IFS Comments On Government's Public Finance Spending

by Robert Lee, Tax-News.com, London

22 January 2008

The Institute for Fiscal Studies (IFS) has this week commented on recent government spending figures.

According to the IFS, central government current receipts in December 2007 were 3.9% higher than in the same month a year previous.

The Institute suggested that the Pre-Budget Report forecast for 2007–08 published in October implies an increase over last year’s levels of 5.9% for the year as a whole and of 6.6% for the period from September 2007 to March 2008. The latest figures show an increase over last year’s levels of 4.9% for the year to date, and a 4.8% increase between September and December 2007 over the same four months last year.

However, it observed, central government current spending in December was 3.1% higher than in the same month last year.

Public sector net investment in December was GBP2.7bn compared to GBP2.4bn in the same month in 2006, the IFS analysis continued.

So far in 2007–08, a total amount of GBP15.6bn has been spent on public sector net investment, which is 12.3% higher than had been spent by the same point in 2006–07. The Pre-Budget Report forecast for 2007–08 published in October predicted that net investment in 2007–08 as a whole would be GBP29.7bn, which is 15.5% above last year’s level and implies an increase of 27.2% for the period from September 2007 to March 2008.

Gemma Tetlow, a Senior Research Economist at the IFS, observed that:

“Spending on public services by central government is on course to undershoot the Chancellor’s Pre-Budget Report forecast, but the impact on borrowing is being more than offset by weak growth in VAT and corporation tax receipts."

"If these patterns over the first nine months of the year were to continue over the next three, this would leave the current budget GBP12bn in deficit in 2007–08 rather than the GBP8.3bn forecast by Alistair Darling. The actual outturn will depend crucially on next month’s figures, as January is a particularly important month for receipts of both corporation tax and of income tax paid on bonuses and through self-assessment."

She went on to add that:

"Taxpayer support for Northern Rock could, depending on the decision of the ONS, add GBP55 billion to public sector net debt, which today’s figures show is already at an eight-year high. This would bring it significantly above the 40% ceiling which Gordon Brown imposed when he was Chancellor."

"The addition to public sector net debt would be even greater if Northern Rock is nationalised or if the ONS judges that it is in effect under public control already. Whether or not taxpayer guarantees for Northern Rock’s borrowing are included in net debt does not affect the true exposure of taxpayers."

And concluded:

"It would be sensible and desirable for the Treasury to publish measures of borrowing and debt that include and exclude the impact of commitments made to Northern Rock in order to aid analysis of both the underlying position of the public finances and the total commitments of taxpayers.”

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