Summer budget 2015or…cut welfare while the sun is shiningKitty Ussher, Chief Economic Adviser

Structure• Economic update (the easy bit)• Policy response (cuts, welfare, tax)• Politics?• Things to watch

Growth is back…

…but if it doesn’t yet feel great…

…it will soon…

GDP forecasts

2014 2015 2016 2017 2018 2019 20202

2.2

2.4

2.6

2.8

3

3.2

2014 Autumn statement 2015 March budget 2015 July emergency budget

Axis Title

% ch

ange

in re

al G

DP

Employment forecasts

2014 2015 2016 2017 2018 2019 202030.5

30.7

30.9

31.1

31.3

31.5

31.7

31.9

32.1

32.3

2014 December autumn statement 2015 March budget 2015 July emergency budget

Axis Title

mill

ions

Wage & price forecasts

2014 2015 2016 2017 2018 2019 20200

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

average earnings growth forecasts (%)

2014 2015 2016 2017 2018 2019 20200

0.5

1

1.5

2

2.5

2014 Autumn statement 2015 March budget2015 July emergency budget

Axis Title

CPI i

nflati

on (%

)

Inflation forecasts

Source: OBRUnemployment will fall to 5.1% in 2016 (?? Yesterday’s data)Av earnings is per worker

Policy response #1 – slower overall pace of cuts

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

-3

-2

-1

0

1

2

3

2014 Autumn Statement 2015 March Budget 2015 July emergency budget

% o

f GDP

(cyc

lical

ly a

djus

ted)

Cyclically adjusted budget deficits

Policy response #2- steep cuts to working age benefits• Four year cash freeze on working-age benefits, tax credits and

local housing allowances saves £4bn annually by 2020-21. • Further reforms to tax credits and universal credit - faster

phasing out of support, the limiting of the child element to two children, and removing the family element for new claims - saves a further £5.8bn annually by 2020-21.

• A further £2bn is reduced from the housing benefit bill by a forced capping of social housing rents, which are typically covered by housing benefit,

• Smaller measures include aligning the “work ready” Employment and Support Allowance payments with Jobseekers Allowance.

• Overall, reduce government spending by £12bn annually in 2019-20, rising to £12.9bn the following year.

Significant shifts in the tax regime

• Lower headline rates: corp tax, thresholds• Different regime for owner-managers: now a £5K tax free

allowance for dividends (raising £2bn annually)• Wider bank tax• HMRC moving down the foodchain (£265 annually to raise

£5bn?)• Non doms/IPT/Inheritance/Higher pensions relief• Overall tax take up significantly…but not transparent

Things to watch• Spending review – NHS and defence• Welfare cuts impact on work incentives and poverty• Effect of min wage rise & role of Low Pay Commission. • Unemployment rate (London vs rest).• Future of pensions – just save till 55?• Labour leadership debate