Economic and fiscal outlook - PDF Free Download

Economic and fiscal outlook Robert Chote Chairman 22 November 217

Coverage and process Five year forecasts, plus assessment of targets Independent BRC responsible for conclusions Met with Chancellor and officials on 3 November Final pre-scorecard forecast on 9 November No pressure to change anything Change in spending profile notified late

Key points Weaker outlook for economic growth Growth slightly weaker than expected so far this year Weaker outlook for growth over the medium term Reflects judgements on productivity flagged in October Deficit smaller near-term, but bigger thereafter Deficit smaller than expected 216-17 and 217-18 Thereafter weaker economic growth raises borrowing Fiscal policy loosened from 217-18 to 221-22, tightened in 222-23 Government on course for targets, but not a surplus Structural borrowing and debt targets met with room to spare Forecast changes and giveaway reduce room for manoeuvre Balancing budget in medium term looks even more challenging

Quarterly GDP growth Percentage change on a quarter earlier.8.7.6.5.4.3.2.1. March 217 November 217 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217

Annualised GDP growth Per cent (annualised) 4. 3.5 3. 2.5 2. 1.5 1. 216 H2 217 Q1-Q3.5. Euro area US Canada* Japan UK

GDP, hours and productivity Q4 216 to Q3 217 growth (per cent) 1.4 1.2 1..8.6.4.2. GDP March November

GDP, hours and productivity Q4 216 to Q3 217 growth (per cent) 1.4 1.2 1..8.6.4.2 GDP Hours Productivity. March November March November March November

Potential output judgements Potential hours worked Adult population Activity rate Employment rate Average hours Productivity Output per hour

Productivity growth 29Q1 = 1 12 115 11 15 1 95 9 85 8 November 217 Successive forecasts June 21 Outturn 1999 21 23 25 27 29 211 213 215 217 219 221 223

Net inward migration 35 3 Thousands of people 25 2 15 1 5 Estimate 214-based 216-based 214-15 215-16 216-17 217-18 218-19 219-2 22-21 221-22 222-23

Net inward migration profile Thousands of people 2 15 1 5-5 Difference 214 based 216 based -1 1 2 3 4 5 6 7 8 Age

Participation rate 64. 63.5 Per cent 63. 62.5 March November 62. 27-8 29-1 211-12 213-14 215-16 217-18 219-2 221-22

Unemployment and wages Per cent 9 8 7 6 5 4 3 2 1-1 -2-3 Unemployment rate Wage growth -4 27 28 29 21 211 212 213 214 215 216

Average hours worked 34 33 March 217 November 217 Outturn Average hours 32 31 3 1997 22 27 212 217 222

217 Q2 = 1 Potential and actual GDP growth 114 112 11 18 16 14 12 1 98 96 March (potential) November (potential) March (actual) November (actual) 94 217Q2 218Q3 219Q4 221Q1 222Q2

Quarterly GDP growth Percentage change on a year earlier.8.7.6.5.4.3.2.1. 216 217 218 219 22 221 222 March 217 November 217

Cumulative GDP growth revision 1..5 Percentage points. -.5-1. -1.5-2. -2.5 Other factors Net trade Government spending Dwellings investment Business investment Private consumption GDP Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 217 218 219 22 221 222

Actual GDP growth 5 4 3 November March Per cent 2 1-1 -2 21 211 212 213 214 215 216 217 218 219 22 221 222

Actual GDP growth Per cent 5 4 3 2 1 November March 1.7 1.5 1.5 2.1 3.1 2.3 1.8 1.5 1.4 1.3 1.3 1.5 1.6-1 -2 21 211 212 213 214 215 216 217 218 219 22 221 222

Nominal GDP growth Percentage point revision to growth from 217-18 to 221-22 2. 1.5 1..5. -.5-1. -1.5-2. -2.5-3. Sustainable unemployment Participation rate Average hours Population growth Potential output growth Productivity growth Lowering nominal GDP Increasing nominal GDP Whole economy prices Other Change in factors nominal GDP growth forecast

Nominal GDP growth Cumulative percentage growth, 217-18 to 221-22 March November Difference Nominal GDP 15.3 12.6-2.7 Wages and salaries 14.9 11.9-3. Non-north sea profits 16. 13.5-2.5 Nominal consumer spending 15.7 13.7-2. Real business investment 16.5 9.7-6.8

Earnings growth: March 6 5 4 3 Nominal earnings growth Real earnings growth Per cent 2 1-1 -2-3 -4 25 27 29 211 213 215 217 219 221

Earnings growth: November 6 5 4 3 Nominal earnings growth Real earnings growth Per cent 2 1-1 -2-3 -4 25 27 29 211 213 215 217 219 221

Public sector net borrowing billion 18 16 March 14 November 12 1 8 6 4 2-2 6-7 8-9 1-11 12-13 14-15 16-17 18-19 2-21 22-23

Public sector net borrowing billion 18 16 March 14 November 12 1 8 6 +13.4 4-8.4 +12.2 +13.3-1.3 2-2 6-7 8-9 1-11 12-13 14-15 16-17 18-19 2-21 22-23

Change in net borrowing 25 billion 2 15 1 5-5 -1-15 +13.4 +12.2 +13.3-1.3-8.4 17-18 18-19 19-2 2-21 21-22 ONS statistical changes Underlying forecast changes Effect of government decisions HAs moved to private sector Total

Change in net borrowing 25 billion 2 15 1 5-5 -1-15 17-18 18-19 19-2 2-21 21-22 ONS statistical changes Underlying forecast changes Effect of government decisions HAs moved to private sector Total

billion Underlying forecast revisions 4 35 3 25 2 +17.6 +13.7 15 +9.2 1 5 +1.3-6.3-5 -1-15 -2 17-18 18-19 19-2 2-21 21-22 Latest data Productivity Average hours Sustainable unemployment Population projections Fiscal modelling Other economy changes Total

billion Underlying forecast revisions 4 35 3 25 2 15 1 5-5 -1-15 -2 17-18 18-19 19-2 2-21 21-22 Latest data Productivity Average hours Sustainable unemployment Population projections Fiscal modelling Other economy changes Total

LA current spending vs budgets billion 2. 1.5 1..5. -.5-1. -1.5-2. Overspend against budgets Underspend against budgets 211-12 212-13 213-14 214-15 215-16 216-17 Environmental and regulatory Highways and transport Fire & rescue and police Housing and planning & development Adult social care Children's social care Central and cultural & related services Public health Total *Excludes education spending

Changes to LA reserves billion 3. 2.5 2. 1.5 1..5. GLA Non-social care Social care Total -.5-1. -1.5-2. 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 22-21 221-22 222-23

7 6 LA current spending Per cent of GDP 5 4 3 2 1 21-11 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 Education Non-education Total 22-21 221-22 222-23

Impact of Budget decisions billion 16 14 12 1 8 6 4 2-2 -4-6 -8 +9.2 +3.6 +2.7 +1.5-3.1 +.7 17-18 18-19 19-2 2-21 21-22 22-23 RDEL policy changes CDEL policy changes AME policy changes Gross tax cuts Gross tax rises Indirect effects Total

Impact of Budget decisions billion 16 14 12 1 8 6 4 2-2 -4-6 -8 17-18 18-19 19-2 2-21 21-22 22-23 RDEL policy changes CDEL policy changes AME policy changes Gross tax cuts Gross tax rises Indirect effects Total

Profile of resource spending 1 Cumulative change in real spending per capita -1-2 -3-4 -5-6 -7 March November 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23

Profile of capital spending Cumulative change in real spending per capita 4 35 3 25 2 15 1 5 March November -5 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23

St Augustine rides again Average effect of Government decisions on PSNB (per cent of GDP).5.4.3.2.1. -.1 -.2 -.3 Autumn Budget 217 Spending Review 21 to Spring Budget 217 -.4 Year 1 Year 2 Year 3 Year 4 Year 5

Impact of policy decisions: 218-19.6.4.2. Individual fiscal events Cumulative effect Per cent of GDP -.2 -.4 -.6 -.8-1. -1.2-1.4 Dec 13 Mar 14 Dec 14 Mar 15 Jul 15 Nov 15 Mar 16 Nov 16 Mar 17 Nov 17

Change in net borrowing 25 billion 2 15 1 5-5 -1-15 -1.4-3.9-3.5-3.4-4.1 17-18 18-19 19-2 2-21 21-22 ONS statistical changes Underlying forecast changes Effect of government decisions HAs moved to private sector Total

HA classification The fundamental question is does government exercise significant control over the general corporate policy of the unit? The difference between the public and private sectors is determined by where control over the organisation lies, rather than by ownership or whether or not the entity is financed from public funds. (Office for National Statistics)

DCLG on reclassification I Today we re [sic] reclassifying housing associations, taking them out of the public sector and off the government s balance sheet. I know it sounds like a piece of bureaucratic box-ticking. But the results will be far-reaching. Freed from the distractions of the public sector, housing associations will be able to concentrate on developing innovative ways of doing their business, which is what matters most: building more homes. (DCLG SoS, 16 November)

DCLG on reclassification II The only reason these regulations have been introduced is to seek ONS to reclassify housing associations to the private sector. In preparing [them], we have ensured that these only go as far as we have to, to reclassify housing associations Local authorities remain able to influence housing associations through the various contracts and other agreements jointly negotiated. (DCLG written evidence to HoL, Sept/Oct)

HA impact on public finances (March) Per cent of GDP.3.2.1. Net borrowing 8-9 9-1 1-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23 Per cent of GDP 5 4 3 2 1 Net debt 8-9 9-1 1-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23

HA impact on public finances (November) Per cent of GDP.3.2.1. Net borrowing 8-9 9-1 1-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23 Per cent of GDP 5 4 3 2 1 Net debt 8-9 9-1 1-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23

The Government s targets

Fiscal mandate 1 Per cent of GDP 8 6 4 2 November March -2-4 21-11 212-13 214-15 216-17 218-19 22-21 222-23

Mandate: room for manoeuvre Headline Like-for-like bn %GDP bn %GDP Margin in March 25.8 1.1 3.8 1.4 Reclassification and accounting changes +5.1 +.2 Underlying forecast changes -12.5 -.5-12.5 -.5 Government decisions -3.6 -.2-3.6 -.2 Margin in November 14.8.7 14.8.7

Fiscal mandate: November Per cent of GDP 1 8 6 4 2-2 Target: structural deficit <2% of GDP in 22-21 November March 1.3% of GDP deficit implies a 65 per cent probability of being met -4 21-11 212-13 214-15 216-17 218-19 22-21 222-23

Public sector net debt 95 9 85 March November Per cent of GDP 8 75 7 65 6 Debt falls 3.9% of GDP in 22-21 1-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23

Public sector net debt 95 9 85 March November Per cent of GDP 8 75 7 65 6 Debt falls 3.% of GDP in 22-21 1-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-2 2-21 21-22 22-23

Public sector net debt Per cent of GDP 16-17 17-18 18-19 19-2 2-21 21-22 March 86.6 88.8 88.5 86.9 83. 79.8 November 85.8 86.5 86.4 86.1 83.1 79.3 Change -.8-2.3-2.1 -.8.2 -.5 of which: Housing associations - -3.2-3.3-3.4-3.4-3.4 Term funding scheme.2 1.9 1.9 1.8 1.6. Budget measures..1.3.6.8.7 Other underlying forecast changes -.4 -.7 -.9 -.6 -.1.6 Nominal GDP -.6 -.5..7 1.2 1.6

Change in net debt in 218-19 Per cent of GDP March forecast -.3 Lower nominal GDP +.5 Policy measures +.3 Underlying forecast changes +.1 HAs out of public sector -.1 UKAR and asset sales -.5 November forecast (-.3)

The welfare cap billion 17-18 18-19 19-2 2-21 21-22 Welfare cap and pathway plus margin 12.8 121.9 122.9 126.3 129.7 November forecast adjusted for inflation 119.3 12.8 122.1 124.1 127.2 Headroom (November) -1.5-1.1 -.8-2.2-2.5 March forecast adjusted for inflation 119.6 12. 12. 122.5 125.2 Headroom (March) -1.2-1.9-2.8-3.7-4.5

The fiscal objective The Charter commits the Government to return the public finances to balance at the earliest possible date in the next Parliament Even more challenging than March Deficit only falls 1.1% of GDP in 222-23, compared to.7% of GDP in 221-22 in March If deficit were to continue falling at post Spending Review rate it would not balance until 23-31 And ageing and other spending pressures in health

Conclusion Weaker outlook for the economy Trend productivity growth revised down But some offsets from hours and employment Fiscal outlook deteriorates over time Deficit revised down last year and this year Weaker economy raises borrowing thereafter Budget adds more to borrowing Fiscal mandate met, but headroom halved Balancing budget more challenging