Spending Review 2004

IFS Press Briefing

www.ifs.org.uk/conferences/spending_review2004.shtml

Public spending

Carl Emmerson

Total spending growth

-0.3

0.21.0

5.5

3.7 3.8

6.7

3.9 4.2

2.6 2.8

-1012345678

97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Rea

l gro

wth

in s

pend

ing

(%)

Source: HM Treasury

Breakdown of spending growth

4.2

2.6 2.8

5.5

3.63.1

2.5

1.3

2.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2005–06 2006–07 2007–08

Rea

l inc

reas

e in

spe

ndin

g (%

)

TME DEL AME

Source: HM Treasury

Winners and losers? (3 years)

1.2%1.3%1.4%

3.9%4.5%

7.1%9.2%

1.9%2.3%

2.6%2.8%

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Environment, Food and Rural Affairs

Defence

Foreign and Commonwealth Office

Housing

Culture, Media and Sport

Home

Trade and Industry

Education (UK)

Transport

NHS (UK)

International Development

Average annual real increase 2004–05 to 2007–08

Average DEL increase = 4.1 per cent

Source: HM Treasury

Winners and losers? (2 years)

1.1%

3.3%2.8%

7.0%5.5%

0.7%

1.0%2.3%

1.4%1.0%

1.3%

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Environment, Food and Rural Affairs

Defence

Foreign and Commonwealth Office

Housing

Culture, Media and Sport

Home

Trade and Industry

Education (UK)

Transport

NHS (UK)

International Development

Average annual real increase 2005–06 to 2007–08

Average DEL increase = 3.4 per cent

6.87.1

11.35.86.05.93.7

2.0–1.2

5.1

Source: HM Treasury

Plans and outturns: TME

3.22.8

4.3

3.23.4

4.7 4.9

0

1

2

3

4

5

6

CSR 98 SR 00 SR 02 SR 04

Rea

l gro

wth

in s

pend

ing

(%)

Original plan Latest estimate

Source: HM Treasury

?

Plans and outturns: DEL

3.7

4.95.3

4.1

5.6 5.75.2

0

1

2

3

4

5

6

CSR 98 SR 00 SR 02 SR 04

Rea

l gro

wth

in s

pend

ing

(%)

Original plan

Latest estimate

Source: HM Treasury

?

Plans and outturns: AME

2.7

0.3

3.0

2.0

0.7

3.3

4.5

0

1

2

3

4

5

6

CSR 98 SR 00 SR 02 SR 04

Rea

l gro

wth

in s

pend

ing

(%)

Original plan Latest estimate

Source: HM Treasury

?

Civil service numbers over time

0

100

200

300

400

500

600

700

89-9

091

-92

93-9

495

-96

97-9

899

-00

01-0

2

03-04

05-0

6

07-0

8

Financial year

Full

time

equi

vale

nts

('000

)

HMT April 2004

IFS constructed series

Source: HM Treasury; IFS calculations

Civil service numbers over time

400

450

500

550

600

650

700

89-9

091

-92

93-9

495

-96

97-9

899

-00

01-0

2

03-0

4

05-0

6

07-0

8

Financial year

Full

time

equi

vale

nts

('000

)

IFS constructed series HMT April 2004HMT May 2003 HMT May 2002HMT May 2001 HMT May 2000HMT May 1999 HMT Apr 1998HMT May 1997 HMT Mar 1996HMT Feb 1995

Source: HM Treasury; IFS calculations

Admin spending

2.0

2.5

3.0

3.5

4.0

4.5

5.0

89-90

90-9

191

-9292

-9393

-9494

-9595

-9696

-9797

-9898

-9999

-00

00-01

01-0

2

02-0

3

03-0

4

04-05

05-0

6

06-07

07-0

8

Financial year

Per

cent

age

of T

ME

HMT July 2004HMT April 2004IFS constructed series

Source: HM Treasury; IFS calculations

Admin spending: 10th time lucky?

2.0

2.5

3.0

3.5

4.0

4.5

5.0

89-9

090

-9191

-9292

-9393

-9494

-9595

-9696

-9797

-9898

-9999

-00

00-0

1

01-0

2

02-0

3

03-0

4

04-0

5

05-0

6

06-0

7

07-0

8

Financial year

Per

cent

age

of T

ME

HMT July 2004 IFS constructed seriesHMT April 2004 HMT May 2003HMT May 2002 HMT May 2001HMT May 2000 HMT May 1999HMT Apr 1998 HMT May 1997HMT Mar 1996 HMT Feb 1995

Source: HM Treasury; IFS calculations

Conclusions

• Slower spending growth in 06-07 & 07-08• NHS and defence relatively protected, slowdown

in spending growth in all other areas• Greater efficiency growth needed for public

services to improve at same rate

• Previous projections have:• Underestimated growth in total public spending• Overestimated administrative savings

The new child poverty targets

Alissa Goodman

Background

“The Government’s long-term economic ambition is to halve child poverty by the end of the next decade as the Government moves forward with its commitment to end child poverty in Britain within the next twenty years”

• Pre-Budget Report, 1999

The new child poverty targets

• Relative low income“Halve the number of children in relative low-income households between 1998-99 and 2010-11 on the way to eradicating child poverty by 2020”

• Material deprivationTarget will be set in 2006 when data becomes available

Meeting the target

0%

5%

10%

15%

20%

25%

30%

35%

1960 1970 1980 1990 2000 2010 2020

Per c

ent o

f chi

ldre

n in

pov

erty

Moving up the EU-15 league?

0.0

10.0

20.0

30.0

Finland

Denmark

Sweden

Belgium

Austri

a

2010

TARGET

German

y

Netherl

ands

France

Greece

Luxem

bourg

United

Kingdo

mIta

ly

Irelan

dSpa

in

Portuga

l

Per c

ent o

f chi

ldre

n in

pov

erty

Source: European Community Household Panel, 2001

More public spending needed?

• Child tax credit will need to be up-rated with earnings growth beyond 2005

• Not factored into SR2004 projections for AME?

Growth in social security spending

1.2 1.0

2.1

4.03.2

5.4

1.2

6.2

2.6

0

1

2

3

4

5

6

7

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08

Rea

l gro

wth

in s

pend

ing

(%)

Note: Includes expenditure on tax creditsSource: HM Treasury

More public spending needed?

• Child tax credit will need to be up-rated with earnings growth beyond 2005

• Not factored into SR2004 projections for AME?

• Longer-term policies to change underlying income distribution also necessary

Conclusions

• Very ambitious target

• Returns child poverty to pre-Thatcher era

• Full costs not included in SR2004?

Spending Review 2004

IFS Press Briefing

www.ifs.org.uk/conferences/spending_review2004.shtml