The UK public finances: ready for recession?

Summary Neither the current Labour government nor the previous Conservative one can look back over their respective terms of office as periods of great success in fiscal management. Both started by strengthening their underlying budget balances for three years after taking office, but both then allowed them to drift steadily back into the red. This meant that they were already borrowing significant amounts when the onset of recession required them to borrow more. Labour is entering this recession with a similar structural budget deficit to the one that it inherited from the Conservatives, but with a smaller underlying debt. It remains to be seen whether the structural budget deficit will deteriorate as far under Labour as it did under the Conservatives, but debt is very likely to rise above the peak it recorded under the Conservatives (even without the impact of recent bank nationalisations and recapitalisations). Labour recorded a similar structural budget deficit in the year before this recession to that which the Conservatives recorded in the year before the last. However, the structural deficit appears to have deteriorated more sharply in the early phase of the downturn than it did under the Conservatives and as a result is set to be higher in the first year of recession than it was under the Conservatives. This largely reflects the particular impact of the credit crunch and falls in the stock market and housing market, rather than budget decisions. Labour is also going into the recession with a significantly higher level of debt than the Conservatives did. Turning to the international context, we are entering the current recession with one of the largest structural budget deficits in the industrial world and a debt level that may be among the smallest in the G7 but which is larger than that of most industrial countries. We have done less to reduce our structural budget deficit and less to reduce our debt than most other industrial countries since Labour came to office

The 10% tax rate: where next?

In Budget 2007, the Government announced the abolition of the 10% starting rate of income tax alongside a wider set of reforms to personal taxes and tax credits to take effect during the period April 2008 to April 2010. Further changes to tax credits and state benefits were announced in PBR 2007 and Budget 2008, some to take effect in 2008-09, some in 2009-10 and others in 2010-11. During April 2008, the Government said that it was looking at ways of compensating the net losers from these changes (in practice, those for whom the losses from the abolition of the 10% band exceeded the gains from the other measures). On 13 May it announced a £600 rise in the income tax personal allowance for 2008-09, with a corresponding cut in the higher-rate threshold. In the light of these changes, this note looks at: * To what extent the rise in the personal allowance, and other measures in Budget 2007, PBR 2007 and Budget 2008, compensate those who lost out from the abolition of the 10% rate of income tax; * To what extent the Government's pre-announced changes to personal taxes, tax credits and benefits for 2010-11 provide compensation for these losers over the medium term; * What options the Government has for 2009-10 and beyond

Budget 2009: tightening the squeeze?

The outlook for the public finances appears significantly weaker than the Treasury predicted in the November 2008 Pre-Budget Report (PBR). This will have an important bearing on the two key tax and spending decisions that Chancellor Alistair Darling will have to take in his Budget statement on 22 April: whether to announce an additional short-term stimulus to help support the economy and whether to announce an additional long- term tightening to help repair the public finances. This Briefing Note sets out illustrative projections for the outlook for government borrowing and debt over the next few years. It then assesses by how much this or a future government might need to cut existing public spending plans and/or increase taxes to ensure that the outlook for public sector borrowing was no worse than that laid out in the PBR. The analysis in this Briefing Note builds on the detailed forecasts in the January 2009 IFS Green Budget. It does not re-estimate the Green Budget forecasts, but instead makes some broad-brush adjustments to them to reflect new information and analysis available since the PBR

Britain's fiscal squeeze: the choices ahead

The economic and financial crisis that has unfolded over the last two years has caused a dramatic deterioration in the UK's public finances, with public sector borrowing set to peak this year at a level not seen since the Second World War and public sector indebtedness set to climb to levels not seen since the late 1960s. With the next general election less than a year away, the Government and the main opposition parties alike will be under pressure to offer more detailed proposals to repair the public finances. This note discusses some of the key questions all the parties will have to grapple with

Budget 2009: tightening the squeeze?

The outlook for the public finances appears significantly weaker than the Treasury predicted in the November 2008 Pre-Budget Report (PBR). This will have an important bearing on the two key tax and spending decisions that Chancellor Alistair Darling will have to take in his Budget statement on 22 April: whether to announce an additional short-term stimulus to help support the economy and whether to announce an additional long- term tightening to help repair the public finances. This Briefing Note sets out illustrative projections for the outlook for government borrowing and debt over the next few years. It then assesses by how much this or a future government might need to cut existing public spending plans and/or increase taxes to ensure that the outlook for public sector borrowing was no worse than that laid out in the PBR. The analysis in this Briefing Note builds on the detailed forecasts in the January 2009 IFS Green Budget. It does not re-estimate the Green Budget forecasts, but instead makes some broad-brush adjustments to them to reflect new information and analysis available since the PBR

Radius constraints from high-speed photometry of 20 low-mass white dwarf binaries

We carry out high-speed photometry on 20 of the shortest-period, detached white dwarf binaries known and discover systems with eclipses, ellipsoidal variations (due to tidal deformations of the visible white dwarf), and Doppler beaming. All of the binaries contain low-mass white dwarfs with orbital periods less than 4 hr. Our observations identify the first eight tidally distorted white dwarfs, four of which are reported for the first time here, which we use to put empirical constraints on the mass-radius relationship for extremely low-mass (<0.30 Msun) white dwarfs. We also detect Doppler beaming in several of these binaries, which confirms the high-amplitude radial-velocity variability. All of these systems are strong sources of gravitational radiation, and long-term monitoring of those that display ellipsoidal variations can be used to detect spin-up of the tidal bulge due to orbital decay.Comment: 14 pages, 5 figures, accepted for publication in The Astrophysical Journa