Geeks bearing graphs? Economists and economics at the IFS

1. Geeks bearing graphs?Economists and economics at the IFS Robert Chote, Director, Institute for Fiscal Studies

2. Outline • Welcome • About the IFS • Goals • Activities • People • Programme • The Budget “Readers, a reality check. Beware geeks bearing graphs. They’re just economists guessing. And be honest: how interested are you in fiscal studies?” (Greg Hurst, The Times)

3. What is the IFS? • An independent research institute – a charity. • Our mission: “To contribute to better economic and social policies through rigorous analysis of their impact on the behaviour of individuals, families, firms and the government’s finances.” • 50 people. £4.5m turnover. Funded by Economic and Social Research Council, charitable foundations, government departments, international organisations & members. No paid consultancy. • “Think Tank of the Year 2005” – Prospect Magazine • Most respected think-tank among MPs – Communicate Research “Its criticism is measured but firm where it believes the government is in error. It doesn’t allow governments to get away with sham policies.” (Polly Toynbee, The Guardian)

4. Why was the IFS created? • “The IFS came into existence because four professional people from the world of finance were appalled by the way in which the 1965 Finance Act, introducing capital gains tax, reached the Statute Book.” Bill Robinson (Director, 1986-91) • “…never again should a government, regardless of its political colour and intentions, introduce far-reaching tax legislation without the benefit of deep and thorough analysis of its second- and third-order effects.” John Chown (Co-founder) “The IFS is studiously neutral when it comes to politics, which lends it extra value when the Government has swapped analysis for spin.” (City Comment, Daily Telegraph)

5. What do we work on? • Tax system and the welfare state • Government finances and fiscal management • Productivity and innovation • Inequality and poverty • Education and human capital • Saving and consumption • Development micro-economics • Micro-econometrics: theory and practice “All the parties treat the Institute for Fiscal Studies as if it were the Bible”. (Jonathan Dimbleby, Any Questions)

6. Who uses our research? • Policymakers • Parliamentarians • Media and general public • Advocacy groups • International organisations • Academics • Businesspeople “The independent IFS provides evidence and facts that are essential for others to use for informed lobbying and campaigning. It speaks with authority and clarity.” (Martin Barnes, former Director, Child Poverty Action Group)

7. What do we try to achieve? • Policy relevance • Analytical rigour • Best-practice use of quantitative evidence • Effective communication • Independence • Transparency

8. What sort of people work for us? • Seeking policy influence, academic rigour and communication • Most from universities, some from gov’t, central banks etc • Gender: 50% Women 50% Men Nationality: 55% British 30% Rest of Europe 10% Latin America / USA 5% Asia • Qualifications: 55% PhD (complete or in progress) 90% MSc (complete or in progress) “The Institute’s success is also in its way simple. First, it hires the brightest and the best…” (Lord David Lipsey)

9. Civil service Dep Head, Govt Economic Service Dep Head, Econ Policy Dept, FCO Head of Health Team, HM Treasury Media Economics Editor, BBC Economics Editor, Newsnight Economics Editor, Financial Times Social policy leader writer, Guardian Global organisations Head of Tax Policy, OECD Chief, Tax Policy Division, IMF Academia Professors: UCL, Surrey, Bristol, Warwick Principal, St Hugh’s College, Oxford Dir, Centre for Econ Performance, LSE Private sector Chief UK Business Economist, PriceWaterhouseCoopers Director, Frontier Economics Politics / think tanks Special advisor, Shadow Chancellor Shadow Health Secretary, Lib Dems Research Director, IPPR What do IFS alumni do? “Politicians, journalists, business people and the City, not to mention the Treasury itself, look to the IFS to judge the Government’s conduct of budgetary policy.” (David Smith, Economics Editor, Sunday Times)

10. Programme

11. Programme 10.45 – 11.30 The public finances, Christine Frayne (IFS) 11.30 – 11.45 Break 11.45 – 12.30 Productivity & innovation, Laura Abramovsky (IFS) 12.30 – 1.15 Lunch 1.15 – 2.00 Higher education funding, Emla Fitzsimons (IFS) 2.00 – 2.45 Pensions, Matthew Wakefield (IFS) 2.45 – 3.15 Break 3.15 – 4.00 Panel session on careers in economics: Stephanie Flanders (BBC), Najma Rajah (Frontier Economics), Tom Clark (The Guardian - formerly Special Advisor to Alan Johnson MP) Mike Hawkins (HMRC) 4.00 – 4.45 The UK tax system, Stuart Adam (IFS) 4.45 – 5.30 Inequality and poverty, Luke Sibieta (IFS)

12. The Budget

13. The big picture at PBR time Labour I Labour II Source: HM Treasury

14. Total Managed Expenditure Source: HM Treasury

15. Sharing the proceeds of growth II

16. What increases might we have?If Treasury does not find £4.5bn to meet child poverty target 9 smaller departments Department for Constitutional Affairs Source: HM Treasury ; IFS

17. Gordon Brown’s fiscal rules • Golden rule • only borrow to invest • receipts must cover current spending • implies surplus or balance on current budget • on average over economic cycle, not every year • Sustainable investment rule • keep debt at a “stable and prudent” level • defined as below 40% of national income • to be met every year in current economic cycle

18. Current budget balance: HMT

19. Rules on course to be met, but… • Golden rule to met over this cycle if current budget deficit no more than £17.5bn this year • Trend over first 10 months suggests £8.5bn • Golden rule and sustainable investment rule more likely than not to be met over next cycle too • But credibility dented by ‘moving the goalposts’ and ‘delaying the inevitable’

20. ‘Delaying the inevitable’ • Treasury revenue forecasts seen by us and others as too optimistic post-2001 after stock market decline • We argued through most of second term that tightening of roughly £13bn would be necessary • “People say that we won’t meet our fiscal rules. Once again, with the public finances strong, we will prove them wrong.” (Gordon Brown, April 2005) • But once 2005 election safely won: £6bn tax increase implemented and £10bn spending cut pencilled in

21. Environmental tax receipts Sources: ONS Environmental Accounts, Autumn 2006; Authors’ calculations

22. Rate increase needed to raise £1bn Sources: HM Treasury Tax Ready Reckoner; Authors’ calculations

23. EU corporate tax rates UK 4th lowest of 15 in 1996

24. EU corporate tax rates UK 7th highest of 25 in 2006