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Fiscal risks in the UK
Andy King Budget t Respons
- nsibilit
Fiscal risks in the UK Andy King Budget t Respons onsibilit - - PowerPoint PPT Presentation
Fiscal risks in the UK Andy King Budget t Respons onsibilit - - PowerPoint PPT Presentation
Fiscal risks in the UK Andy King Budget t Respons onsibilit bility y Comm mmittee ttee 12 November vember 2019 19 Introduction Background The IMF said in 2016 that summary reporting of specific risks is a weakness that should
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Background
- The IMF said in 2016 that “summary reporting of specific
risks is a weakness that should be addressed”
- The Government then legislated for us to produce an FRR
every two years, to which it is obliged to respond
- We published our first FRR in July 2017 and the Treasury
responded with Managing fiscal risks in July 2018
- Several other countries produce risk reports, but usually by
their finance ministries or cabinet offices
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Our approach
- The IMF defines fiscal risks as
– “the possibility of deviations of fiscal outcomes from what was expected at the time of the Budget or other forecast”
- In our Fiscal risks reports we focus on risks
– to our latest forecast over the medium term (March 2019 EFO) – to fiscal sustainability over the longer term
- We are interested in
– Probability and potential impact: any change over past two years? – What the Government is doing: response in MFR and policy
- But taking on fiscal risk not necessarily a bad thing
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Chapters and special themes
- Macroeconomic risks: output gap mismeasurement
- Financial sector risks: shadow banking
- Revenue risks: tax relief and digital economy
- Primary spending risks: NHS & free TV licences for over 75s
- Balance sheet risks: fiscal illusions & intangible assets
- Debt interest risks: ‘R-G’ and debt dynamics
- Fiscal policy risks: looser fiscal rule?
- Climate change: introduction to future work
- A fiscal stress test: IMF no-deal Brexit scenario
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Chapters and special themes
- Macroeconomic risks: output gap mismeasurement
- Financial sector risks: shadow banking
- Revenue risks: tax relief and digital economy
- Primary spending risks: NHS & free TV licences for over 75s
- Balance sheet risks: fiscal illusions & intangible assets
- Debt interest risks: ‘R-G’ and debt dynamics
- Fiscal policy risks: looser fiscal rule?
- Climate change: introduction to future work
- A fiscal stress test: IMF no-deal Brexit scenario
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Macroeconomic risks
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Productivity growth
- 2
- 1
1 2 3 4 5 6 7 8 1972 1980 1988 1996 2004 2012 2020 2028 2036
Output per hour Period average
Per cent
March 2019 forecast FSR 2018 projection
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Recessions
- 6
- 4
- 2
2 4 6 8
1950 1954 1958 1962 1966 1974 1988 2000 2004 2008 2012 2016 2020 Percentage change on a year earlier
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The housing market
- 40
- 30
- 20
- 10
10 20 30 40 50
- 8
- 6
- 4
- 2
2 4 6 8 10 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 Real GDP growth (RHS) Real house price inflation (LHS)
Percentage change on a year earlier Percentage change on a year earlier
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Revenue risks
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Revenue forecast surprises
33 34 35 36 37 38 2000-01 2004-05 2008-09 2012-13 2016-17 2020-21 Per cent of GDP Treasury forecasts OBR forecasts Outturn
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Income tax surprises
100 120 140 160 180 200 220 240 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 £, billion Successive OBR forecasts Outturn
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Property transaction tax surprises
2 4 6 8 10 12 14 16 18 20 2010-11 2012-13 2014-15 2016-17 2018-19 2020-21 2022-23 £, billion Successive OBR forecasts Outturn
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Long-term spending pressures
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The ageing population
25 19 17 50 51 45 12 12 11 12 16 20 1 2 7
10 20 30 40 50 60 70 80 90 100 Per cent of UK population 85+ 65-84 55-64 16-54 0-15 1967 2017 2067
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Long-term spending pressures
5 10 15 20 25 30 35 40 45 50
1 11 21 31 41 51 61 71 81 91101+
Receipts/spending in 2022-23 (£ thousand) Age
Tax Total spending
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Long-term spending pressures
Per cent of GDP
2017-18 2022-23 2067-68 Health
7.1 7.6 13.8
Adult social care
1.2 1.3 1.9
Education
4.3 4.1 3.8
State pensions
5.1 5.0 6.9
Pensioner benefits
0.8 0.8 1.3
Public service pensions
2.0 2.1 1.5
Total age-related spending
20.5 20.9 29.2
Other welfare benefits
4.8 4.5 4.2
Other spending
11.4 11.0 11.2
Spending
36.7 36.4 44.6
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Long-term spending pressures
Per cent of GDP
2017-18 2022-23 2067-68 Health
7.1 7.6 13.8
Adult social care
1.2 1.3 1.9
Education
4.3 4.1 3.8
State pensions
5.1 5.0 6.9
Pensioner benefits
0.8 0.8 1.3
Public service pensions
2.0 2.1 1.5
Total age-related spending
20.5 20.9 29.2
Other welfare benefits
4.8 4.5 4.2
Other spending
11.4 11.0 11.2
Spending
36.7 36.4 44.6
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Long-term spending pressures
Per cent of GDP
2017-18 2022-23 2067-68 Health
7.1 7.6 13.8
Adult social care
1.2 1.3 1.9
Education
4.3 4.1 3.8
State pensions
5.1 5.0 6.9
Pensioner benefits
0.8 0.8 1.3
Public service pensions
2.0 2.1 1.5
Total age-related spending
20.5 20.9 29.2
Other welfare benefits
4.8 4.5 4.2
Other spending
11.4 11.0 11.2
Spending
36.7 36.4 44.6
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Long-term spending pressures
Per cent of GDP
2017-18 2022-23 2067-68 Health
7.1 7.6 13.8
Adult social care
1.2 1.3 1.9
Education
4.3 4.1 3.8
State pensions
5.1 5.0 6.9
Pensioner benefits
0.8 0.8 1.3
Public service pensions
2.0 2.1 1.5
Total age-related spending
20.5 20.9 29.2
Other welfare benefits
4.8 4.5 4.2
Other spending
11.4 11.0 11.2
Spending
36.7 36.4 44.6
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Long-term spending pressures
Per cent of GDP
2017-18 2022-23 2067-68 Health
7.1 7.6 13.8
Adult social care
1.2 1.3 1.9
Education
4.3 4.1 3.8
State pensions
5.1 5.0 6.9
Pensioner benefits
0.8 0.8 1.3
Public service pensions
2.0 2.1 1.5
Total age-related spending
20.5 20.9 29.2
Other welfare benefits
4.8 4.5 4.2
Other spending
11.4 11.0 11.2
Spending
36.7 36.4 44.6
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Conclusions
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Conclusions
- Governments are there to manage society’s risks…
- …but also risks to the public finances.
- These come in many forms: