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Fiscal policy since 1997

This article explores the fiscal policy implemented by the UK government since 1997, analyzing macroeconomic indicators, debt levels, and various fiscal rules. It also examines the impact of private sector investment and provides insights into tax rates, new taxes, and expenditure patterns.

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Fiscal policy since 1997

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  1. Fiscal policy since 1997 Chris Frayne http://www.ifs.org.uk/taxsystem/index.shtml

  2. Putting things in context: macroeconomic indicators GDP growth

  3. Putting things in context: macroeconomic indicators Net debt (% GDP) PSNB (% GDP)

  4. Determining fiscal policy - Code for Fiscal Stability • The Golden Rule: the government will borrow only to invest. • Intergenerational equity • Surplus on current budget • Assessed over the economic cycle • Backward looking versus forward looking • Sustainable investment rule: Ratio of net public sector debt to GDP set at “stable & prudent level” - 40%. • Sustainability • Optimal?

  5. Fiscal Policy 2 – other rules • Maastricht criteria – Stability and Growth Pact • Medium term objective of budget balance or surplus • General government deficit under 3% of GDP • General government gross debt under 60% of GDP • 3rd Fiscal Rule • More active stabilisation • Symmetric rule

  6. Current Budget over time Current budget surplus as a share of GDP, 1966-67 to 2007-08 Forecasts Note: HM Treasury forecasts, excluding the windfall tax and associated spending

  7. Current budget surpluses £8.8bn - £5bn - £8bn - £11.8bn - £19.3bn Source: HM Treasury

  8. Cumulative surplus on current budget in 2005-06 Source: HM Treasury

  9. Cumulative surplus on current budget in 2005-06 Source: HM Treasury

  10. Cumulative surplus on current budget in 2005-06 Source: HM Treasury

  11. Cyclically-adjusted current budget Source: HM Treasury

  12. Public sector net debt Source: HM Treasury

  13. 25 years of underinvestment? UK Net public sector investment, 1970–71 to 2005–06

  14. Private Finance Initiative • Ideas: • Private sector invests, public sector uses • Pro: private sector efficiency • Con: higher borrowing costs • Investment: • Golden rule: rental costs balances out depreciation + borrowing costs • Investment rule: easier to meet

  15. Public sector net debt Source: HM Treasury & IFS calculations

  16. Revenues and spending Note: HM Treasury forecasts, excluding the windfall tax and associated spending

  17. GDP growth Tax rates Tax base New taxes Luck? 2. 7% p.a. average But, stock market Excise duty increases Corporation tax 22p rate National insurance Dividend tax credits Child Tax Credit Climate change levies Self assessment income tax Tax changes under Labour - up and down and up again?

  18. Annually managed expenditure social security payments debt interest devolved parliaments autonomous local gov. Departmental Expenditure Limits 3 year spending rounds: CSR July 98, SR 2000, SR 2002 until 2005-06 End year flexibility fixed? Total Managed Expenditure Capital/Current budgets planned separately

  19. Average real increases in TME

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