Government finances and spending

Lord Browne's recommendations for higher education funding have provoked controversy. The potential sharp increase in tuition fees has grabbed the headlines, but another proposed measure has also received considerable attention: increasing the interest rate on student loans to 2.2% above RPI inflation. There have also been criticisms of the review's alleged lack of focus on the potential for a graduate tax. In this Observation, we explore both issues in some detail.

The September 2010 inflation numbers, used for the annual inflation adjustments to many taxes, benefits and tax credits, were published today by the ONS. In June, the Chancellor announced that benefits would be uprated with the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) or Rossi Index from April 2011, claiming that the CPI provided a better measure of benefit recipients'

The Spending Review, to be finalised later this month, will provide detail regarding the large reductions in spending on public services that will be implemented over the next four years. The estimation of the distributional impacts of cuts in spending on public services is substantially more challenging than the estimation of the distributional impact of changes to taxation and the payment of cash benefits. For many reasons analyses of the former should be interpreted very cautiously.

The Government has announced that child benefit will be withdrawn from families containing a higher-rate taxpayer from April 2013. This would save around £1 billion a year, but the way it will be withdrawn looks unfair to some families, and will seriously distort work incentives for some families with children.

This presentation was given at the Oxbridge Public Economics Lectures in October 2010

The consultation period on the Government's ideas for fundamental reforms to the benefits system ends on 1 October. Integrating all benefits and tax credits should create a system which is simpler for both claimants and government, but the Government will need to explain much more clearly how a Universal Credit would work and how much different groups of recipients will get if we are to have an informed debate on its merits.

This presentation was delivered at a Daycare Trust seminar, September 16 2010.

This presentation was delivered as part of an invited session at the 10th World Congress of the Econometric Society in Shanghai.

This presentation was delivered as part of an invited session at the 10th World Congress of the Econometric Society in Shanghai.