Pre-announced tax changes encourage house buyers to bring forward purchases, costing Government tax revenue.
Straightforward cuts in the generosity of benefits and tax credits are proving more reliable ways to cut the welfare budget than complex structural reforms to incapacity and disability benefits.
Read more in our latest Welfare trends report.
We look at some of the detailed considerations that we take into account in our long-term projections in our recent health spending Fiscal sustainability analytical paper. As indicated in our statement following the EU referendum, we are publishing some of the analysis that would have featured in our 2016 Fiscal sustainability report, where the conclusions were less sensitive to assumptions that might be affected by the referendum result.
The Treasury Select Committee has approved the appointment of Sir Charles Bean, former Deputy Governor of the Bank of England and currently Professor of Economics at the London School of Economics, to join the OBR’s Budget Responsibility Committee.
The Chancellor nominated Sir Charles for the post in August 2016. The Committee approved the appointment on 13 September 2016, following a hearing before MPs.
Sir Charles will formally join the OBR at the beginning of 2017, replacing Sir Stephen Nickell. This means that Sir Stephen will still be in post for the Autumn Statement forecast later this year, with Sir Charles taking over in time for next year’s Budget forecast.
The three members of the Budget Responsibility Committee have executive responsibility for the core functions of the OBR, including the judgements reached in its forecasts. The other current members are Robert Chote and Graham Parker.
Sir Charles spent fourteen years as a member of the Bank of England’s Monetary Policy Committee, including six as Deputy Governor for Monetary Policy. He has published extensively on economic issues, most recently his independent review of UK economic statistics. After reading economics and mathematics at Cambridge, he began his career as an economic assistant in the Treasury’s short-term forecast division in 1975. He joined the LSE in 1982 and then moved to the Bank of England as Chief Economist in 2000. At various times he has served as an adviser to the Treasury and to Parliamentary committees, including the Treasury Committee.
The Treasury press release announcing the nomination can be found here.
The Chancellor of the Exchequer has nominated Sir Charles Bean, LSE professor and former Deputy Governor of the Bank of England, to join the OBR’s Budget Responsibility Committee. If the nomination is approved by the Treasury Select Committee, he would formally join the OBR at the beginning of 2017 (hence after the Autumn Statement), replacing Sir Stephen Nickell.
Following the cancellation of our 2016 Fiscal sustainability report we have published three Fiscal sustainability analytical papers today. They cover: the public sector balance sheet; the longer-term effects of student loan policy announcements over the past year; and how changes in mortality rate assumptions in the latest population projections would affect state pensions spending.
These analyses do not contain any judgements about short- or medium-term implications of the referendum result, which we will consider as we prepare our next forecast in the autumn.
Public sector balance sheet
This paper assesses the National Accounts and 2014-15 Whole of Government Accounts measures of the UK’s public sector balance sheet. In the National Accounts, the reclassification of Housing Associations into the public sector has pushed public sector net debt (PSND) noticeably higher as a share of GDP. In the WGA, a lower discount rate has pushed up the measured net public service pension liability and the value of student loans assets, while helping to reduce the ‘RAB charge’. But this does not signal a meaningful change in long-term fiscal sustainability. The lower discount rate is also pushing up the provision for nuclear decommissioning, although here there is also a genuine further increase in expected costs.
This paper updates the long-term projections for the addition to public sector net debt from student loans published in our 2015 FSR. It shows that student loans are now expected to add 10.4 per cent of GDP to net debt in 50 years’ time, up 2.8 per cent of GDP since last year. The increase largely reflects a series of policy changes announced by the Government in recent fiscal events, including the conversion of maintenance grants to loans for students from lower-income households and replacing bursaries with loans for nurses and others studying certain health-related courses.
Population projections and pensions spending
This paper describes the latest ONS population projections and their implications for the State Pension age (SPA) and pensions spending. Counter-intuitively, the fall in life expectancy in the latest projections increases spending over the 50-year projection horizon, because our estimate of the impact of the Government’s decision to link the State Pension Age to life expectancy increases spending (by slowing the pace of SPA rises) by more than the increase in mortality directly reduces it. But over the very long term the slower pace of SPA increases only offsets a third of the direct effect.
Since the publication of our March 2016 Economic and fiscal outlook (EFO) we have received a request to publish further detail of our universal credit caseload forecasts. We have published this new supplementary forecast information on the main EFO page of our website.
Monthly commentary on the public finances – afternoon
Public finances data for June 2016 will be published by the ONS and HM Treasury tomorrow, 21 July 2016, at 9:30am. Our regular monthly commentary will be published by early afternoon. It is worth noting that most of the period covered by these data preceded the EU referendum.
Supplementary release – 11am
Since the publication of our March 2016 Economic and fiscal outlook (EFO) we have received a request to publish further detail of our universal credit caseload forecasts. We will publish this new supplementary forecast information tomorrow on the main EFO page of our website.
Fiscal sustainability analytical papers – 2pm
As indicated in our statement following the EU referendum, we plan to publish some of the analysis that would have featured in our 2016 Fiscal sustainability report, where the conclusions were less sensitive to assumptions that might be affected by the referendum result. We will publish three Fiscal sustainability analytical papers tomorrow at 2pm. They will cover: the public sector balance sheet; the longer-term effects of student loan policy announcements over the past year; and how the latest population projections would affect state pensions spending.
Our Annual report and accounts detail our budget and finances for for 2015-16, audited by the National Audit Office. It also sets out our achievements, details of our staffing structure, operations and our most recent budget settlement, which reflects the recommendations of the 2015 HM Treasury Review of the OBR.
In light of the vote to leave the European Union in last week’s referendum – and given the remit set out for us by Parliament in primary and secondary legislation – we have set out the OBR’s role in assessing the potential implications for the economy and public finances. In summary, we stand ready to produce our next medium term forecast in the autumn as requested by the Chancellor and we have cancelled the planned July 2016 publication of our long-term projections based on the March 2016 forecast.
Download the full press notice here: