Summer budget 2015...or cut welfare while the sun is shining

1. Summer budget
2015
or…cut welfare while the sun is shining
Kitty Ussher, Chief Economic Adviser

2. Structure
• Economic update (the easy bit)
• Policy response (cuts, welfare, tax)
• Politics?
• Things to watch

3. Growth is back…

4. …but if it doesn’t yet feel great…

5. …it will soon…

6. GDP forecasts
2
2.2
2.4
2.6
2.8
3
3.2
2014 2015 2016 2017 2018 2019 2020
%changeinrealGDP
Axis Title
2014 Autumn statement 2015 March budget 2015 July emergency budget

7. Employment forecasts
30.5
30.7
30.9
31.1
31.3
31.5
31.7
31.9
32.1
32.3
2014 2015 2016 2017 2018 2019 2020
millions
Axis Title
2014 December autumn statement 2015 March budget 2015 July emergency budget

8. Wage & price forecasts
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2014 2015 2016 2017 2018 2019 2020
average earnings growth
forecasts (%)
0
0.5
1
1.5
2
2.5
2014 2015 2016 2017 2018 2019 2020
CPIinflation(%)
Axis Title
2014 Autumn statement 2015 March budget
2015 July emergency budget
Inflation forecasts
Source: OBR
Unemployment will fall to 5.1% in 2016 (?? Yesterday’s data)
Av earnings is per worker

9. Policy response #1
– slower overall pace of cuts
-3
-2
-1
0
1
2
3
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
%ofGDP(cyclicallyadjusted)
2014 Autumn Statement 2015 March Budget 2015 July emergency budget
Cyclically adjusted budget deficits

10. Policy response #2
- steep cuts to working age benefits
• Four year cash freeze on working-age benefits, tax credits and
local housing allowances saves £4bn annually by 2020-21.
• Further reforms to tax credits and universal credit - faster
phasing out of support, the limiting of the child element to
two children, and removing the family element for new claims
- saves a further £5.8bn annually by 2020-21.
• A further £2bn is reduced from the housing benefit bill by a
forced capping of social housing rents, which are typically
covered by housing benefit,
• Smaller measures include aligning the “work ready”
Employment and Support Allowance payments with
Jobseekers Allowance.
• Overall, reduce government spending by £12bn annually in
2019-20, rising to £12.9bn the following year.

11. Significant shifts in the tax regime
• Lower headline rates: corp tax, thresholds
• Different regime for owner-managers: now a £5K tax free
allowance for dividends (raising £2bn annually)
• Wider bank tax
• HMRC moving down the foodchain (£265 annually to raise
£5bn?)
• Non doms/IPT/Inheritance/Higher pensions relief
• Overall tax take up significantly…but not transparent

12. Things to watch
• Spending review – NHS and defence
• Welfare cuts impact on work incentives and poverty
• Effect of min wage rise & role of Low Pay Commission.
• Unemployment rate (London vs rest).
• Future of pensions – just save till 55?
• Labour leadership debate