UK BUDGET 
2014
Issued 27th March 2014
Richard Ramsey
Chief Economist Northern Ireland
richard.ramsey@ulsterbankcm.com
Slide 2
Most economic indicators are set to improve for next 
year’s General Election
2012 2013 2014 2015 2016 2017 2018
O...
Slide 3
UK GDP Outturn / Forecasts
0
0.5
1
1.5
2
2.5
3
3.5
4
2012 2013 2014 2015 2016 2017 2018
% Y/Y
Budget March 2013 Bu...
Slide 4
The UK economy will return to its pre‐recession size 
in Q2/Q3.  But Q4 2016 on a GDP per capita basis
Real GDP Le...
Slide 5
UK employment is 5% above pre‐recession peak. But 
employment per capita is still 2% below Q1 2008 levels
UK Emplo...
Slide 6
UK household debt to income ratios recovering too and 
will be back to early‐mid 2007 levels within 5 years 
UK Ho...
Slide 7
‘Before we came to office the deficit was 11%.  This year it will be 6.6% ‐
down a third.  Next year 5.5% down a h...
Slide 8
Government Net Borrowing as a % of GDP
2014
0
1
2
3
4
5
6
7
G
erm
anyEstonia
Luxem
bourg
Latvia
D
enm
arkSw
edenBu...
Slide 9
UK Public Sector Net Debt
0
250
500
750
1000
1250
1500
1750
2000
2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2...
Slide 10
The overall debt to national income ratio won’t begin to fall 
until 2016/17
Public Sector Net Borrowing & Public...
Slide 11
Both the UK and Republic of Ireland will remain above the EU’s 
Stability & Growth Pact ceiling for quite some ti...
Slide 12
Gross General Government Debt as a % of GDP
2014
0
20
40
60
80
100
120
140
160
180
200
EstoniaBulgaria
Luxem
bour...
Slide 13
The amount of planned borrowing between 2012/13 and 
2017/18 is now £99bn less than it was a year ago
UK Public S...
Slide 14
UK Public Sector Net Borrowing (PSNB)
-20
0
20
40
60
80
100
120
140
160
2011/12 2012/13 2013/14 2014/15 2015/16 2...
Slide 15
This is £230bn of *additional* borrowing required relative to 
the forecasts made at the “Emergency Budget” June ...
Slide 16
The amount of borrowing may be falling but  with interest rates 
rising debt interest payments are set to rise by...
Slide 17
UK spends more on debt interest payments than on Transport, 
Law & Order or Defence. Borrowing equivalent to Educ...
Slide 18
OBR UK House Price Forecast
-4
-2
0
2
4
6
8
10
12
2010Q1 2011Q3 2013Q1 2014Q3 2016Q1 2017Q3 2019Q1
% Y/Y
March 20...
Slide 19
House price growth & freeze on stamp duty thresholds expected to
see a trebling in residential SDLT revenue betwe...
Slide 20
Proportion of UK deaths resulting in Inheritance
Tax Tax (IHT) liabilities
0
2
4
6
8
10
12
2013/14 2014/15 2015/1...
Slide 21
Total public expenditure, or Total Managed Expenditure (TME) 
is still edging higher in nominal (before inflation...
Slide 22
Total public expenditure (TME) as a % of GDP is set to fall 
for 9 successive years (2009/10 – 18/19) & back belo...
Slide 23
The fall in public expenditure is due to falling Departmental 
spending or DEL 
Total Managed Expenditure (DEL* &...
Slide 24
UK Government Consumption*
*Excludes spending on Transfer Payments (e.g. Social Security, unemployment benefits e...
Slide 25
…in fact it is set to account for its lowest share of 
national income since 1948
Government Consumption on Goods...
Slide 26
UK Public Services Spending*
Annual % change in real terms
-8
-6
-4
-2
0
2
4
6
8
10
12
14
1948-49 1958-59 1968-69...
Slide 27
UK Public Services Spending in real terms*
1997-98
2009-10
0
100
200
300
400
500
600
1948-49 1958-59 1968-69 1978...
Slide 28
Cuts in Resource DEL in 2016/17 & 2017/18 (5% p.a.) will be twice 
the rate that occurred on average between 2011...
Slide 29
There are more cuts ahead than we have had to date 
Cumulative Cuts in Departmental Spending
0
5
10
15
20
25
2010...
Slide 30Slide 30
Disclaimer
This document is issued for information purposes only for clients of Ulster Bank Group who are...
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Budget 2014 Slide Pack

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A Budget 2014 PowerPoint Slide Pack covering the outlook for the UK economy and public finances. From a Northern Ireland perspective the key challenge will be the public expenditure cuts still to come.

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Budget 2014 Slide Pack

  1. 1. UK BUDGET  2014 Issued 27th March 2014 Richard Ramsey Chief Economist Northern Ireland richard.ramsey@ulsterbankcm.com
  2. 2. Slide 2 Most economic indicators are set to improve for next  year’s General Election 2012 2013 2014 2015 2016 2017 2018 Output at constant market prices Gross domestic product (GDP) 0.3 1.8 2.7 2.3 2.6 2.6 2.5 GDP levels (2012=100) 100.0 101.8 104.5 107.0 109.7 112.6 115.4 Output gap ‐2.8 ‐2.2 ‐1.4 ‐1.1 ‐0.7 ‐0.3 0.0 Expenditure components of GDP  Household consumption 1.5 2.3 2.1 1.8 2.5 2.7 2.4 General government consumption 1.6 0.9 1.2 ‐0.5 ‐1.2 ‐1.8 ‐0.9 Business investment 3.9 ‐1.2 8.0 9.2 8.1 8.7 7.7 General government investment 0.6 ‐6.4 10.7 1.0 2.2 0.8 ‐0.5 Net trade 1 ‐0.7 0.1 ‐0.2 0.1 0.0 0.0 ‐0.1 Inflation CPI 2.8 2.6 1.9 2.0 2.0 2.0 2.0 Labour market Employment (millions) 29.5 29.9 30.4 30.6 30.9 31.2 31.4 Average earnings 2.0 1.5 2.5 3.2 3.6 3.7 3.8 LFS unemployment (% rate) 7.9 7.6 6.8 6.5 6.1 5.7 5.4 Claimant count (millions) 1.59 1.42 1.20 1.13 1.06 0.98 0.94 Source: OBR March 2014 Economic forecast overview Percentage change on a year earlier, unless otherwise stated Outturn Forecast
  3. 3. Slide 3 UK GDP Outturn / Forecasts 0 0.5 1 1.5 2 2.5 3 3.5 4 2012 2013 2014 2015 2016 2017 2018 % Y/Y Budget March 2013 Budget March 2014Source:OBR +1.2pp +0.9pp -0.1pp -0.2pp ‘..the economy is continuing to recover – & recovering faster than forecast’. 2014 forecast  is ‘the biggest upward revision to growth between Budgets for at least 30 years’.
  4. 4. Slide 4 The UK economy will return to its pre‐recession size  in Q2/Q3.  But Q4 2016 on a GDP per capita basis Real GDP Levels Indexed to Q1 2008 = 100 80 85 90 95 100 105 110 2006Q2 2007Q4 2009Q2 2010Q4 2012Q2 2013Q4 2015Q2 2016Q4 IndexQ12008=100 Real GDP Real GDP per capita Source: OBR March 2014 Forecast Q2/Q3 2014
  5. 5. Slide 5 UK employment is 5% above pre‐recession peak. But  employment per capita is still 2% below Q1 2008 levels UK Employment Levels Indexed to Q1 2008 = 100 90 92 94 96 98 100 102 104 106 2006Q2 2007Q4 2009Q2 2010Q4 2012Q2 2013Q4 2015Q2 2016Q4 IndexQ12008=100 Employment Employment per capita Source: OBR March 2014 Q3 2012 Forecasts
  6. 6. Slide 6 UK household debt to income ratios recovering too and  will be back to early‐mid 2007 levels within 5 years  UK Household Gross Debt to Income Ratio Q1 2008 169.9 Q1 2019 165.7 120 130 140 150 160 170 180 2005Q1 2007Q1 2009Q1 2011Q1 2013Q1 2015Q1 2017Q1 2019Q1 % Source: ONS & OBR Forecast March 2014 Forecast
  7. 7. Slide 7 ‘Before we came to office the deficit was 11%.  This year it will be 6.6% ‐ down a third.  Next year 5.5% down a half’. In 2018/19, no deficit at all. Public Sector Net Borrowing (the 'underlying' deficit*) as % of GDP -4 -2 0 2 4 6 8 10 12 1964-65 1973-74 1982-83 1991-92 2000-01 2009-10 2018-19 PSNB Forecasts Source: ONS, OBR March 2014, * Excludes Royal Mail pension transfer & APF transfers EU SGP Deficit Ceiling
  8. 8. Slide 8 Government Net Borrowing as a % of GDP 2014 0 1 2 3 4 5 6 7 G erm anyEstonia Luxem bourg Latvia D enm arkSw edenBulgariaAustriaR om aniaG reeceLithuaniaFinland Italy Euro areaBelgium M alta EU C zech Rep.H ungary N etherlandsSlovakiaSloveniaFrancePortugalIrelandPoland U KC yprus Spain % of GDP € EU Stability & Growth Pact Annual Deficit Ceiling Source: European Commission Winter Forecast February 2014 & OBR March 2014. ‘But it is still one of the highest [deficits] in the world’. Within  the EU, only Spain & Cyprus have higher deficits in 2014
  9. 9. Slide 9 UK Public Sector Net Debt 0 250 500 750 1000 1250 1500 1750 2000 2001-02 2003-04 2005-06 2007-08 2009-10 2011-12 2013-14 2015-16 2017-18 £Bn Source: ONS, OBR March 2014 One Trillion Pounds of Debt 1.5 Trillion Pounds of Debt Until the deficit is eliminated and a surplus is achieved, the  overall stock of national debt will keep rising.
  10. 10. Slide 10 The overall debt to national income ratio won’t begin to fall  until 2016/17 Public Sector Net Borrowing & Public Sector Net Debt as % of GDP -4 -2 0 2 4 6 8 10 12 1964-65 1973-74 1982-83 1991-92 2000-01 2009-10 2018-19 PSNB 0 15 30 45 60 75 90 PSNDPSNB Left Hand Scale PSND Right Hand Scale Forecasts Source: ONS, OBR March 2014
  11. 11. Slide 11 Both the UK and Republic of Ireland will remain above the EU’s  Stability & Growth Pact ceiling for quite some time yet UK General Government Gross Debt as a % of GDP using Maastricht Treaty definition 0 20 40 60 80 100 120 140 1976-77 1983-84 1990-91 1997-98 2004-05 2011-12 2018-19 % of GDP Budget 2014 (March) EU Stability & Growth Pact Debt Ceiling Republic of Ireland* Source: ONS, OBR March 2014, * refers to calendar years, DoF & EC Winter Forecast Feb-14
  12. 12. Slide 12 Gross General Government Debt as a % of GDP 2014 0 20 40 60 80 100 120 140 160 180 200 EstoniaBulgaria Luxem bourgLatvia R om ania D enm arkSw edenLithuania C zech Rep.PolandSlovakiaFinland M altaAustria N etherlandsSlovenia G erm anyH ungary EU U K Euro areaFrance SpainBelgiumIrelandC yprusPortugal ItalyG reece % of GDP Source:European Commission Winter Forecast February 2014 & OBR March 2014. Uses the Maastricht Treaty definition € EU Stability & Growth Pact Debt Ceiling The UK’s overall debt to national income ratio is not quite as high  as the Eurozone using the Maastricht Treaty debt definition
  13. 13. Slide 13 The amount of planned borrowing between 2012/13 and  2017/18 is now £99bn less than it was a year ago UK Public Sector Net Borrowing (PSNB) Excluding Royal Mail & Asset Purchase Facility Transfers -6bn -12bn -12bn -22bn -21bn -26bn -20 0 20 40 60 80 100 120 140 160 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 £bn March 2013 Forecast March 2014 Forecast Source:OBR £99bn less borrowing forecast between 2012/13 & 2017/18 relative to Budget 2013. These savings equate to the entire Education budget for 2014/15. £5bn Surplus Outturn
  14. 14. Slide 14 UK Public Sector Net Borrowing (PSNB) -20 0 20 40 60 80 100 120 140 160 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 £bn Source:OBR Budget 2014 £572bn in 7 years to 2017/18 or 20 times the annual output of the NI economy or running the UK NHS (£140bn p.a.) for 4 years £5bn Surplus Yes the amount of borrowing is falling.  But some £572bn  is still planned to be borrowed in the 7 years to 2017/18.
  15. 15. Slide 15 This is £230bn of *additional* borrowing required relative to  the forecasts made at the “Emergency Budget” June 2010.  UK Public Sector Net Borrowing (PSNB) +1bn +26bn +48bn +59bn +24bn +55bn 5bn +17bn -30 0 30 60 90 120 150 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 £bn June 2010 Forecast March 2014 Forecast Source:OBR £230bn extra borrowing required relative to June 2010 forecast required over 7 years (up to 2017/18) this would also most fund the NHS & Education for 1 year Surplus
  16. 16. Slide 16 The amount of borrowing may be falling but  with interest rates  rising debt interest payments are set to rise by 55% in next 5 years  UK Central Government Debt Interest Payments 30 40 50 60 70 80 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 £bn Source: OBR Forecast March 2014 Outturn Forecasts
  17. 17. Slide 17 UK spends more on debt interest payments than on Transport,  Law & Order or Defence. Borrowing equivalent to Education spend UK Borrowing, Revenue & Expenditure in 2014/15* 53 95.5 0 50 100 150 200 250 Council Tax Business Rates Corporation Tax Excise Duties National Insurance VAT Income Tax Borrowing (PSNB) Transport Housing & Environment Public Order & Safety Defence Debt Interest Education Health Social Protection £bn Source: OBR Forecast March 2014, *Not all revenue & expenditure categories are included S p e n d i n g R e v e n u e
  18. 18. Slide 18 OBR UK House Price Forecast -4 -2 0 2 4 6 8 10 12 2010Q1 2011Q3 2013Q1 2014Q3 2016Q1 2017Q3 2019Q1 % Y/Y March 2014 forecast December 2013 forecast Source: OBR March 2014 The OBR forecasts UK house prices to rise by almost 1/3rd between 2013 and 2018. Boosting revenues linked to property  
  19. 19. Slide 19 House price growth & freeze on stamp duty thresholds expected to see a trebling in residential SDLT revenue between 2012/13 – 2018/19 UK Stamp Duty Land Tax Receipts 7.1 14.9 4.9 3.2 2.0 2.4 0 2 4 6 8 10 12 14 16 18 20 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 £Bn Residential Property Commercial Property Source: OBR Forecast March 2014 Outturn Forecasts
  20. 20. Slide 20 Proportion of UK deaths resulting in Inheritance Tax Tax (IHT) liabilities 0 2 4 6 8 10 12 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 % Source:OBR Budget 2014 House price growth plus a freeze on the inheritance tax threshold  (£325k) until 2017/18 doubles the number exposed to IHT liability  
  21. 21. Slide 21 Total public expenditure, or Total Managed Expenditure (TME)  is still edging higher in nominal (before inflation) terms UK Total Managed Expenditure (nominal) 0 100 200 300 400 500 600 700 800 900 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15 2016-17 2018-19 £Bn Source: ONS, OBR March 2014
  22. 22. Slide 22 Total public expenditure (TME) as a % of GDP is set to fall  for 9 successive years (2009/10 – 18/19) & back below revenue UK Revenue & Expenditure as a % of GDP 34 36 38 40 42 44 46 48 50 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19 % of GDP Total Managed Expenditure Public Sector Current Receipts Source: ONS, OBR March 2014
  23. 23. Slide 23 The fall in public expenditure is due to falling Departmental  spending or DEL  Total Managed Expenditure (DEL* & AME**) as a % of GDP 15 20 25 30 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 2014- 15 2015- 16 2016- 17 2017- 18 2018- 19 % of GDP DEL AME Source: OBR March 2014 *DEL = Departmental Expenditure Limits. DEL covers Departmental spending, staff & running costs etc **AME = Annually Managed Expenditure. AME covers spending outside departments' control (e.g. welfare spending, pensions, unemployment benefits etc) AME starts to exceed DEL for the 1st time
  24. 24. Slide 24 UK Government Consumption* *Excludes spending on Transfer Payments (e.g. Social Security, unemployment benefits etc) -1 0 1 2 3 4 5 6 1992 - 2010 2010 - 2013 2013 - 2018 AverageAnnual%Growth Nominal Growth Real Growth Source: OBR Forecast March 2014 Government consumption (largely DEL expenditure) will  not be the driver it was in recent years and decades…
  25. 25. Slide 25 …in fact it is set to account for its lowest share of  national income since 1948 Government Consumption on Goods & Services as a % of Nominal GDP 14 16 18 20 22 24 1948Q 11953Q 11958Q 11963Q 11968Q 11973Q 11978Q 11983Q 11988Q 11993Q 11998Q 12003Q 12008Q 12013Q 12018Q 1 % Source: OBR March 2014 Forecast
  26. 26. Slide 26 UK Public Services Spending* Annual % change in real terms -8 -6 -4 -2 0 2 4 6 8 10 12 14 1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19 Source: IFS March 2014, *refers to public expenditure less spending on welfare benefits & debt interest 8 years of cuts (-16.5%) in 9 years We are here The UK faces 8 years of public services spending cuts  (in real terms) in 9 years
  27. 27. Slide 27 UK Public Services Spending in real terms* 1997-98 2009-10 0 100 200 300 400 500 600 1948-49 1958-59 1968-69 1978-79 1988-89 1998-99 2008-09 2018-19 £bn Source: IFS March 2014, *refers to public expenditure less spending on welfare benefits & debt interest. Measure is wider than DEL as includes public service pensions, transfers to the EU and locally-financed expenditure. +76%  ‐17%  UK public services spending rose by 76% in 12 years from  1997/98 and is set to fall by 17% in 9 years to 2018/19
  28. 28. Slide 28 Cuts in Resource DEL in 2016/17 & 2017/18 (5% p.a.) will be twice  the rate that occurred on average between 2011/12 to 2015/16 Change in Departmental DEL Spending in Real Terms -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% Annual Average 2011/12 to 2015/16 2016/17 2017/18 2018/19 % DEL Resource DEL Capital DEL Source: OBR March 2014
  29. 29. Slide 29 There are more cuts ahead than we have had to date  Cumulative Cuts in Departmental Spending 0 5 10 15 20 25 2010/11 to 2013/14 2014/15 to 2018/19 2010/11 to 2018/19 % Source: IFS March 2014
  30. 30. Slide 30Slide 30 Disclaimer This document is issued for information purposes only for clients of Ulster Bank Group who are eligible counterparties or professional customers, and does not constitute an offer or invitation to purchase or sell any instrument or to provide any service in any jurisdiction where the required authorisation is not held. Ulster Bank and/or its associates and/or its employees may have a position or engage in transactions in any of the instruments mentioned. The information including any opinions expressed and the pricing given, is indicative, and constitute our judgement at time of publication and are subject to change without notice. The information contained herein should not be construed as advice, and is not intended to be construed as such. This publication provides only a brief review of the complex issues discussed and readers should not rely on information contained here without seeking specific advice on matters that concern them. Ulster Bank make no representations or warranties with respect to the information and disclaim all liability for use the recipient or their advisors make of the information. Over-the-counter (OTC) derivates can involve a number of significant and complex risks which are dependent on the terms of the particular transaction and your circumstances. In the event the market has moved against the transaction you have undertaken, you may incur substantial costs if you wish to close out your position. Ulster Bank Limited Registered Number: R733 Northern Ireland. Registered Office: 11-16 Donegall Square East, Belfast BT1 5UB.Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Member of The Royal Bank of Scotland Group. Calls may be recorded.

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