Economic policy in a time of austerity

Tom SeftonEconomics and Social Policy Adviser

Church of England@TASefton

Outline

• Shorter-term economic priorities:– Deficit reduction– Growth– Fairness

• Long-term structural challenges:– e.g. Stagnating living standards

Deficit reduction

Spending and revenues – with & without policy19

96–9

719

97–9

819

98–9

919

99–0

020

00–0

120

01–0

220

02–0

320

03–0

420

04–0

520

05–0

620

06–0

720

07–0

820

08–0

920

09–1

020

10–1

120

11–1

220

12–1

320

13–1

420

14–1

520

15–1

620

16–1

720

17–1

83032343638404244464850

Spending (no action)Revenues (no action)

Perc

enta

ge o

f nat

iona

l inc

ome

Source: IFS Green Budget 2013

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.1%

2.4%2.9%

3.4% 3.0%2.5% 2.6%

6.7%

11.0%10.1%

7.5%

5.5%

3.5%

2.1%1.1%

Government net borrowing - % of GDP(June 2010 plans)

Publ

ic se

ctor

net

bor

row

ing

as %

of G

DP

Labour (actual)

Labour (Mar 2010 plans)

Coalition (Jun 2010 plans)

Source: Budget June 2010 (and previous Budget reports for earlier years)

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.1%

2.4%2.9%

3.4%3.0%

2.5% 2.6%

6.9%

11.2%

9.5%

7.9% 7.8% 7.5%

6.5%

5.5%

Government net borrowing - % of GDP(March 2013 plans)

Publ

ic se

ctor

net

bor

row

ing

as %

of G

DP

Source: Office for Budget Responsibility Economic and fiscal outlook charts and tables - March 2013

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-1840%

50%

60%

70%

80%

90%

100%

110%

120%

Public sector net debt - as % of GDPNo policy action June 2010 plans Latest OBR forecasts

June 2013 plans

Source: IFS Green Budget 2013

“Consideration should be given to greater near-term flexibility in fiscal adjustment path in the light of

lacklustre private demand." (IMF World Economic Outlook, April 2013)

Timing and composition of fiscal consolidation20

08–0

9

2009

–10

2010

–11

2011

–12

2012

–13

2013

–14

2014

–15

2015

–16

2016

–17

2017

–18-2

0

2

4

6

8

10Other current spendDebt interestBenefitsInvestmentTax increases

Fisc

al ti

ghte

ning

(% n

atio

nal i

ncom

e)

Source: IFS Green Budget 2013

Growth

Source: NIESR

Source: Gavyn Davies, ‘Why is UK recovery weaker than the US?’ (FT, Nov 14 2012)

Mar '10 Jun '10 Sep '10 Dec '10 Mar '11 Jun '11 Sep '11 Dec '11 Mar '12 Jun '12 Sep '12 Dec '12-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

Change in private and public em-ploymentPrivate sector Total Public sector

Chan

ge in

em

ploy

men

t sin

ce M

arch

201

0

Source: Labour Market Statistics (EMP02)

Fairness

9.3

1.8

0.5

2.3

4.4

3.2

1.2

Total value of welfare cuts by 2014-15 - £bn

Benefit uprating

Housing benefits

Council Tax Benefit

Disability benefits

Tax credits

Child Benefit

Other family benefits

Total cuts = £22.7bn

Source: Own analysis based on Budget reports and Autumn Statements

Poorest 2 3 4 5 6 7 8 9 Richest-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Impact of tax-benefit reforms between 2010 and 2015/16 - by income group

Income decile group

Perc

enta

ge ch

ange

in n

et in

com

e

Source: IFS Green Budget 2013

Forecasts for UK child poverty: 2010-2020

Source: Browne, J. et al (2013), ‘Child and Working-Age Poverty in Northern Ireland [and UK] from 2010 to 2020’

Source: British Social Attitudes Survey