IFS Post-Budget Analysis
Chancellor George Osborne delivered the first Budget from a Conservative government for almost 19 years on 8 July 2015. The Institute for Fiscal Studies presented its analysis of the Summer Budget on the following day.
Presentations from the briefing can be downloaded from the following links:
Opening remarks: Text (pdf)
The Summer Budget: Taxes up, borrowing up, departmental spending up: Slides (pdf)
Tax measures: Slides (pdf)
Benefit changes and distributional analysis: Slides (pdf)
Analysis of the new ‘National Living Wage’ as potential compensation for tax and benefit changes
An IFS Briefing Note, prepared for the House of Commons Treasury Select Committee and published on 9 September, 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. A press release on 9 September summarised the main findings.
Changes to student finance announced in the Summer Budget
Two major changes to student finance were proposed in the Budget. The replacement of maintenance grants by loans from 2016–17 will raise debt for the poorest students, but do little to improve government finances in the long run. The proposed freezing of the repayment threshold for loans, on the other hand, will – if implemented – significantly improve government finances because it will result in an increase in graduate repayments.
These are the main findings of a briefing note published on 21 July by the Institute for Fiscal Studies, along with an accompanying press release, with funding from the Economic and Social Research Council.
Getting off the rollercoaster
An Observation article published on 15 July summarised what the Summer Budget had to say on the public finances. Gemma Tetlow explains that the government announced a package of tax measures raising in excess of £5 billion a year. But there were also significant changes to public spending – with new cuts to social security spending but a reduction in the planned cuts to spending on public services. Overall the effect of the measures announced in the Summer Budget was to slow the pace of fiscal consolidation over the next three years but to increase the size of the eventual medium-term tightening.
Background to the Summer Budget
A set of background materials from IFS researchers were published before the Summer Budget:
• Time for tax reform
The 8 July Budget may prove to be George Osborne’s best chance to bring in some much-needed reforms to our creaking and increasingly incoherent tax system. This Observation suggests some important directions for reform and calls for an improvement in the way policy is made. If this is to be a Budget for productivity, then both a better, and a more predictable, tax system should be an important part of it.
• Public spending: more cuts to come
The Conservative Party manifesto committed to eliminating the deficit by 2018–19, largely through reductions in public spending. David Cameron has implied that these cuts would be relatively easy to achieve because they mean “saving £1 a year in every £100 that government spends”. Unfortunately, growth in some areas of spending, and promises to protect other areas, mean that even if the government delivers on its commitment to find £12 billion of cuts to social security spending, unprotected departmental spending could be facing cuts of 15% over the next three years.
Ahead of the Budget and Spending Review to follow, this Observation – and an associated presentation given at an event jointly organised with the Institute for Government – sets out what departments should be preparing themselves for. A Storify captured the discussion.
• Benefit cuts: where might they come from?
The Conservatives’ victory in the general election means that we should shortly find out how they will find the additional benefit cuts to which they have committed. This Observation, funded by the Joseph Rowntree Foundation, briefly summarises previous IFS analysis of the context for these choices and the kinds of options that are on the table.
• 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 pace of public workforce cuts is likely to accelerate over the new parliament. A Briefing Note, funded by the Joseph Rowntree Foundation and the Economic and Social Research Council (ESRC), looks at the movement between jobs, or ‘mobility’, of workers in the public and private sectors. It sets out the extent to which reductions in the public workforce to date have been delivered by freezing recruitment of new workers and not replacing workers who move to non-employment, and through more workers moving from the public sector to the private sector than moving in the other direction. The main findings are summarised in a press release.
• Weak productivity growth is not confined to a few sectors of the economy
At the end of 2014, UK productivity remained below its pre-recession level and 16% below where it would have been had the pre-recession trend continued. Looking forward, it is only productivity growth that is likely to spur increases in real wage growth and living standards. Alongside the upcoming budget, George Osborne will set out a plan for how to boost productivity. This Observation aims to provide some context for current discussions by setting out what the most recent data shows about the trajectory of productivity across different sectors of the economy.
Visit our election website for IFS analysis carried out in the run-up to the election.