Upload
richard-ramsey
View
135
Download
3
Embed Size (px)
DESCRIPTION
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.
Citation preview
UK BUDGET 2014 Issued 27th
March 2014
Richard Ramsey
Chief Economist Northern Ireland
Slide 2
Most economic indicators are set to improve for next year’s General Election
2012 2013 2014 2015 2016 2017 2018Output at constant market pricesGross domestic product (GDP) 0.3 1.8 2.7 2.3 2.6 2.6 2.5GDP levels (2012=100) 100.0 101.8 104.5 107.0 109.7 112.6 115.4Output gap ‐2.8 ‐2.2 ‐1.4 ‐1.1 ‐0.7 ‐0.3 0.0Expenditure components of GDP Household consumption 1.5 2.3 2.1 1.8 2.5 2.7 2.4General government consumption 1.6 0.9 1.2 ‐0.5 ‐1.2 ‐1.8 ‐0.9Business investment 3.9 ‐1.2 8.0 9.2 8.1 8.7 7.7General government investment 0.6 ‐6.4 10.7 1.0 2.2 0.8 ‐0.5
Net trade1 ‐0.7 0.1 ‐0.2 0.1 0.0 0.0 ‐0.1InflationCPI 2.8 2.6 1.9 2.0 2.0 2.0 2.0Labour marketEmployment (mil l ions) 29.5 29.9 30.4 30.6 30.9 31.2 31.4Average earnings 2.0 1.5 2.5 3.2 3.6 3.7 3.8LFS unemployment (% rate) 7.9 7.6 6.8 6.5 6.1 5.7 5.4Claimant count (mill ions) 1.59 1.42 1.20 1.13 1.06 0.98 0.94
Source: OBR March 2014
Economic forecast overviewPercentage change on a year earlier, unless otherwise statedOutturn Forecast
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’.
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 LevelsIndexed to Q1 2008 = 100
80
85
90
95
100
105
110
2006Q2 2007Q4 2009Q2 2010Q4 2012Q2 2013Q4 2015Q2 2016Q4
Inde
x Q
1 20
08 =
100
Real GDP Real GDP per capita
Source: OBR March 2014Forecast
Q2/Q3 2014
Slide 5
UK employment is 5% above pre‐recession peak. But employment per capita is still 2% below Q1 2008 levels
UK Employment LevelsIndexed to Q1 2008 = 100
90
92
94
96
98
100
102
104
106
2006Q2 2007Q4 2009Q2 2010Q4 2012Q2 2013Q4 2015Q2 2016Q4
Inde
x Q
1 20
08 =
100
Employment Employment per capita
Source: OBR March 2014
Q3 2012
Forecasts
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 2008169.9 Q1 2019
165.7
120
130
140
150
160
170
180
2005Q1 2007Q1 2009Q1 2011Q1 2013Q1 2015Q1 2017Q1 2019Q1
%
Source: ONS & OBR Forecast March 2014Forecast
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
Slide 8
Government Net Borrowing as a % of GDP2014
0
1
2
3
4
5
6
7
German
yEsto
niaLu
xembo
urgLa
tvia
Denmark
Sweden
Bulgari
aAus
triaRom
ania
Greece
Lithu
aniaFinl
and
Italy
Euro ar
eaBelg
iumMalt
aEU
Czech
Rep.
Hungary
Netherl
ands
Slovakia
Slovenia
France
Portug
alIre
land
Poland UK
Cyprus
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
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.
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
90PSNDPSNB Left Hand Scale PSND Right Hand Scale
ForecastsSource: ONS, OBR March 2014
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 GDPusing 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
Slide 12
Gross General Government Debt as a % of GDP2014
0
20
40
60
80
100
120
140
160
180
200
Estonia
Bulgari
aLu
xembo
urgLa
tvia
Roman
iaDen
markSwed
enLit
huania
Czech
Rep.
Poland
Slovakia
Finlan
dMalt
aAus
triaNeth
erland
sSlove
niaGerm
any
Hungary EU UK
Euro ar
eaFranc
eSpa
inBelg
iumIre
land
Cyprus
Portug
alIta
lyGree
ce
% 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
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
£bnMarch 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
Slide 14
UK Public Sector Net Borrowing (PSNB)
-200
20406080
100120140160
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.
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
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
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
Spending
Revenue
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
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
02468
101214161820
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
£BnResidential Property Commercial Property
Source: OBR Forecast March 2014
Outturn
Forecasts
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
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
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 GDPTotal Managed Expenditure Public Sector Current Receipts
Source: ONS, OBR March 2014
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
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
Ave
rage
Ann
ual %
Gro
wth
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…
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
1948
Q119
53Q1
1958
Q119
63Q1
1968
Q119
73Q1
1978
Q119
83Q1
1988
Q119
93Q1
1998
Q120
03Q1
2008
Q120
13Q1
2018
Q1
%
Source: OBR March 2014
Forecast
Slide 26
UK Public Services Spending*Annual % change in real terms
-8-6-4-202468
101214
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
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
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
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
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.