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Spending review is not the end of austerity, warns IFS - as it happened Spending review is not the end of austerity, warns IFS - as it happened
(7 months later)
6.26pm GMT6.26pm GMT
18:2618:26
Larry Elliott: Will Osborne remain a lucky general?Larry Elliott: Will Osborne remain a lucky general?
And finally, here’s our own Larry Elliott’s take on today’s IFS report:And finally, here’s our own Larry Elliott’s take on today’s IFS report:
Napoleon would have approved of George Osborne. “I know he’s a good general”, the French emperor once said. “But is he lucky?”Napoleon would have approved of George Osborne. “I know he’s a good general”, the French emperor once said. “But is he lucky?”
The answer to that question, according to the Institute for Fiscal Studies, is yes. The chancellor got lucky when the Office for Budget Responsibility raised its forecasts for tax revenue and cut its predictions for interest payments on the national debt. That gave Osborne some much-needed wiggle room to delay welfare cuts, choke back on austerity and spend a bit more on infrastructure.The answer to that question, according to the Institute for Fiscal Studies, is yes. The chancellor got lucky when the Office for Budget Responsibility raised its forecasts for tax revenue and cut its predictions for interest payments on the national debt. That gave Osborne some much-needed wiggle room to delay welfare cuts, choke back on austerity and spend a bit more on infrastructure.
The question posed by the UK’s leading experts on the public finances is whether Osborne will stay lucky. He has set himself a cast-iron target – to run a budget surplus by the end of this parliament in 2020 – and if the OBR projections prove to be wrong he will face a simple choice: abandon the target, cut spending or raise taxes.The question posed by the UK’s leading experts on the public finances is whether Osborne will stay lucky. He has set himself a cast-iron target – to run a budget surplus by the end of this parliament in 2020 – and if the OBR projections prove to be wrong he will face a simple choice: abandon the target, cut spending or raise taxes.
Paul Johnson, the IFS’s director, thinks the likeliest outcome would be that the chancellor would raise taxes – and the IFS analysis of the autumn statement and spending review shows why.......Paul Johnson, the IFS’s director, thinks the likeliest outcome would be that the chancellor would raise taxes – and the IFS analysis of the autumn statement and spending review shows why.......
Related: If Osborne misses his new target, there really is nothing left to cut
That’s probably all for today. Goodnight and thanks for reading. GWThat’s probably all for today. Goodnight and thanks for reading. GW
4.48pm GMT4.48pm GMT
16:4816:48
The Office for Budget Responsibility has been attracting flak for its more optimistic fiscal forecasts.The Office for Budget Responsibility has been attracting flak for its more optimistic fiscal forecasts.
Some economists are concerned that the new projections - which gave the chancellor a welcome windfall which he rapidly spent - may be unrealistic.Some economists are concerned that the new projections - which gave the chancellor a welcome windfall which he rapidly spent - may be unrealistic.
Chris Giles of the FT has the details:Chris Giles of the FT has the details:
Some thought the OBR was too optimistic on revenues.Some thought the OBR was too optimistic on revenues.
Andrew Goodwin of Oxford Economics said the fiscal watchdog “provided the chancellor with an unexpected free pass” on the public finances. He said the OBR had a history of optimism on tax revenues and “today’s forecast revisions move them even further towards the optimistic end of this scale”.Andrew Goodwin of Oxford Economics said the fiscal watchdog “provided the chancellor with an unexpected free pass” on the public finances. He said the OBR had a history of optimism on tax revenues and “today’s forecast revisions move them even further towards the optimistic end of this scale”.
Fathom Consulting said the chancellor was paying for higher than expected public spending with “notional revenues”, and Francois Cabau of Barclays said caution was required over the Autumn Statement details that “the bulk of the fiscal performance would be owing to improved tax receipts and a lower interest rate burden”....Fathom Consulting said the chancellor was paying for higher than expected public spending with “notional revenues”, and Francois Cabau of Barclays said caution was required over the Autumn Statement details that “the bulk of the fiscal performance would be owing to improved tax receipts and a lower interest rate burden”....
More here.More here.
UpdatedUpdated
at 4.49pm GMTat 4.49pm GMT
3.00pm GMT3.00pm GMT
15:0015:00
And that’s the end of the Institute for Fiscal Studies briefing.And that’s the end of the Institute for Fiscal Studies briefing.
IFS head Johnson wraps up by stressing the news on universal credit effects is not new since yesterday. it is based on what we knew on uc b4IFS head Johnson wraps up by stressing the news on universal credit effects is not new since yesterday. it is based on what we knew on uc b4
We’ll have analysis later. But in the meantime you can scroll back to 1pm for the IFS’s full verdict on George Osborne’s plans.We’ll have analysis later. But in the meantime you can scroll back to 1pm for the IFS’s full verdict on George Osborne’s plans.
And remember, all their work is online here.And remember, all their work is online here.
2.55pm GMT2.55pm GMT
14:5514:55
Q: Will there be a two-tier benefit system as people are moved onto Universal Credit?Q: Will there be a two-tier benefit system as people are moved onto Universal Credit?
Andrew Hood agrees that any system that introduces cuts for new claimants but protects existing ones creates a two-tier system.Andrew Hood agrees that any system that introduces cuts for new claimants but protects existing ones creates a two-tier system.
There is transitional protection, but expressed in cash terms, which means that people should not receive less under the new system (inflation, though, could erode that protection).There is transitional protection, but expressed in cash terms, which means that people should not receive less under the new system (inflation, though, could erode that protection).
Transitional protection can last a very long time, Paul Johnson adds.Transitional protection can last a very long time, Paul Johnson adds.
Q: And how can transitional protection be lost?Q: And how can transitional protection be lost?
Several ways:Several ways:
2.41pm GMT2.41pm GMT
14:4114:41
The IFS are helpfully uploading all their presentations, so you can see their work on the Autumn Statement and Spending Review.The IFS are helpfully uploading all their presentations, so you can see their work on the Autumn Statement and Spending Review.
UpdatedUpdated
at 2.43pm GMTat 2.43pm GMT
2.40pm GMT2.40pm GMT
14:4014:40
Sky’s Ed Conway sums it up:Sky’s Ed Conway sums it up:
IFS broad message: yday makes life less painful for welfare recipients in short run but slightly worse in long run pic.twitter.com/L7Rs9JT6lsIFS broad message: yday makes life less painful for welfare recipients in short run but slightly worse in long run pic.twitter.com/L7Rs9JT6ls
2.38pm GMT2.38pm GMT
14:3814:38
Q: Is George Osborne right to spend the ‘windfall’ from the OBR’s improved fiscal forecasts?Q: Is George Osborne right to spend the ‘windfall’ from the OBR’s improved fiscal forecasts?
Gemma Tetlow agrees that the chancellor’s response is a little ‘asymmetric’ (as the chancellor could have banked the money and gunned for a more rapid fiscal consolidation).Gemma Tetlow agrees that the chancellor’s response is a little ‘asymmetric’ (as the chancellor could have banked the money and gunned for a more rapid fiscal consolidation).
Paul Johnson gives the chancellor some (guarded) support -- saying the alternative would have been to press on and slash police spending, foreign spending, or hike taxes.Paul Johnson gives the chancellor some (guarded) support -- saying the alternative would have been to press on and slash police spending, foreign spending, or hike taxes.
It doesn’t seem to me to be not wise to not implement massive spending cuts if you think you might not have to.It doesn’t seem to me to be not wise to not implement massive spending cuts if you think you might not have to.
UpdatedUpdated
at 2.54pm GMTat 2.54pm GMT
2.34pm GMT2.34pm GMT
14:3414:34
Q: Is Iain Duncan Smith right when he says today that under the new Universal Credit system, people are moving into work faster and earning more than under the current?Q: Is Iain Duncan Smith right when he says today that under the new Universal Credit system, people are moving into work faster and earning more than under the current?
Paul Johnson declines to comment on the behaviour of the very small number of people already on UC; the IFS’s work relates to the distributional impact when it is fully implemented.Paul Johnson declines to comment on the behaviour of the very small number of people already on UC; the IFS’s work relates to the distributional impact when it is fully implemented.
UpdatedUpdated
at 2.54pm GMTat 2.54pm GMT
2.31pm GMT2.31pm GMT
14:3114:31
Onto questions.Onto questions.
He says that the government overestimated the savings from the tax credit cuts, which is why the u-turn only yields £3.4bn not the £4.4bn expected.He says that the government overestimated the savings from the tax credit cuts, which is why the u-turn only yields £3.4bn not the £4.4bn expected.
Q: What is the distributional impact of Universal credit system?Q: What is the distributional impact of Universal credit system?
The impact is complicated, and doesn’t really match people’s place on the income scale.The impact is complicated, and doesn’t really match people’s place on the income scale.
Single earner couples tend to do well, while two income families and single parents do less well, Hood adds.Single earner couples tend to do well, while two income families and single parents do less well, Hood adds.
2.27pm GMT2.27pm GMT
14:2714:27
The IFS has also crunched some numbers, showing how the universal credit system will change the benefit system:The IFS has also crunched some numbers, showing how the universal credit system will change the benefit system:
Universal credit vs. the system it is replacingUniversal credit vs. the system it is replacing
2.24pm GMT2.24pm GMT
14:2414:24
IFS: Government still planning big cuts to in-work benefitsIFS: Government still planning big cuts to in-work benefits
The IFS’s Andrew Hood is now hammering home the point that the benefit system will still be much less generous in the long term.The IFS’s Andrew Hood is now hammering home the point that the benefit system will still be much less generous in the long term.
He says:He says:
In the long run, the system will be much less generous to low income households. That’s the big headline...because other cuts are going aheadIn the long run, the system will be much less generous to low income households. That’s the big headline...because other cuts are going ahead
This chart confirms that point - showing that the poorest families are actually losing slightly more in the long term than they were before.This chart confirms that point - showing that the poorest families are actually losing slightly more in the long term than they were before.
IFS notes little change since yesterday's autumn statement in working age benefits picture pic.twitter.com/C0MtWBuFUJIFS notes little change since yesterday's autumn statement in working age benefits picture pic.twitter.com/C0MtWBuFUJ
The tax-credit u-turn has “no long-term effect”, he insists. The government is still planning “deep cuts to working-age benefits”, including to low-income working families.The tax-credit u-turn has “no long-term effect”, he insists. The government is still planning “deep cuts to working-age benefits”, including to low-income working families.
On average, the overall package will strengthen work incentives, Hood says.On average, the overall package will strengthen work incentives, Hood says.
But there are still measures that will hurt low-paid workers, such as cuts to the work allowance:But there are still measures that will hurt low-paid workers, such as cuts to the work allowance:
This, Hood says, is a very similar impact to the tax credit changes which have now been reversed.This, Hood says, is a very similar impact to the tax credit changes which have now been reversed.
2.11pm GMT2.11pm GMT
14:1114:11
Abandoning the planned cuts to tax credits will cost £3.4bn in the 2016-17 financial year, Andrew Hood explains - not the £4.4bn expected.Abandoning the planned cuts to tax credits will cost £3.4bn in the 2016-17 financial year, Andrew Hood explains - not the £4.4bn expected.
2.07pm GMT2.07pm GMT
14:0714:07
Andrew Hood of the IFS is now running through the latest welfare changes.Andrew Hood of the IFS is now running through the latest welfare changes.
The big picture is that:The big picture is that:
2.05pm GMT2.05pm GMT
14:0514:05
Giving councils full retention of business rates is ‘genuinely revolutionary’, David Phillips adds, and part of the government’s devolution of powers:Giving councils full retention of business rates is ‘genuinely revolutionary’, David Phillips adds, and part of the government’s devolution of powers:
2.04pm GMT2.04pm GMT
14:0414:04
1.58pm GMT1.58pm GMT
13:5813:58
The IFS is also concerned about Osborne’s plan to allow local councils to raise an extra 2% from residents, to fund social care in their area.The IFS is also concerned about Osborne’s plan to allow local councils to raise an extra 2% from residents, to fund social care in their area.
The problem is that councils who already charge the highest bills can obviously raise more cash than an area with lower charges.The problem is that councils who already charge the highest bills can obviously raise more cash than an area with lower charges.
Councils in “leafy areas with high council tax and relatively low social care needs”, such as Rutland, benefit most from this change, says the David Phillips, senior research economist at the IFS.Councils in “leafy areas with high council tax and relatively low social care needs”, such as Rutland, benefit most from this change, says the David Phillips, senior research economist at the IFS.
It is also “very tricky” to see how central government can make sure that extra funds are devoted to social care.It is also “very tricky” to see how central government can make sure that extra funds are devoted to social care.
UpdatedUpdated
at 2.01pm GMTat 2.01pm GMT
1.52pm GMT1.52pm GMT
13:5213:52
The iFS is now outlining the huge funding cuts which local government’s now face.The iFS is now outlining the huge funding cuts which local government’s now face.
Local government Departmental Expenditure Limit to be cut by 56% by 2019-20: https://t.co/wh4RWt64uYLocal government Departmental Expenditure Limit to be cut by 56% by 2019-20: https://t.co/wh4RWt64uY
Level of cuts to local government is incredible (and politically cynical: voters will blame councils) https://t.co/wYGpQSiXHfLevel of cuts to local government is incredible (and politically cynical: voters will blame councils) https://t.co/wYGpQSiXHf
If they keep cutting grants in line with the existing formula, then councils who have already taken the biggest hit will suffer the most.If they keep cutting grants in line with the existing formula, then councils who have already taken the biggest hit will suffer the most.
1.48pm GMT1.48pm GMT
13:4813:48
Reminder, you can watch the IFS briefing online here.Reminder, you can watch the IFS briefing online here.
1.47pm GMT1.47pm GMT
13:4713:47
Here’s Katie Allen’s news story on the Institute for Fiscal Studies new report:Here’s Katie Allen’s news story on the Institute for Fiscal Studies new report:
Related: Autumn statement: IFS warns on tax rises and spending cuts