Tag Archives: institute for fiscal studies

Uncomfortable truths from the IFS on public spending and tax cuts but cautious optimism on economic growth

Last week, the highly-respected Institute for Fiscal Studies produced its annual “Green Budget”: its attempt to inject some realism into the national debate on the economy ahead of the chancellor’s actual budget in March.

The document makes for uncomfortable reading in parts, particularly as we head towards another general election in which the complicity of silence on deficit reduction is likely to be as deafening as it was in 2010.

IFS borrowingDeficit reduction: significant progress, but some way to go

Starting with the deficit, the IFS’s conclusions are stark. Had the government not taken steps to increase taxes and cut spending in the years since 2008, they estimate that the deficit would have reached 10% of national income by 2018-19. Because of the estimated 16.7% permanent reduction in economic capacity caused by the crash of 2008, 98% of that deficit would be “structural” – i.e. would not be expected to reduce naturally once growth picked up:

For an economy such as the UK, this level of borrowing would have been unsustainable on an ongoing basis. Public sector net debt would have increased markedly year-on-year, likely surpassing 100% of national income before the end of the current decade, and 200% within the next two decades.

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Opinion: Who’s been hit hardest by the coalition’s cuts?

The budget on March 20th is likely to concentrate on growth, on avoiding an ‘omnishambles’, and on fighting the notion that Osborne has taken the country from triple A to triple dip. But it’s also the time to take stock of who’s bearing the brunt of (attempted) deficit reduction. This graph shows the combined effect of all the coalition’s tax and welfare changes, as modelled by the Institute for Fiscal Studies. It doesn’t look good.

Impact of modelled tax and benefit reforms since Jan 2010, by income decile group (Copyright of the IFS*)

The blue …

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IFS verdict: Labour’s 10p tax idea “has no plausible economic justification”

institute-for-fiscal-studies-logo-370x229Ed Miliband’s announcement yesterday that Labour will re-introduce a 10p starting rate of income tax paid for through the introduction of Vince Cable’s mansion tax has received a tepid response from the Institute for Fiscal Studies. The IFS put out a note yesterday headed simply, Better options exist to help low earners than 10p tax rate:

A 10p tax rate would reduce taxes for those on low incomes and strengthen their work incentives. A far simpler and more sensible way of achieving these aims would be to spend the same

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Making work pay – how taxes should work better for the ‘squeezed middle’

The Resolution Foundation helped give birth to the phrase ‘squeezed middle’: that group of low-income individuals and families just above the threshold to qualify for most welfare help, but only just able to make ends meet, and always in danger of slipping back into poverty.

Today they’ve published a report written by Paul Johnson, Director of the Institute for Fiscal Studies, identifying key reforms that could allow the tax and welfare system to redistribute more efficiently. Here’s the summary-of-the-summary:

Simply making the current system more generous to those on low incomes will not be sustainable in the long run. Reforms to

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Opinion: both private and public sector pensions need improving

There are two fundamental problems with the analysis by the Institute for Fiscal Studies of the current negotiations on public sector pensions.

Firstly, the IFS compares public sector pension provision with that of the private sector and implies that the inevitable disparity has to be rebalanced by cutting the public sector rather than improving private sector provision.

Secondly, they choose to ignore the approximately £100 billion saved by moving from RPI to CPI and then says that if you exclude £100 billion and the fact that retired public sector workers’ pensions are going to have lower increases than before, they are better off.

But this …

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The Independent View: Lib Dems need to champion new ideas for tackling child poverty

Figures released this week by the IFS show that the UK will witness a severe and sustained increase in child poverty over the coming decade, with almost a quarter of British children set to be living in relative poverty by 2020, compared to one fifth in 2009/10. This is despite a projected 7 per cent reduction in real terms median income over the next three years, reducing the amount of income it takes to cross the poverty line.

These figures highlight the growing gulf between the targets set out under the Child Poverty Act, which require the government to reduce …

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Educational Maintenance Allowance: how hard is it for the new policy to be better?

Yesterday Michael Gove, finally, announced the government’s proposals for replacing the Educational Maintenance Allowance (EMA) scheme. As previously trailed, Liberal Democrat pressure has secured more than £100m extra for the plans.

The £180m being spent on the new scheme compares to the £560m cost of the EMA. At first glance, that is a large cut. But if you view the key objective for the funds to be helping more people to take part in post-16 education, then the picture looks very different. That’s because several different studies of EMA concludes that the vast majority of its funds went to people …

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Opinion: the Liberal Democrats should support a Living Wage

The Living Wage is a term which has gained ground in mainstream politics over the past year or so. Ed Miliband has used it in attempts to forge his political identity. Boris Johnson has spokenof his support for the concept and would like to see it introduced in London and David Cameron has said it is an idea whose time has come.

According to the Joseph Rowntree Foundation, a salary of £14,400 is the minimum a single person needs for an acceptable standard of living. This figure includes not only the basics in life, but covers what …

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What the think tanks are saying: The IFS on the Universal Credit

The Welfare Reform Bill was introduced to Parliament on the 17th February. It involves the biggest changes to the welfare system in at least 20 years, probably a lot longer. It includes the Universal Credit, intended to significantly reduce the poverty trap, by making it clearer to those on benefits that they would be better off in work.

A month ago, the IFS published “Universal Credit: much to welcome, but impact on incentives mixed”. Well worth reading. Here is a brief overview of what they say:

  • benefits will remain the same as under the present system

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Rich to lose most, more to pay higher tax – IFS

Today the Institute for Fiscal Studies published an analysis of the likely impact of the tax and benefit changes due in April, with a complicated and mixed picture summarised by its balanced headline: Rich to lose most from new measures in April, as 750,000 brought into higher rate tax.

The media coverage however has been to latch onto the second half of that headline and bury the first part a long way down the story. Take The Independent, with its headline Teachers and nurses dragged into top-rate bracket. It goes on to point out how some tube drivers also will end up …

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The IFS’s verdict on the Pupil Premium

At the start of this week details of the Pupil Premium to help the education of the most disadvantaged children were published. The Institute for Fiscal Studies (IFS) has now run its eye over those details and come up with its verdict:

Pupil premium: simple and transparent financial incentive

The Government’s chosen pupil premium is simple, amounting to £430 per pupil eligible for free school meals no matter which local authority children live in. The Government originally proposed a pupil premium that would have varied in generosity across local authorities, been relatively complex to understand, and gone against the Government’s stated

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The IFS answers… Is increasing VAT progressive?

For the final part in our question and answer series with the IFS on a range of questions about their views on government policy it is the turn of VAT. The impact of increasing VAT is an issue on which I’ve changed my mind. I used to think that increasing VAT was a bad idea because it would be a regressive tax change. But when the issue shot up the political agenda earlier this year, it was the IFS’s reasoning that made me doubt that. Here is the current version of that reasoning (which of course is subject to the same …

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The IFS answers… What about wider policy impacts?

Yesterday I made the point that the way in which the IFS presents its estimates as to how progressive or not government measures are risks giving an over-precise impression bearing in mind the data and methodological issues the IFS has acknowledged. That is an issue which comes up again in the answers from the IFS in this post, where the IFS’s position can be summarised as ‘yes, our calculations are not perfect but they are the best that can be reasonably done’. That does mean there is plenty of scope for people to place undue weight on their …

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The IFS answers… Is the data accurate enough for its calculations?

Yesterday I blogged the first of a set of answers from the IFS about its calculations and the data behind them. Those answers nicely lead on to the next question:

In looking at the impact of the Budget or the Spending Review, the IFS typically quotes the impact on different groups of people to one decimal place. What’s your reason for thinking that your calculations are based on sufficiently accurate data and assumptions to justify reporting them to the nearest tenth of one percent (rather than, for example, the nearest percent)?

Our policy is to publish the exact figures produced by

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The IFS answers… Who counts as poor?

The Institute for Fiscal Studies (IFS) has been much quoted and criticised by all sides over the last few months as the government has set out its willingness to be judged on how progressive or not its policies are and the IFS has become the default think tank of choice to turn to for information and supporting arguments by politicians, bloggers and pundits.

No-one is infallible, so it’s perfectly reasonable for people to sometimes agree with the IFS and sometimes disagree. However, some people from all parts of the political spectrum have not always covered themselves in glory by switching from …

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Opinion: the IFS, the buts and the maybes – questions of fairness and the CSR

Last week Nick Clegg and the Institute of Fiscal studies squared up over the issue of whether the cuts proposed in the Comprehensive Spending Review are fair.

It is a debate which strikes at the heart of Lib Dems in the coalition government and it will determine the shape of politics in this country for next decade.

For the first time ever the Treasury included an impact analysis of the announced changes within the CSR, the effect of pressure from Lib Dems. These were calculated according to the sections of society that will bear the burden of the changes (ie how …

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IFS: Browne offers “a graduate tax by another name”

The Institute for Fiscal Studies (IFS) have looked at the Browne Report. Their conclusion raises some interesting points.

our analysis suggests that graduates with higher earnings would repay unambiguously more than their lower-earning counterparts.

Under Lord Browne’s proposals, this would for many become a 30-year graduate tax of 9% above £21,000 (with this threshold indexed in line with earnings). Indeed, for the lowest-earning 30% of graduates the actual level of fees makes no difference to how much they repay

Paradoxically, therefore, the more fees go up, the more the system approximates a graduate tax – indeed, a pure graduate tax

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Liblink: Nick Clegg on fairness, the Budget and the IFS report

Deputy Prime Minister Nick Clegg, writing in today’s Financial Times (free registration required), champions the government’s commitment to fairness and explains why he believes yesterday’s IFS report is asking the wrong questions.

Fairness is about every child getting the chance they deserve, regardless of their background. Poverty and deprivation matter enormously but fairness also demands that what counts is not the school you went to, the jobs your parents did, or the colour of your skin but your ability to move beyond the circumstances of your birth.

…there is a bigger problem with the analysis: it measures the impact of

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Coalition puts up strong defence on IFS report

There’s a standard approach people take to reports. If the report happens to back up our position, it’s right – and we certainly don’t need to go as far as reading or critically appraising it to figure it out. If it goes against our view, there’s probably something dodgy about it. Human nature – can’t beat it.

And so it is with today’s report from the Institute for Fiscal Studies (IFS). Depending on how you read it, or which claims you want to pluck out, the report says that the 2010-11 budget is regressive, or perhaps slightly …

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What the IFS says about Lib Dem policies (the good and the less good)

The Institute for Fiscal Studies today delivered its Election Briefing 2010 verdict. We’ve looked at what it says about Lib Dem policies, and publish relevant extracts, below – highlighting both the positive aspects, and those where the IFS says the Lib Dems are lacking.

But if you don’t have time to read even our filleted version, here’s the filleted fillet:

  • In terms of reducing the deficit, the Tories will cut public spending most, Labour least; while Labour will increase taxes most, the Tories least. The Lib Dems are in the middle when it comes both to public spending cuts and tax increases.
  • As it stands Labour will have to find a further £7bn of tax increases in the next five years; the Tories will have to reverse half their announced £6bn tax cuts; while the Lib Dems will not have to go beyond what is already set out in the party’s manifesto.
  • Under either the Lib Dems or Labour public spending cuts in the next five years will have to be the most severe in a generation. Under the Tories the cuts would be the most severe in modern history.
  • No party has set out how it will tackle the deficit in full: the Lib Dems have gone furthest in being open and honest with voters, identifying over 25% of measures needed, ahead of either the Tories (17%) or Labour (13%).
  • The IFS does not believe there is a black hole in the Lib Dems’ tax reforms, and states that they are “progressive”.
  • The Lib Dem proposal to take all those earning under £10,000 out of income tax will be a better work incentive than the Tories’ proposed NI tax cut.
  • Only the Lib Dems have been clear about dedicating a £2.5 billion pupil premium to help pupils poor enough to be eligible for free school meals. The Tories’ pledge is labelled “unclear” by the IFS, while Labour is accused of re-badging existing money.

Here’s the fuller version …

Posted in General Election | 9 Comments

Vince slams Osborne’s “schoolboy economics” (and the IFS aren’t keen on the Tories’ tax plans either)

It’s only a few hours since shadow chancellor George Osborne launched the Tories’ plans to cut Labour’s proposed increases in employers’ National Insurance, and already you can start to hear the sound of it unravelling.

First up, Vince Cable, the Lib Dems’ shadow chancellor:

This is school boy economics. When you have a £70bn permanent hole in the Government’s finances you simply can’t propose cutting tax revenue unless you spell out exactly how you are going to pay for it. The Tories say they are going to pay for a cut in National Insurance through ‘efficiency savings’, but haven’t a first

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IFS on Tories’ pupil premium policy: one in 10 schools could suffer 10%+ budget cuts

The ‘pupil premium’ – the Lib Dem proposal to invest an extra £2.5bn in schools which could be used to cut class sizes, offer one-on-one tuition and provide catch-up classes – is a policy which Nick Clegg has passionately advocated for over seven years. It is now one of the party’s four key policies emphasising fairness – in this case, A fair start for every child – for the coming general election.

This week, the Institute for Fiscal Studies – the independent financial research institute often quoted by the party to validate its economic policies – published an

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