a per-student basis, some distributional implications for universities and an international comparison; Section 5 provides an assessment of what the reforms would mean for the living standards of students whilst at university, and what levels of debt students are likely to graduate with under different funding systems; Section 6 gives an in-depth examination of the impact of different HE funding policies on graduates across the entire distribution of likely future graduate earnings paths; and Section 7 concludes.]]> Sun, 01 May 2005 00:00:00 +0000 <![CDATA[Pension and saving policy]]> Fri, 29 Apr 2005 00:00:00 +0000 <![CDATA[Proposed tax and benefit changes: winners and losers in the next term]]> Thu, 28 Apr 2005 00:00:00 +0000 <![CDATA[Living standards, inequality and poverty]]> Tue, 26 Apr 2005 00:00:00 +0000 <![CDATA[Better or worse off? More or less heavily taxed? An assessment of manifesto claims]]> Tue, 26 Apr 2005 00:00:00 +0000 <![CDATA[Helping families: childcare, early education and the work-life balance]]> Mon, 25 Apr 2005 00:00:00 +0000 <![CDATA[Business taxes]]>

    This Election Briefing Note starts with a summary of tax reforms since 1997. This is followed by an assessment of the overall effect of these changes on the tax burden faced by businesses and on government revenues. The note concludes with a discussion of future trends in corporate taxation.]]> Mon, 25 Apr 2005 00:00:00 +0000 <![CDATA[Productivity policy]]> Sun, 24 Apr 2005 00:00:00 +0000 <![CDATA[Employment and the labour market]]>

    Section 2 gives details of how the rates of employment, unemployment and economic inactivity have changed under the Labour government. Section 3 begins by detailing the national minimum wage and presents evidence on its impact, and continues in a somewhat similar vein, analysing the New Deal programmes and in-work tax credits. In Section 4, we show how financial work incentives have changed since 1997, and we briefly analyse the employment proposals of the main parties in Section 5. Finally, Section 6 concludes.]]> Fri, 22 Apr 2005 00:00:00 +0000 <![CDATA[Public spending]]>

    • In its first three years in office, Labour saw public spending drop to a 39-year low as a share of national income, since when it has risen sharply. The overall increase in public spending seen between 1997 and 2005 is the 2nd largest among the OECD countries on which we have comparable information. But even the increases planned by Labour through to March 2008 would still leave the state spending a smaller share of national income than it did in the early 1990s.
    • Public spending on the NHS, transport and education has increased much faster since Labour came to power than it did during the Conservatives' 18 years in office. By historical standards, spending in these areas has grown particularly quickly during Labour's second term in office.
    • The period from April 1999 to date represents the largest sustained increase in spending on the NHS since its inception. This has meant that the Prime Minister's pledge to bring health spending up to the EU average has been met, if the benchmark is the simple average of EU health spending in 1998. However, UK health spending in 2005ְ6 is likely to be below the more meaningful weighted average of health spending among other EU countries in 1998, let alone what they have spent on healthcare more recently.
    ]]> Thu, 21 Apr 2005 00:00:00 +0000
    • Net taxes and National Insurance contributions have risen from 34.8% of national income in 1996ֹ7 to 36.3% in 2004ְ5. According to Treasury projections, these will rise to 38.5% of national income in 2008ְ9. This would be the highest level since 1984ָ5.
    • Total government revenues have averaged 38.4% of national income under the two Labour governments, compared with 40.6% over the 18 years of Conservative government from 1979 to 1997. According to Treasury forecasts, revenues will equal 39.3% of national income in 2005ְ6, rising to 40.6% by 2009ֱ0. This would be the highest level since 1988ָ9.
    • Over Labour's two parliaments since 1997, current receipts have risen by 3.5% a year on average, in real terms, while national income rose by 2.8% on average, leaving national income minus tax to rise at 2.4% on average.
    • Of the total ò8.5 billion revenue increase seen since 1996ֹ7, ñ9.1 billion was due to discretionary changes to the tax system, with the remainder being due to the impact of the economy on overall revenues. The largest discretionary change occurred in the first Budget after the 2001 election (the Spring 2002 Budget), which increased taxes to yield an additional ù.9 billion by 2005ְ6.
    • Between 1997 and 2005, the UK saw one of the highest increases in revenues among OECD countries, although the UK remains a low-tax economy compared with EU countries.
    ]]> Thu, 21 Apr 2005 00:00:00 +0000
    <![CDATA[The public finances]]>
  • The public finances were strengthening when Labour took office in 1997 and continued to do so during its first term in office, thanks to spending restraint and buoyant revenues. Then they weakened in the second term, as a deliberate decision to increase spending coincided with lower-than-expected revenues.
  • Fiscal policy has been broadly successful to date under Labour, judged against the government's self-imposed rules. Debt has been kept below 40% of national income and government borrowing is likely to be broadly in line with investment spending in the economic cycle running from 1999ֲ000 to 2005ְ6.
  • By historic standards, government debt and borrowing are modest compared with levels under recent previous governments. But the UK now has one of the largest structural budget deficits in the industrial world. So while the UK has remained in the middle of the industrial countries' league table for government debt since 1996, its position is likely to deteriorate unless fiscal policy is tightened significantly.
  • Labour is planning a fiscal tightening. It wants to increase spending modestly as a share of national income while it expects a larger increase in the tax burden to pay for it and meet its fiscal rules looking forward. The Chancellor believes this will happen without him needing to announce new tax increases; we think he may need to raise another ñ1 billion.
  • The Liberal Democrats propose slightly higher spending and a slightly higher tax burden than Labour. Their tax increases may not raise as much money as they hope, but they have a small reserve built into their plans. Like Labour, they will need to announce new tax increases to pay for their spending plans if revenues undershoot Treasury forecasts.
  • The Conservatives plan to announce tax cuts worth ô billion in their first Budget and after six years to cut spending relative to Labour's plans by ò5 billion in today's terms. By cutting borrowing, they should avoid the need to announce new tax increases (or reverse their own tax cuts) even if revenues are weaker than the Treasury expects. But this assumes that the Conservatives are able to cut spending as quickly and painlessly as they claim. Past experience suggests caution.
  • Whoever wins the election, the tax burden is likely to be higher at the end of the next parliament than at the end of this one. And even the Conservatives' proposed spending cuts would reverse only half the increase in spending seen since 1999. The similarities between the parties are as striking as the differences. ]]> Thu, 21 Apr 2005 00:00:00 +0000 <![CDATA[Tax and benefit changes: winners and losers]]>
  • Tax and benefit changes implemented by Labour since 1997 will have a net cost to the exchequer of around 2.2 billion in 200506. The average (mean) impact of this small net giveaway is to raise household disposable incomes by 1.69 a week or 0.4%. The biggest proportionate gains are in the 2nd poorest tenth of the population, whose disposable incomes are increased by 11.4%, while the richest tenth fare worst, with a cut in income of 3.7%.
  • Tax and benefit reforms since 1997 have clearly been progressive, benefiting the less well-off relative to the better-off. Reforms in the second term while less generous on average were more progressive than those in the first, with the poorest faring better.
  • Increases in council tax above inflation since 1997 will raise 5.8 billion in 200506, net of council tax benefit. This outweighs the giveaway by central government, and leaves households overall 2.85 a week worse off on average, equivalent to 0.6% of their disposable incomes. The increase in council tax is regressive, except for the poorest fifth of the population, who are partially protected from the rises by council tax benefit. ]]> Wed, 20 Apr 2005 00:00:00 +0000 <![CDATA[How effective are conditional cash transfers? Evidence from Colombia]]> Wed, 12 Jan 2005 00:00:00 +0000 <![CDATA[Increasing innovative activity in the UK? Where now for government support for innovation and technology transfer?]]> Mon, 29 Nov 2004 00:00:00 +0000 <![CDATA[The impact of tax and benefit changes between April 2000 and April 2003 on parents' labour supply]]> Wed, 17 Nov 2004 00:00:00 +0000 <![CDATA[Offshoring of business services and its impact on the UK economy]]>

    Specialisation within a firm happens when a firm organises an activity in a specialised units, for example, when a firm moves payroll activities out of the back office of a factory, and into a specialised payroll office. Outsourcing is specialisation outside the firm. This occurs when firms opt to 'buy' rather than 'make' in-house. Outsourcing involves greater specialisation as firms switch from sourcing inputs internally to sourcing them from separately owned suppliers. Offshoring occurs when firms move production overseas - either its own specialised unit or outsourced services.

    Business Services are services that are provided to other business, rather than directly to the public. They include Computer Services, Professional Services (Legal, Accountancy, Market Research, Technical, Engineering, Architectural, Advertising and Consultancy), Research and Development, as well as other services such as Labour Placement Agencies and Call Centres.]]> Mon, 08 Nov 2004 00:00:00 +0000 <![CDATA[Challenges for the 2004 Spending Review]]> The present government's aims include achieving 'world-class public services', eliminating child and pensioner poverty, and increasing the proportion of young people participating in higher education. Achieving these aims is likely to require continued increases in the level of funding for public services. This Briefing Note considers the options for public spending during the years of the forthcoming Spending Review 2004 (2005-06 to 2007-08), in light of what has already been announced and what we know about the government's priorities and past spending decisions.

    ]]> Thu, 01 Jul 2004 00:00:00 +0000
    <![CDATA[The 'fat tax': economic incentives to reduce obesity]]> This Briefing Note looks at the potential for the introduction of a 'fat tax' into the UK in an effort to reduce the growing prevalence of obesity in Britain. There are different forms such a tax could take. One possibility is to tax the nutrient contents of foods such that those containing more fat or salt, for example, are taxed more heavily. Alternatively, particular types of foods, such as snacks or soft drinks, could be subject to a tax, or VAT could be extended to foods that are currently zero-rated but have a high fat content.

    Revenue from a 'fat tax' could be used in various ways, such as financing subsidies for healthy foods or exercise equipment, funding advertising campaigns for healthy eating or in schools. Alternatively, it could form part of general government receipts.

    This Briefing Note will look at trends in UK obesity (Section 2) and examine evidence on eating habits and exercise in order to see whether trends here can account for what we see happening to obesity (Section 3). We will then go on, in Section 4, to review some of the key economic reasons behind why we might be concerned about obesity and why we might consider there to be a case for government intervention. Moving on, we discuss how food is currently taxed (Section 5) and the various ways in which a 'fat tax' might be introduced (Section 6), looking at particular issues the government might need to address should it wish to introduce one. We will finish in Section 7 by presenting some simple analysis of a hypothetical 'fat tax' in terms of how it might impact differently on the rich and the poor. Section 8 concludes.

    ]]> Tue, 01 Jun 2004 00:00:00 +0000
    <![CDATA[Pensions, pensioners and pensions policy: financial security in UK retirement savings?]]>
    1. Is the financial support offered to pensioners by the state in retirement sustainable in terms of the burden it places on the working population?
    2. Are the mechanisms by which the private financial sector helps people save for retirement sustainable in their apportionment of risk between employers and employees?
    3. Is the way in which the state and private systems interact sustainable in the sense that the combination promises people a reasonable degree of financial security without creating unduly powerful disincentives for them to work and save?
    ]]> Tue, 02 Mar 2004 00:00:00 +0000
    <![CDATA[Will the government hit its child poverty target in 2004-05?]]> IFS Briefing Note 41, which was written before PBR 2003.

    We agree with the assessment in PBR 2003 that the government should comfortably meet its target measuring incomes before housing costs (BHC). It also concludes that the government is on course to just hit its target measuring incomes after housing costs (AHC). However, there are uncertainties in making these forecasts, not least because the government uses a survey of around 30,000 households to estimate child poverty in a population roughly a thousand times as large. We should know for sure whether the target has been hit in Spring 2006.]]> Mon, 01 Mar 2004 00:00:00 +0000 <![CDATA[The Conservative Party's medium-term expenditure strategy]]> Sun, 01 Feb 2004 00:00:00 +0000 <![CDATA[An analysis of the higher education reforms]]> Fri, 02 Jan 2004 00:00:00 +0000 <![CDATA[Early evaluation of a new nutrition and education programme in Colombia]]> Thu, 01 Jan 2004 00:00:00 +0000 <![CDATA[A survey of public spending in the UK]]> This Briefing Note provides an overview of public spending in the UK. It describes the components of public spending and examines trends in expenditure in each of six main areas. Section 2 provides an overview of total public spending in the UK. Section 3 explains how the current government plans public spending. Section 4 describes the current allocation of public spending and then focuses on how the amount received by each of the six main spending areas has changed over time. Section 5 comprises a discussion of recent trends that affect all of the spending areas, such as the advent of the Private Finance Initiative (PFI). Section 6 concludes.

    You can download an accompanying spreadsheet containing long-run spending data by function.

    ]]> Wed, 03 Dec 2003 00:00:00 +0000
    <![CDATA[The UK productivity gap and the importance of the service sectors]]> The UK's poor productivity performance relative to the US has been a focus for government policy and analysis in recent Budgets and Pre-Budget Reports. US business sector labour productivity (value-added per worker) was just over 40% higher than the UK level in 2001, about the same as it was at the beginning of the 1990s. The labour productivity gap fell over the early 1990s, when the UK experienced relatively faster growth in business sector labour productivity than the US, but it has since increased again as productivity growth slowed in the UK and accelerated in the US.

    This aggregate picture hides considerable variation at the industry level. In some industries the gap has narrowed substantially over the past decade, while in others it has widened. As a result, although the total size of the productivity gap did not change very much over the 1990s, the industries that account for the majority of the gap have changed considerably. An understanding of where the productivity gap arises is essential to be able to target policy effectively. Yet to date most work has considered the aggregate performance of the UK, or has focussed on the manufacturing sector despite the fact that most employment is in the service sectors.

    In this briefing note we document changes in the gap over the 1990s and variations within the productivity gap in 2001.

    After documenting these facts we consider some of the reasons that might explain this relatively poor performance. We then outline some of the areas that we plan to investigate over the next three years under the AIM programme. Among other issues, we plan to look at: whether the dispersion in productivity within sectors is unusually high in the UK; how productivity vary across UK regions; whether rates of entry and exit in the UK are lower than in other countries; whether outsourcing has been a significant driver of productivity growth; what the joint impact of management practices and public policies have on productivity.

    ]]> Tue, 02 Dec 2003 00:00:00 +0000
    <![CDATA[What do the child poverty targets mean for the child tax credit? An update]]> The government has a target for child poverty to fall to 3.1 million by 2004-05, measured by the number of children in households with less than 60% median income after housing costs. The latest data showed that 3.8 million children (30% of children in Britain) were in poverty in 2001-02 on this definition. To help achieve the target, increases to means-tested benefits and tax credits need to take effect in April 2004, and therefore need to be announced in the forthcoming Pre-Budget Report.

    New calculations suggest that around £billion of further spending on the child tax credit might be needed to meet the child poverty target. Increases in other benefits or tax credits could also reduce child poverty, but at greater cost. But if the government chooses not to increase support for families with children in 2004-05, then real spending on child-contingent support in the tax and benefit system will still have increased by over 50% since 1997, and child poverty in 2004-05 should be at its lowest level since 1989.

    The government is still deciding what definition of child poverty it wishes to target in the longer term. If it wishes to reduce further child poverty measured under its current definition, then this will require the means-tested benefits and tax credits received by poor families with children to rise faster than the rate of inflation in the absence of helpful economic or demographic changes, such as more parents working. However, continuing to target a poverty measure defined exclusively in terms of incomes may skew the policy response excessively towards tax credit and means-tested benefits changes, and away from improving public services for children which might have a greater impact on their well-being over the longer term. By way of example, the extra spending that we think is needed for the government to meet its target for 2004-05 would pay for the current Sure Start programme - which aims to improve the health and well-being of families and children aged under 5 in disadvantaged areas - to be doubled in size.

    ]]> Mon, 01 Dec 2003 00:00:00 +0000
    <![CDATA[Corporation Tax Reform: A Response to the Government's August 2003 Consultation Document]]>

    The main focus of last years consultation was the calculation of taxable income, in particular with respect to capital assets, the schedular system and the distinction between trading and investment companies. The new consultation deals with these issues again. Much of that is repetition, although proposals have become more specific. Particularly noteworthy is a proposed change to the tax treatment of finance leases. This consultation further includes a new topic - the international and particularly the European context of the UK corporation tax system.

    This briefing note will first discuss in general terms the governments stated objectives for corporate tax reform. It will then cover briefly some areas that were already discussed in last years consultation, focusing on the new developments. The international background to new proposals on transfer pricing and finance leasing is then discussed, followed by a more detailed analysis of these proposals.]]> Sat, 01 Nov 2003 00:00:00 +0000 <![CDATA[Two cheers for the Pension Credit?]]>

    This Briefing Note is set out as follows. Section 2 describes how the pension credit operates and why the problems that occurred with the Inland Revenues administration of the new tax credits for families with children in April 2003 should not occur with the pension credit. The distributional impact of the reform is shown in Section 3. Section 4 discusses the inevitable problem of incomplete take-up of the new payment. Section 5 discusses the likely impact of the pension credit on saving and Section 6 discusses some of the longer-term issues that it raises. Section 7 concludes.]]> Wed, 01 Oct 2003 00:00:00 +0000 <![CDATA[Is middle Britain middle-income Britain?]]> Mon, 01 Sep 2003 00:00:00 +0000 <![CDATA[Understanding the UK's poor technological performance]]> Sun, 01 Jun 2003 00:00:00 +0000 <![CDATA[Achieving simplicity, security and choice in retirement? An assessment of the government's proposed pensions reforms]]>

    The perceived need for yet more reforms to the UK pension system seems to stem from the governmentҳ belief that Ѱerhaps 3 million people are seriously under-saving (or planning to retire too soon)' and that ѡ further group of between 5 and 10 million people may want to consider saving more or working longer' (DWP Green Paper, 3, 16, 36). In this Briefing Note, we discuss whether or not the proposed reforms are likely to help individuals to make choices about how to provide for their retirement that are appropriate to their circumstances. We focus particularly on whether or not the proposals might prompt those individuals who are not thought to be providing sufficiently for their retirement to save more each year or to retire at an older age than might otherwise have been the case. This would help alleviate concerns about underprovision.

    The structure of our discussion is as follows. Section 2 describes the main proposed reforms. Section 3 discusses whether they are likely help individuals to make saving decisions that are appropriate to their circumstances. Section 4 looks at how the reforms might affect retirement ages. Section 5 concludes.]]> Wed, 02 Apr 2003 00:00:00 +0000 <![CDATA[The new tax credits]]>

    This Briefing Note looks at:

    • the changes to tax credits that happened in April 2003;
    • why the new tax credits have been introduced;
    • how they work;
    • the cost and distributional impact;
    • the impact on work incentives;
    • what levels of take-up we might expect.
    ]]> Tue, 01 Apr 2003 00:00:00 +0000
    <![CDATA[Submission to the Work and Pensions Select Committee Inquiry: 'How can suitable, affordable childcare be provided for all parents who need it to enable them to work?']]> Mon, 03 Mar 2003 00:00:00 +0000 <![CDATA[Inequality under the Labour government]]> Sun, 02 Mar 2003 00:00:00 +0000 <![CDATA[How has child poverty changed since 1998-99? An update]]>

    Although this means that almost one in three children in Britain live in poverty on this definition, this is the lowest level recorded since 1991. Since the Labour government came to power, the total drop in the numbers in child poverty has been around 500,000. In 199899, the government set a target for child poverty in 200405. If the rate of decline in child poverty observed since 199899 continues for three more years, then the government will miss this target. Indeed, it is now further behind schedule than it was based on figures from 200001.

    The rather slow decline in recorded child poverty is due, in large part, to the fact that the government is targeting relative, rather than absolute, poverty. Income growth has been particularly strong across society since 199899, and this means that the poverty line has risen significantly over this time. Although the government is continuing to increase the living standards of low-income households with children, the gap with the rest of society is not closing as fast as the government would like. Rectifying this may require additional resources to be directed to families with children in the forthcoming Budget, on top of measures already announced.]]> Sat, 01 Mar 2003 00:00:00 +0000 <![CDATA[London's congestion charge]]>

    In 2001, almost 1.1 million people entered central London during the morning peak hours of 7.00a.m.ֱ0.00a.m.,1 of whom around 150,000 (13.7%) used private transport. Whilst the total number of people entering during the morning rush hour has scarcely changed since 1991, there has been a small shift towards public transport: in 1991, 16.8% of people used private transport. Nevertheless, average traffic speeds in central London have fallen slightly over the last decade, with the average morning peak-period traffic speed for 2000ְ3 just 9.9 mph, compared with a peak of 14.2 mph in 1974ַ6. During the evening rush hour, average speeds are even slower, at just 9.6 mph. In evidence to the House of Commons Transport Committee,3 David Begg of the Commission for Integrated Transport argues that around 40% of the total national level of congestion occurs in Greater London. Transport for London suggests that Ѵhere are now no longer any ӰeaksԠor ӯff-peaksԠof traffic volume between 7am ֠6.30pm' and states that there are now on average three minutes of delay for every mile that a vehicle travels inside the charging zone.

    This Briefing Note aims to provide a guide to the workings of the London congestion charge. We begin in Section 2 by describing the economic case for congestion charging, showing why congestion can be thought of as an urban example of the well-known overuse of common resources to which there is free access (the so-called Ѵragedy of the commonsҩ. In Section 3, we move on to look at the details of the proposed charge for London, examining how it fits in with the economic framework we develop and discussing some of the work that has already been carried out to try to predict the likely effects of the charge. Section 4 looks briefly at the issue of what may happen with the projected net revenues from the charge, which are legally bound for the first 10 years to be spent on transport within Greater London. In Section 5, we discuss some of the empirical evidence regarding transport in London and present evidence on the potential distributional effects of the congestion charge, since one of the oft-cited criticisms of charging is that it will impact upon the poorest most severely. Section 6 goes on to look at the experience of congestion charging elsewhere around the world.]]> Sat, 01 Feb 2003 00:00:00 +0000 <![CDATA[Inequality and living standards in Great Britain: some facts]]> Both were last updated on 9 March 2004.

    Section I of this Briefing Note starts by setting out some of the issues and conceptual difficulties surrounding the measuring of living standards and inequality. A picture of the income distribution in Great Britain and many of the important trends in living standards is then presented in the sections that follow. In Sections II and III, we choose weekly before-housing-costs household equivalent income1 as our measure of living standards, as well as presenting some results on an after-housing-costs basis. Section IV then considers using weekly equivalent household expenditure (including housing costs) as a comparative measure of living standards.

    Section V cites research tracking the income of individuals across a number of years, while Section VI looks at work that attempts to assess how income status changes across generations. Sections VII, VIII and IX proceed by examining some of the factors responsible for the changes in inequality described, looking at the labour market, demographic changes and the impact of taxes and benefits. Section X concludes.]]> Sun, 01 Dec 2002 00:00:00 +0000 <![CDATA[Retirement, pensions and the adequacy of saving: a guide to the debate]]>

    The note concludes that:

    • Retirement age changes are integrally linked into the adequacy of saving for retirement. By extending working lives and therefore being less long in retirement individuals would have more time to accumulate savings (both pension and non-pension) and also need less savings.
    • Low retirement income is not necessarily evidence of inadequate retirement saving. Many older households with low incomes will have had low life-time income and it is not necessarily the case that such households should have saved more given their consumption needs and the policy environment through which they have lived.
    • Many unanswered research questions are key to outcomes in the future. These include: Can and will the labour market absorb more older workers? What are the consumption needs of older households? To what extent will individual behaviours (either at the saving or the retirement margin) adjust to meet the pressures of retirement income provision in an ageing population?
    ]]> Tue, 01 Oct 2002 00:00:00 +0000
    <![CDATA[Reform of corporation tax: a response to the government's consultation document]]>

    But this consultation goes beyond a mere tidying of the tax system. Underlying the proposals is a clearly discernible direction for reform of the corporation tax system. The aim is to align taxation and company accounts. Although the consultation addresses three topics capital assets, the schedular system and the distinction between trading and investment companies the major issues revolve around the treatment of assets and losses. In the former case, a comprehensive alignment is raised as a possibility. In the latter case, the proposals represent a first step along a road that could eventually lead to taxation on a tax consolidated basis and hence the reduction or elimination of the existing restrictions on how losses can reduce taxable profits.

    This response focuses on these larger issues. It aims to explain the main proposals contained in the consultation, to provide some empirical evidence on the scale of possible changes and to make some comments on the wider policy issues that these proposals raise. At this stage of the consultation process, we retain an open mind on the merits of any final reform package, not least because there is a wide range of alternative packages.]]> Tue, 01 Oct 2002 00:00:00 +0000 <![CDATA[The tax and benefit system and the decision to invest in a stakeholder pension]]>

    We start with a brief review of the nature and aim of stakeholder pensions. We go on to review how the tax treatment of stakeholder schemes compares with that of the other principal tax-privileged way to invest in financial assets, the Individual Savings Account (ISA). As we explain, individuals who expect to be saving moderate amounts for the foreseeable future may well face a difficult decision in deciding between these two vehicles. For example, they might be best served by initially placing funds in an ISA and subsequently transferring these funds into a pension as they near retirement. Next, we turn to the benefit system. We provide an overview of its structure in the wake of Labourҳ reforms and review how it treats different forms of financial assets. We then determine the specific groups for which the benefit system is especially likely to exert a major influence on the appropriate form in which to save for retirement and, indeed, whether to save at all.

    Taken as given in all this is the current tax and benefit system, along with the current governmentҳ aspirations for how this will evolve over time. One important consideration for people will be that, in reality, governments' policies have tended to change over time. The final section briefly discusses the important issue of whether current policies, such as increasing the basic state pension in line with prices while increasing the minimum income guarantee (and eventually the pension credit) in line with earnings, may or may not prove to be politically sustainable.]]> Thu, 01 Aug 2002 00:00:00 +0000 <![CDATA[Challenges for the 2002 Spending Review]]> Mon, 01 Jul 2002 00:00:00 +0000 <![CDATA[Measuring UK fiscal stance since the Second World War]]> Sun, 02 Jun 2002 00:00:00 +0000 <![CDATA[Long-term trends in British taxation and spending]]> Sat, 01 Jun 2002 00:00:00 +0000 <![CDATA[Budget 2002: business taxation measures]]> Wed, 01 May 2002 00:00:00 +0000 <![CDATA[A response to the consultative note 'Designs for Innovation']]> Designs for Innovation, on the design of the new credit. This Briefing Note discusses which firms are likely to benefit from the new credit, and the likely costs and effectiveness of the designs under consideration.]]> Fri, 01 Mar 2002 00:00:00 +0000 <![CDATA[Rewarding saving and alleviating poverty? The final pension credit proposals]]> Fri, 01 Feb 2002 00:00:00 +0000 <![CDATA[How much would it cost to increase UK health spending to the European average?]]> Tue, 01 Jan 2002 00:00:00 +0000 <![CDATA[Twenty-five years of falling investment? Trends in capital spending on public services]]>

    Our concern is not just theoretical we know that public investment has shrunk in practice. Public investment recently reached a post-war low as a share of GDP.3 The potential to improve public services depends upon government investment, so it is important that we investigate how we reached this low level of investment and on which public services the axe has fallen most heavily.]]> Thu, 01 Nov 2001 00:00:00 +0000 <![CDATA[The main parties' tax and spending proposals]]> This Election Briefing Note looks at the planned levels of borrowing under Labour, the Conservatives and the Liberal Democrats and the differences in terms of tax and public spending for the period up to March 2004. In addition, we analyse differences between the parties in their plans for expenditure in particular fields.

    ]]> Tue, 01 May 2001 00:00:00 +0000
    <![CDATA[Labour's proposals]]>

    The new credits represent developments of tax֢enefit reforms implemented in the last Parliament, but Labour's manifesto also contains proposals for ѡsset-based' welfare, which would represent more of a new departure. In particular, the party plans to introduce two new policies ֠the Child Trust Fund and the Saving Gateway. Both are targeted towards low-income households and provide financial assistance in the form of assets. This method of asset-based welfare delivery contrasts with (and is intended to complement) the traditional approach of providing social security benefits as income supplements. Section 2 considers some of the arguments for and against the proposed new approach.

    Finally, we consider Labour's approach to income tax.]]> Tue, 01 May 2001 00:00:00 +0000 <![CDATA[Overall tax and spending]]> This Briefing Note looks at the current government's record on public borrowing, taxation and overall public spending.

    ]]> Tue, 01 May 2001 00:00:00 +0000
    <![CDATA[Fiscal reforms affecting households, 1997-2001]]> Tue, 01 May 2001 00:00:00 +0000 <![CDATA[Spending on public services]]> Tue, 01 May 2001 00:00:00 +0000 <![CDATA[Labour and business taxes]]> Tue, 01 May 2001 00:00:00 +0000 <![CDATA[The Conservatives' proposals]]> Tue, 01 May 2001 00:00:00 +0000 <![CDATA[Living standards under Labour]]> This Briefing Note examines the changes in living standards, inequality and poverty that have taken place under the Labour government, putting them in the context of the changes over the last two decades.

    ]]> Tue, 01 May 2001 00:00:00 +0000
    <![CDATA[The Government's fiscal rules]]> Sun, 01 Apr 2001 00:00:00 +0000 <![CDATA[UK investment: high, low, rising, falling?]]> Sun, 01 Apr 2001 00:00:00 +0000 <![CDATA[Recent pensions policy and the Pension Credit]]>

    This paper, first, costs the various elements of the government's proposals and analyses who will gain from them. Second, it focuses in on the structural pension credit reform, explaining its rationale and basic workings before outlining the design issues it raises. Finally, it concludes by asking what this package of measures indicates about the longer-term strategy underlying pensions policy.]]> Thu, 01 Feb 2001 00:00:00 +0000 <![CDATA[Public spending: what are the options beyond March 2004?]]> Mon, 01 Jan 2001 00:00:00 +0000 <![CDATA[The Liberal Democrat proposals]]> Mon, 01 Jan 2001 00:00:00 +0000 <![CDATA[Should we let people opt out of the basic state pension?]]>

    For future generations of pensioners, the Labour government has followed the general thrust of reform seen over the previous 20 years by expecting individuals to take more responsibility for their own pension savings through increased use of private pensions.2 While the current generation of pensioners receive 40% of their income from private sources, the policy of the current Labour government is to aim for this to increase to 60% by 2050.3 It is hoped that this can be achieved by continuing to target additional state resources at those on low incomes through the minimum income guarantee, the pension credit and the state second pension, while continuing to price-index the basic state pension. Middle and higher earners are increasingly being encouraged to make their own private pension provision, for example through the introduction of stakeholder pensions.]]> Mon, 01 Jan 2001 00:00:00 +0000 <![CDATA[Issues in the design and implentation of an R&D tax credit for the UK]]>

    This Briefing Note reviews some of the major issues in the design and implementation of R&D tax credits. In Section 2, we briefly discuss the existing tax treatment of R&D in the UK. In particular, we outline the new Research and Development Allowance which is an allowance for expenditure on plant, machinery and buildings for use in scientific research and which is available to firms of all sizes and the tax credit for R&D that is available to small and medium-sized enterprises (SMEs). We then discuss, in Section 3, some of the main design features of tax credits that have been implemented in other countries. The discussion mainly concerns the question of how to target new or incremental R&D so as to keep down the total exchequer cost. We discuss problems that arise in defining incremental R&D and how these can be tackled. In Section 4, we provide estimates of the amount of new R&D and the exchequer cost that would be likely to result from implementing different designs of R&D tax credit in the UK. Section 5 concludes. Some technical details are dealt with in the Appendix.]]> Mon, 01 Jan 2001 00:00:00 +0000 <![CDATA[The structure of welfare]]>

    Labour was elected with few specific ideas about welfare. Tax credits did not feature in its 1997 manifesto, and there seemed to be early tensions within government, particularly on the balance between ѯld Labour' insurancebased, universal policies and the Ѯew Labour' policy of Ѵargeted support for those that need it mostҬ as Frank Field's departure showed. But after four years of reforms, it is easier to discern consistent trends in welfare policy. This Election Briefing Note looks at some important principles about the way parties are approaching the tax and benefit system. In particular, it looks at:

    • the generosity of government transfers;
    • the use of means testing, and tax and benefit integration;
    • family ֠rather than individual ֠assessment of taxes and benefits;
    • policies for managing workless benefit claimants.
    ]]> Mon, 01 Jan 2001 00:00:00 +0000
    <![CDATA[A survey of the GB benefit system]]> This paper describes all the main benefits in the GB system, giving details of rates and allowances, as well as numbers and types of claimants and levels of expenditure.

    ]]> Wed, 01 Nov 2000 00:00:00 +0000
    <![CDATA[How important is business R&D for economic growth and should the government subsidise it?]]>

    In order to achieve the optimal level of R&D investment, government policy should aim to bring private incentives in line with the social rate of return. The first part of this note considers current estimates of the private and social rates of return to R&D. These estimates suggest that the gap between private and social rates of return is quite large. A comparison of the levels of R&D intensity in the business sector is then made across countries. The UK has the lowest R&D intensity of the G5 countries and, perhaps more worryingly, the trend has been flat while in other countries R&D intensity has been increasing over time. This is reflected in lower productivity levels in the UK (although there is much debate over the measurement of productivity and the size of this gap).

    What then can and should the government be doing to increase the amount of R&D done in the UK? There are a large range of policy instruments that could affect the share of GDP that is invested in R&D. Indirect policies such as competition policy and regulation may be important. Direct policies include direct funding of R&D, investment in human capital formation, extending patents protection and tax credits for R&D. R&D tax credits have become a popular policy tool, with many countries offering subsidies of this form. Recent empirical evidence suggests that R&D tax credits are an effective instrument, although there are many remaining questions about their desirability. Do they increase the total amount of R&D or is their main impact to reallocate R&D between countries, i.e. is the increasing use of R&D tax credits one form of tax competition between countries for a mobile activity? In a world with multinational firms, one issue that arises is whether it is R&D in the UK or R&D by UK firms that we are concerned with. Does an increase in R&D expenditure lead to increases in the knowledge stock, or does it simply lead to higher wages for R&D scientists, as has been suggested by recent work in the US? Is it possible to provide subsidies to the extent needed to raise R&D intensity in the UK to the level in other G5 countries, without creating other distortions to economic activity?

    It is difficult to design and implement an effective subsidy to R&D without taking a view on the answer to at least some of these questions.]]> Tue, 03 Oct 2000 00:00:00 +0000 <![CDATA[The distributional effects of the proposed London congestion charging scheme]]>

    Different households will have differing liabilities to the charging scheme accordingto the many and varied factors that together determine their travel patterns where they live, where they work, where their children go to school, whether they have a car or van, the number of members in the household and so on. And one thing that can be guessed about the final effects of the scheme on households is that these effects willbe extremely heterogeneous. Many households will be, on the face of it, unaffected by the charge. Many others, if their present travel patterns persist, may be faced withvery large bills.

    The aim in this study is to analyse the potential progressivity or regressivity of the scheme in other words, to look at the link between the level of charges thathouseholds are likely to face and their ability to pay those charges.

    The plan of the note is as follows: it first discusses the way in which the distributionaleffects of a tax or charge can be measured; it then describes the data used to make thiscalculation; finally it presents the results with a discussion.]]> Mon, 02 Oct 2000 00:00:00 +0000 <![CDATA[Vehicle Excise Duty discounts in rural areas]]> Vehicle excise duty (road tax) is an annual fixed tax on vehicle ownership. From 1985 to 1991, the rate on private vehicles was £100, and it has since been increased in successive Budgets to its current level of £155 for vehicles over 1,100cc. From 1 June 1999, vehicles of 1,100cc and below are liable for a reduction of £55. In response to the recent fuel protests, recent press speculation has suggested that motorists in rural areas could be offered a discount on their vehicle excise duty (VED). One of the frequent objections to the high tax rate on road fuels in the UK is the effect it has on certain groups of the population. The idea behind cutting VED for those living in rural areas is to compensate one of the groups that we might be concerned about.

    ]]> Sun, 01 Oct 2000 00:00:00 +0000
    <![CDATA[Fiscal reforms since May 1997]]> Sun, 01 Oct 2000 00:00:00 +0000 <![CDATA[The petrol tax debate]]> Sat, 01 Jul 2000 00:00:00 +0000 <![CDATA[The employment effects of the Working Families Tax Credit]]> Sat, 01 Apr 2000 00:00:00 +0000 <![CDATA[The role of information in saving decisions]]> Tue, 01 Feb 2000 00:00:00 +0000 <![CDATA[A survey of the UK tax system]]> This document provides an overview of the UK tax system, describing how each of the main taxes works and setting their current state into a historical context going back to 1979.


    ]]> Sat, 01 Jan 2000 00:00:00 +0000
    <![CDATA[UK annuitants]]> In this briefing note we add to the current debate on UK annuity markets by providing some simple descriptive analysis from household survey data. In particular, using data from recent waves of the Family Resources Survey, we consider how the current population of (elderly) annuitants differs from the elderly population at large, and describe differences in the characteristics of the group holding voluntary, as opposed to mandatory annuity policies.

    ]]> Wed, 01 Dec 1999 00:00:00 +0000
    <![CDATA[The revenue effect of changing alcohol duties]]> Mon, 01 Nov 1999 00:00:00 +0000 <![CDATA[Family Credit and the Working Families Tax Credit]]> Sun, 03 Oct 1999 00:00:00 +0000 <![CDATA[Measures on charity taxation in the Pre-Budget Report]]> Sat, 02 Oct 1999 00:00:00 +0000 <![CDATA[Stakeholder pensions]]>
    • minimum standards;
    • employer access;
    • clearing arrangements;
    • regulation, advice and information;
    • governance;
    • the tax regime.

    This note assesses each of these discussion papers in turn, summarising their main conclusions and critically appraising the proposed stakeholder reforms.]]> Fri, 01 Oct 1999 00:00:00 +0000