Budget 2014 Slide Pack

UK BUDGET
2014
Issued 27th March 2014
Richard Ramsey
Chief Economist Northern Ireland
richard.ramsey@ulsterbankcm.com

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

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’.

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
Forecast
Q2/Q3 2014

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
Q3 2012
Forecasts

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

‘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

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

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.

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

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

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

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

-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.

This is £230bn of *additional* borrowing required relative to
the forecasts made at the “Emergency Budget” June 2010.
+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

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

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

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
The OBR forecasts UK house prices to rise by almost 1/3rd
between 2013 and 2018. Boosting revenues linked to property

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
Outturn
Forecasts

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

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

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

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
*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

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
Government consumption (largely DEL expenditure) will
not be the driver it was in recent years and decades…

…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
%
Forecast

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

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

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

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 30
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