:51:34. > :51:40.You need around 1.2% per year growth to keep pace with age-adjusted
:51:41. > :51:44.population growth, to take account of the increase in size and the
:51:45. > :51:48.ageing population and the fact that older people require more expensive
:51:49. > :51:51.health care. Under the Conservative plans, their spending would be
:51:52. > :51:56.roughly constant per age-adjusted person. It is worth noting that
:51:57. > :52:01.whether you get the Conservatives' 1% per year, or Labour's 2%, both
:52:02. > :52:04.increases in spending are considerably lower than the
:52:05. > :52:08.historical average. Health spending has grown by around 40% per year on
:52:09. > :52:15.average over the last 60 years or so. To illustrate that, if spending
:52:16. > :52:20.had increased by 4% per year since 2009-10, health spending would be up
:52:21. > :52:22.by the Green line. So both parties are proposing relatively modest
:52:23. > :52:27.increases in health spending compared to history. That is not
:52:28. > :52:31.necessarily a plug for more money for the NHS. It will find it
:52:32. > :52:34.difficult if costs and expectations continue to rise, but it is
:52:35. > :52:38.important not to lose sight of the long-running context, and the
:52:39. > :52:44.invitations of current spending levels. The a BR has predicted that
:52:45. > :52:48.health spending could need to rise by 5% of national income over the
:52:49. > :52:54.next 50 years as a result of democratic and other cost pressures.
:52:55. > :52:57.Funding that would require considerably higher taxes, or
:52:58. > :53:00.considerable cuts elsewhere, or a commendation of both, and future
:53:01. > :53:04.governments are likely to find that difficult. So it might be time to
:53:05. > :53:09.start thinking seriously about sustainable ways to ridges the
:53:10. > :53:13.growth of health spending. Quite how difficult the NHS will find another
:53:14. > :53:15.parliament of other lot be low spending increases depends on the
:53:16. > :53:23.expectations on the health system going forwards. Finally, social
:53:24. > :53:27.care. Signifying massively, there are two main problems in social care
:53:28. > :53:30.in England. The biggest is the lack of available insurance. This is a
:53:31. > :53:34.hugely expensive thing and you do not know whether you are going to
:53:35. > :53:40.incur these costs later in life or not. Any other circumstance where
:53:41. > :53:44.you can forget a situation that, there is insurance where you can
:53:45. > :53:47.provide for those costs. That is not the case with social care, so that
:53:48. > :53:51.is a problem in this market. Also, the level of funding available for
:53:52. > :53:58.those entitled to state support at the moment is arguably not enough
:53:59. > :54:02.for the care they are looking for. The care act was due to introduce a
:54:03. > :54:08.cap on private contributions to lifetime costs in 2016 which got
:54:09. > :54:11.kicked two 2020. That would increase certainty for individuals about the
:54:12. > :54:13.total amount they might have to pay over their lifetime and might
:54:14. > :54:19.increase the availability of insurance to cover that. In terms of
:54:20. > :54:23.the party proposals, the Conservatives, we can agree, are
:54:24. > :54:26.unclear as to what their policy is. Their manifesto seemed to U-turn on
:54:27. > :54:32.the care act and not propose in permitting a cap on contributions.
:54:33. > :54:35.Theresa May has done a U-turn on the manifesto and now the Conservatives
:54:36. > :54:39.look like they would introduce a cap, although we do not know the
:54:40. > :54:43.level. They have said they would change the asset means test, which
:54:44. > :54:47.they did not violate costing, and the exact losers and potential
:54:48. > :54:51.winners depend on the level of assets, your income, your needs and
:54:52. > :54:58.the care package. There are not enough details spelt out to enable a
:54:59. > :55:02.proper comparison. Labour have been much more stable in what their
:55:03. > :55:06.ambition is. They have an ambition for a national care service, which
:55:07. > :55:10.sounds similar to the care act, although there are not precise
:55:11. > :55:13.details, but we know they want a cap on private contributions to care
:55:14. > :55:16.costs and they plan to increase the asset threshold. This would require
:55:17. > :55:21.additional funding that has not been set out yet. What Labour have done
:55:22. > :55:24.and the Conservatives have not, is provided additional funding under
:55:25. > :55:27.the current system of an extra ?2 billion by the end of the
:55:28. > :55:33.parliament, to be spent on social care. Although 40% of that is taken
:55:34. > :55:37.up the likely cost rise from Labour's higher minimum wage than
:55:38. > :55:41.under the Conservative policy. Again, not to suggest that that
:55:42. > :55:45.money is not being used. It is just that it has already been allocated
:55:46. > :55:49.to increasing wages, rather than expanding service provision, say.
:55:50. > :55:54.That is the end of my whistle-stop tour. The Conservatives have not
:55:55. > :55:58.announced large spending policies and Labour have. There is a big move
:55:59. > :56:03.towards universal state provision of education at all ages, additional
:56:04. > :56:06.spending on investment, childcare and schools, but it is worth noting
:56:07. > :56:11.that several policies could turn out more costly than Labour have
:56:12. > :56:16.estimated. Now, Carl will talk about the invitations of all of this for
:56:17. > :56:21.borrowing and debt. -- the implications of all of this. I will
:56:22. > :56:25.focus on the Conservative and Labour manifestos and I will talk you
:56:26. > :56:29.through what we think their plans imply for tax revenues in total,
:56:30. > :56:32.spending in total, and the borrowing and debt, and then we will assess
:56:33. > :56:37.the extent to which they would or would not meet the fiscal targets
:56:38. > :56:43.they have set themselves. We start with tax. It is important piece of
:56:44. > :56:47.context that if the new Chancellor after the election, whoever he or
:56:48. > :56:51.she was, decided not to do any tax policies in any Budget in the next
:56:52. > :56:56.parliament, there are already measures in the pipeline which would
:56:57. > :57:01.boost revenues by ?5 billion in 2001-22, relative to the last
:57:02. > :57:04.financial year. In particular, they include the dividend tax rise and
:57:05. > :57:11.the increase in council tax earmarked for social care. In the
:57:12. > :57:14.Conservative manifesto, there is no specific tax rises spelt out,
:57:15. > :57:19.although there is a stated intent to carry out measures to reduce
:57:20. > :57:22.avoidance. On the tax cutting side, they have said they will increase
:57:23. > :57:28.the personal allowance on the higher rate threshold, and in 2001-22 that
:57:29. > :57:31.would reduce revenues by about ?2 billion. Under the Conservatives,
:57:32. > :57:36.you see tax cuts being announced that would offset part of the tax
:57:37. > :57:41.rise. So you would see the tax system becoming slightly harsher
:57:42. > :57:44.over the next Parliament. Under Labour, a Labour Chancellor would
:57:45. > :57:48.inherit the same measures in the pipeline, which are costed at
:57:49. > :57:53.boosting revenue by ?5 billion. Their manifesto does not contain any
:57:54. > :57:57.significant tax cuts, but it does contain significant tax rises, which
:57:58. > :58:02.Rob talked you through. Labour have scored that at ?49 billion of tax
:58:03. > :58:06.revenue, ?52 billion less a ?3 billion margin to allow for
:58:07. > :58:12.additional behaviour change and uncertainty around costings. In our
:58:13. > :58:17.calculations, we dropped ?11 billion out of the 52 that Labour has, and
:58:18. > :58:21.that is for three reasons. First, an error by Labour in the costing of
:58:22. > :58:25.their avoidance package. Second, we think a better central estimate of
:58:26. > :58:30.how much the excessive pay levy and the offshore company property levy
:58:31. > :58:35.will raise is close to ?0. And we have a lower estimate of how much
:58:36. > :58:39.revenue they might get from their income tax rises targeted at those
:58:40. > :58:45.on very high income. That might point to a central estimate of ?41
:58:46. > :58:49.billion. We think that even ?41 billion would be very generous,
:58:50. > :58:53.given the downside risk of other policies. So it would still require
:58:54. > :58:56.the tax avoidance programme, the extension of stamp duty to
:58:57. > :59:00.derivatives and the review of corporate tax relief, not specified
:59:01. > :59:05.yet, to deliver ?13 billion of tax revenue. And we think the rising
:59:06. > :59:10.corporation tax proposed, the rate of corporation tax, might get the
:59:11. > :59:15.?19 billion in 2022 that they want, but will not raise that much in the
:59:16. > :59:21.longer term. Going forward, we will assume that Labour's tax measures
:59:22. > :59:24.would increase tax significantly by the ?41 billion number, not the ?49
:59:25. > :59:30.billion contained in their manifesto. Where would that leave
:59:31. > :59:33.the tax burden as a share of GDP? If we start with the total amount of
:59:34. > :59:37.receipts that Government receives, we can see that as a share of the
:59:38. > :59:41.economy that has been moving up in recent years. Under Conservatives,
:59:42. > :59:44.it would continue to grow. The tax burden would continue to rise, in
:59:45. > :59:48.part because of those announced measures that the new Chancellor
:59:49. > :59:52.would inherit. Under Labour, you would see the tax burden rise more
:59:53. > :59:55.quickly. If we put in history, we can see that under the
:59:56. > :00:00.Conservatives, the measure of total receipts going into the government
:00:01. > :00:05.would be at the highest level since 1987. Under Labour, at the highest
:00:06. > :00:09.level since 1985. An alternative measure of the tax burden is to look
:00:10. > :00:12.at tax receipts. Instead of looking at the total amount going into
:00:13. > :00:16.government, you look just at the revenue from taxes. This excludes
:00:17. > :00:20.interest income, profits of nationalised corporations and other
:00:21. > :00:24.such income. You can see that that used to be much more significant in
:00:25. > :00:30.the 1960s, 70s and 80s, when the state was very different. Under the
:00:31. > :00:34.Conservatives' plan, the tax burden on this measure would move up,
:00:35. > :00:39.slightly above the peak achieved in the 1980s, and it would therefore
:00:40. > :00:43.reach its highest level since 1969-70. Under Labour, it would
:00:44. > :00:50.surpass that peak and would reach its highest level since 1949 - 50.
:00:51. > :00:56.Where would this leave us internationally? This takes IMF data
:00:57. > :01:02.on all advanced economies. Do not try to read the scale on the left. I
:01:03. > :01:08.have ranked them from the highest tax as a share of GDP at the top to
:01:09. > :01:14.the bottom. You have Finland at the bottom. The G7 economies are in dark
:01:15. > :01:17.green and the UK's position in 2017 is in black. Under Conservative
:01:18. > :01:22.plans, the tax burden in the UK would rise and our position in this
:01:23. > :01:26.table would not change. Under Labour, the tax burden would
:01:27. > :01:31.increase a and would put us in a mid-table position by international
:01:32. > :01:35.standards. Now to public spending, and I will start with benefit
:01:36. > :01:39.spending. A new Chancellor would inherit measures in the pipeline
:01:40. > :01:45.which are set to cut the benefits spending by about ?11 billion in
:01:46. > :01:48.2021-22, relative to the last financial year and cut spending by
:01:49. > :01:53.more than that in the longer term. The vast bulk of the cuts would come
:01:54. > :01:56.from working age families. Under the Conservatives, they have said they
:01:57. > :02:02.will means test the winter fuel allowance but have not told us how.
:02:03. > :02:05.We spend about ?2 billion on the winter fuel allowance at the moment
:02:06. > :02:08.and we assume they will cut that to ?1 billion, half spending, but we do
:02:09. > :02:11.not know if that is the case. They have said they will replace the
:02:12. > :02:14.triple lock with a double lock from April 2020 for the state pension
:02:15. > :02:18.indexation. Over the coming Parliament that is forecast to no
:02:19. > :02:21.difference at all to the level of the state pension, or how much we
:02:22. > :02:26.spend on it, and I will come back to this at the end of the presentation.
:02:27. > :02:31.Labour have said they would increase some benefits which are mostly
:02:32. > :02:36.targeted at working age families, which would cost ?4 billion. You can
:02:37. > :02:39.see a similar conclusion to what Rob said, the Conservatives adding
:02:40. > :02:45.slightly to the benefit cuts already in place and Labour offsetting some
:02:46. > :02:50.of them. That is benefit spending. What about public services? The
:02:51. > :02:55.plans that the new government would inherit imply spending as a share of
:02:56. > :03:01.national income on public services falling over the next few years.
:03:02. > :03:05.Such that in 2021-22, if you wanted it not to fall as a share of GDP
:03:06. > :03:10.between now and then, you would have to top up the plans by ?17 billion.
:03:11. > :03:15.So the size of the state as measured by public service spending as a
:03:16. > :03:19.share of the economy would be ?17 billion lower than it would be if we
:03:20. > :03:24.decided to keep it constant. That 17 billion can be decomposed into a ?27
:03:25. > :03:28.billion takeaway from cutting day to day spending, alongside a ?10
:03:29. > :03:32.billion boost to investment spending. Phillip Hammond announced
:03:33. > :03:37.an increase in investment spending in the last Autumn Statement. Under
:03:38. > :03:40.the Conservatives, it seems to us that the manifesto commitments for
:03:41. > :03:47.increases to spending on schools, NHS, social care, suggest they would
:03:48. > :03:50.perhaps leave overall spending broadly unchanged from the March
:03:51. > :03:54.Budget. While they would increase spending in real terms on schools
:03:55. > :03:57.and the NHS over the next few years, that is consistent with the plans
:03:58. > :04:02.set out in the Budget, which already had spending growing over the next
:04:03. > :04:05.couple of years on those areas, and had a settlement for total public
:04:06. > :04:09.spending which would allow some growth in the NHS and schools
:04:10. > :04:13.budgets beyond that. So we don't think the Conservative manifesto has
:04:14. > :04:20.added to total public spending am a relative to a reading of the March
:04:21. > :04:23.Budget. Labour would make some big changes. Public service spending
:04:24. > :04:29.would increase. Labour has scored this at an increase of ?44 billion.
:04:30. > :04:32.We take an estimate of ?46 billion because we think the cost of
:04:33. > :04:38.abolishing tuition fees is a of billion greater. And in terms of
:04:39. > :04:42.capital spending, Labour have said they would do this large boost
:04:43. > :04:46.infrastructure spending, ?250 billion over ten years. We do not
:04:47. > :04:50.know the profile but we will assume ?12.5 billion extra in the current
:04:51. > :04:54.financial year and ?25 billion a year thereafter.
:04:55. > :05:03.How this would leave public spending as a share of our economy. This is
:05:04. > :05:08.total public spending as a share of GDP that shot up during the
:05:09. > :05:13.recession and it has been falling as the coalition and the Conservatives
:05:14. > :05:19.have been cutting it backment under the serve plans, public spending
:05:20. > :05:26.would continue falling, albeit at a slower rate. Under Labour, public
:05:27. > :05:38.spending would grow as a share of national income and the difference
:05:39. > :05:43.is about 3.5% of GDP or ?81 billion. How does this compare to history.
:05:44. > :05:50.The Conservatives could be cutting to the levels of 2004. Labour would
:05:51. > :05:54.be increasing it to the highest level since 1985. How would you
:05:55. > :05:58.compare internationally. I have the same set of countries, ranked by how
:05:59. > :06:04.much they spend as a share of national income. France is the
:06:05. > :06:13.biggest spender, and Hong Kong is the smallest. G7 economies in green.
:06:14. > :06:21.The UK in black. Under the serves public spending -- Conservatives o
:06:22. > :06:32.public spending would fall. Under Labour we would be at Canadian and
:06:33. > :06:39.not Scandinavian levels. What about the effect of the proposals on
:06:40. > :06:42.economy? What we have done is for Labour's additional infrastructure
:06:43. > :06:47.spending we have used OBR estimates to say wheen Labour increases
:06:48. > :06:53.infrastructure spending it would boost GDP and you would get some
:06:54. > :06:59.money back in tax receipts. The multiplier is one for year one, if
:07:00. > :07:04.you increase infrastructure by 25 billion, you get an economy 25
:07:05. > :07:11.billion bigger and some of that will be taxed. But that multiplier fades
:07:12. > :07:17.over time and the boost to GDP and tax is only temporary. On the supply
:07:18. > :07:20.side, Labour's increase in infrastructure spending would if
:07:21. > :07:27.they spent it well boost the productive capacity of the economy
:07:28. > :07:32.and you end up with higher growth. However, Labour's increased labour
:07:33. > :07:39.market regulations such as the higher minimum wage would have the
:07:40. > :07:45.opposite effect. This shows the proportion of employees paid the
:07:46. > :07:55.minimum wage. About 9% of employs aged 18 or over. The Conservatives
:07:56. > :08:04.have proposed an increase, the impact is put into the OBR's
:08:05. > :08:09.forecast. That increase is for those aged 25 and over. That is the group
:08:10. > :08:15.the national living wage applies under the serves. Labour have said
:08:16. > :08:19.they would introduce a ?10 an hour living wage and apply to all
:08:20. > :08:25.individuals aged 18 and over. We estimate this is the proportion of
:08:26. > :08:28.employees paid the minimum wage f you take all individuals aged 18 and
:08:29. > :08:33.over you move to a situation where over a quarter would have their
:08:34. > :08:40.wages set by Whitehall F you look at the 18 to 24 group, allowing them to
:08:41. > :08:46.have a ?10 an hour wage would mean 60% would have their wage set by
:08:47. > :08:49.Whitehall and would take a risk with their employment prospects. In
:08:50. > :08:54.addition in Labour's manifesto we would get to have four additional
:08:55. > :09:06.bank holidays a year. That would be nice to have but it wouldn't be cost
:09:07. > :09:11.free and the higher rate of corporation tax. The Conservatives
:09:12. > :09:15.have a commitment to reduce net immigration which also weaken growth
:09:16. > :09:20.and the public finances. In terms of this for the longer term, in terms
:09:21. > :09:26.of capacity of the economy, we assume no effect of either party's
:09:27. > :09:35.policy and take the forecast for the potential as unchanged from the
:09:36. > :09:39.March budget. So this moves us on to to objective for reducing the
:09:40. > :09:43.deficit. We start with the current Government's plans. The Conservative
:09:44. > :09:49.Government had committed to eliminate the deficit by 2018/19.
:09:50. > :09:57.That is now unlikely to happen and in the statement, Mr Hammond pushed
:09:58. > :10:02.that to be as soon as possible. The forecast in Marc implied you would
:10:03. > :10:07.need further fiscal action. The new Conservative manifesto said they
:10:08. > :10:11.want a balanced budget by the beginning of the next decade. So the
:10:12. > :10:18.target date has been pushed back further and perhaps this implies we
:10:19. > :10:24.will get to have 15 years of austerity starting in 2010 through
:10:25. > :10:30.2025. Labour have said they want to eliminate the deficit on day-to-day
:10:31. > :10:36.spending within five years, so their happy to borrow to invest. But
:10:37. > :10:41.day-to-day they want to cover by tax receipts. A forward looking target
:10:42. > :10:45.has much to commend it. I would say that because it recommended in
:10:46. > :11:10.successive IFS budgets and it was adopted by George Osborne and Ed
:11:11. > :11:15.Balls. What do euro estimates imply for the deficit? Under the serves
:11:16. > :11:20.the deficit would rise between last year and this year as it does in the
:11:21. > :11:26.forecast, it would fall over the following two years and stabilise at
:11:27. > :11:31.about 1% of GDP. Under Labour it would increase more quickly and then
:11:32. > :11:37.fall over the following two years, before stabilising at about 2. 35%.
:11:38. > :11:44.Slightly below the level we had. In the last year of next Parliament the
:11:45. > :11:47.deficit would be ?21 billion under the Conservatives. Some way off the
:11:48. > :11:54.getting the balance they want. And under Labour it would be higher at
:11:55. > :11:58.?58 billion. Of course Labour's deficit part of that is explained by
:11:59. > :12:04.the additional capital spending and receivest they they have said
:12:05. > :12:12.they're happy to borrow to pay for that. Under the serves the current
:12:13. > :12:18.budget was strengthen between the currentier and 2019 and then
:12:19. > :12:22.strengthen at a reduced rate. Under Labour you see a similar pattern.
:12:23. > :12:26.Their budget would be in a weaker position, because we assume they
:12:27. > :12:31.don't get the tax revenues they expect. But under both parties you
:12:32. > :12:37.would move into a surplus on the current budget in 2019/20. Labour
:12:38. > :12:47.would meet its target with ?21 billion to spare. So what about
:12:48. > :12:54.debt? The current debt had a target to have debt falling in each year of
:12:55. > :13:01.the Parliament. That target has been missed and Philip Hammond to have it
:13:02. > :13:05.falling in 2020. They forecast this target would be met with some room
:13:06. > :13:08.to spare. In the Conservative manifesto there doesn't seem to be
:13:09. > :13:13.any debt target specified. Labour have said that as a share of
:13:14. > :13:16.national income, they would ensure that national debt is lower at the
:13:17. > :13:22.end of Parliament than today. There are good reasons with debt at its
:13:23. > :13:30.high level to want it to fall, but it is much less clear it has to be
:13:31. > :13:32.lower than it was in 2016. Under our estimates debt as a share of
:13:33. > :13:37.national income would rise between last year and this year and then
:13:38. > :13:42.fall and more quickly under the Conservatives. Under Labour, it
:13:43. > :13:47.would stabilise for a couple of years before falling back and Labour
:13:48. > :13:52.would be on course to meet their target just. Debt would be lower at
:13:53. > :13:56.the end of Parliament. The difference between the two parties
:13:57. > :14:00.is sizeable, because of the extra investment spending we would have
:14:01. > :14:11.under Labour and the short fall in tax receipts, that means we would
:14:12. > :14:15.have debt at 4.25% higher. So Labour will be on course to have debt
:14:16. > :14:18.lower. But it is important to note that debt has been increased and
:14:19. > :14:22.reduced, because of loans that the Bank of England has been making to
:14:23. > :14:28.the financial sector, that are being repaid and made on a two year basis.
:14:29. > :14:33.So it adds to debt when we are making the loans. It reduces when we
:14:34. > :14:37.get it back. If we strip that out, and ignore that financial
:14:38. > :14:40.intervention, we would see that debt would fall more gradually under the
:14:41. > :14:45.Conservatives. But under Labour it wouldn't fall and they would miss
:14:46. > :14:49.their fiscal target. One of the driving factors around meeting their
:14:50. > :14:53.target is because of the inclusion of the loans in debt that we hope to
:14:54. > :14:59.be repaid in the next couple of years. The headline conclusion that
:15:00. > :15:04.is debt would fall under Labour and you may ask would that be the case?
:15:05. > :15:09.It is because you can have an increase in the outlook for
:15:10. > :15:14.borrowing and still have debt fall. So we think if you had all Labour's
:15:15. > :15:21.spending increases and spend ?25 billion a year on f infrastructure
:15:22. > :15:27.you would only need ?30 billion in tax rises. So because we are costing
:15:28. > :15:32.their measures at 41 billion that gives us head room. Of course in
:15:33. > :15:38.Labour's manifesto, they propose nationalisation of Royal Mail and
:15:39. > :15:43.they want to have in every region publy owned companies operating in
:15:44. > :15:47.rail, emergency and water and that would add to net debt. So depending
:15:48. > :15:50.on the scale and the timing of Labour's nationalisation programme,
:15:51. > :15:56.it could lead to Labour being on course to breach its target. But in
:15:57. > :16:01.some ways that just shows how odd it is to target public sector net debt.
:16:02. > :16:07.We would have more debt and we would, the public sector would have
:16:08. > :16:12.greater assets. The financial health of the public sector wouldn't
:16:13. > :16:15.necessarily be any worse. Just as privatisation doesn't make the
:16:16. > :16:23.health of the public finances better f you sell an asset you're not may
:16:24. > :16:29.have making the public finances stronger. It is whether you think
:16:30. > :16:33.these assets and these organisation would be better managed if they were
:16:34. > :16:38.operated in the public or private sector. That is what is what will
:16:39. > :16:43.matter for the economy and living standards. So finally before I
:16:44. > :16:47.conclude, I want to talk about the long run public finance. We have an
:16:48. > :16:51.ageing population that adds pressure to the public finances and one
:16:52. > :16:58.pressure comes from pension spending. The OBR has a projection
:16:59. > :17:02.for spending on pensions assuming the triple lock remained in place
:17:03. > :17:11.and pension spend would increase as a share of national income over the
:17:12. > :17:16.next 50 years, about 2% of GDP. Those wiggle down when the age
:17:17. > :17:26.rises. It goes up to 66 and then to 67 and 68 and then 69 in the mid
:17:27. > :17:36.2050s. Keeping adult life spent over the age of pension constant. An
:17:37. > :17:42.alternative would be to increase with average earnings and keep pace
:17:43. > :17:48.with the average worker. It is also something you can't do more than
:17:49. > :17:53.over the long run any way. You can see under this scenario, spending
:17:54. > :17:57.would grow and the policy would be more ex-tenest pensive and --
:17:58. > :18:01.expensive and make the challenges nor difficult for subsequent
:18:02. > :18:07.Chancellors. To conclude, the Conservatives have set out
:18:08. > :18:11.relatively modest changes. Under the Conservatives you would get a rise
:18:12. > :18:15.in tax and day-to-day spending cuts. Eliminating the deficit would be
:18:16. > :18:20.pushed back into the Parliament after next and the long run
:18:21. > :18:25.challenge would remain. If they were to make the immigration target you
:18:26. > :18:28.would get weaker growth and weaken the public finances. With Labour you
:18:29. > :18:34.get an increase in the size and shape of state and they propose
:18:35. > :18:40.large increases in tax, borrowing maintained to finance a large
:18:41. > :18:45.increase in spending. There are big down side risks with Labour's plan.
:18:46. > :18:50.The tax measures unlikely to raise the 49 billion they want.
:18:51. > :18:53.Particularly over the longer term. Despite tip crease in infrastructure
:18:54. > :18:58.spending, the capacity of the economy could be harmed by proposals
:18:59. > :19:03.such as increased national living wage and not increasing the pension
:19:04. > :19:07.age would make the challenge harder to meet. Thank you. We will stop now
:19:08. > :19:30.for questions. We will take questions in batches of
:19:31. > :19:35.three. The gentleman here. Michael Savage from the Observer. I wanted
:19:36. > :19:40.to ask a quick question about immigration. Obviously, you referred
:19:41. > :19:44.to the Conservative pledge on tens of thousands. Have you attempted to
:19:45. > :19:56.make a calculation of that impact, or partially trying to meet that
:19:57. > :20:00.target? From the Chartered Institute of Taxation. You got through all of
:20:01. > :20:08.that without mentioning Brexit, so I am going to mention it now. Just to
:20:09. > :20:13.ask whether you think the nature of Brexit, whether soft or hard, what
:20:14. > :20:23.impact that will have on growth, tax take and really how deliverable the
:20:24. > :20:27.party's plans are. From the Independent. After the Conservative
:20:28. > :20:31.manifesto came out, with headlines saying that the Conservatives plan
:20:32. > :20:35.to spend ?8 billion more on the NHS and four billion on schools, with
:20:36. > :20:39.the implied assumption that that was additional to the current baseline,
:20:40. > :20:44.and there was also pressure on the Prime Minister to explain where this
:20:45. > :20:47.money would come from. From what you are saying, that seems to be wrong,
:20:48. > :20:53.in the sense that there is no extra money, in effect, planned for those
:20:54. > :21:01.public services, so there is no need to actually cost any of those
:21:02. > :21:07.promises. Is that fair? On immigration, in November, the OBR
:21:08. > :21:10.advised down its forecast for immigration relative to what it
:21:11. > :21:17.would have done had we voted a different way in the referendum. And
:21:18. > :21:23.that reduction was an 80,000 reduction in net immigration from
:21:24. > :21:27.their previous assumption of about 260,000, to 180,000. They cost of
:21:28. > :21:34.that at ?6 billion off revenues. So if we were to go from 180 down to
:21:35. > :21:38.100, which is close to tens of thousands, we think that would be
:21:39. > :21:40.another ?6 billion of revenue. You could go further in terms of cutting
:21:41. > :21:46.immigration and the number would become bigger than ?6 billion, but
:21:47. > :21:50.that seems a good rule of thumb. That is a cost about four years out.
:21:51. > :21:54.That would rise over time because every year you have less
:21:55. > :22:04.immigration, you hit public finances again for a bit more. On Brexit, it
:22:05. > :22:09.is very clear that there are advantages to being in the single
:22:10. > :22:14.market for the economy. Those advantages translate into a stronger
:22:15. > :22:17.fiscal position. That is why the OBR downgraded its forecast, one of the
:22:18. > :22:22.reasons, why it downgraded its forecast for growth in public
:22:23. > :22:27.finances between the March 2016 Budget and the November 2016 budget.
:22:28. > :22:30.All of these calculations are based on their most recent column
:22:31. > :22:37.forecast, with some adjustments for investment spending plans. Clearly,
:22:38. > :22:41.the nature of the trade deal we get, and any transitional protection we
:22:42. > :22:45.may get, will matter for the public finances. Certainly there is a lot
:22:46. > :22:49.of uncertainty, more than we normally expect around any forecast
:22:50. > :22:54.for the economy and public finances. We are taking the OBR's forecasts
:22:55. > :23:00.and only adjusting for a boost to GDP in the near term from Labour's
:23:01. > :23:04.infrastructure spending. Clearly, one risk with Brexit is that
:23:05. > :23:08.investment falls in the UK economy, and clearly that may mean that it is
:23:09. > :23:15.not time to put up corporation tax significantly. Maybe that is a risky
:23:16. > :23:19.thing to do at that moment in time. In terms of spending commitments, I
:23:20. > :23:23.think it is unambiguous what the Conservative pledge on health is, a
:23:24. > :23:28.real terms increase over the next five years that is relative to now.
:23:29. > :23:33.Schools is a bit less explicit, it is real terms as opposed to cash
:23:34. > :23:37.terms, but we think we are right in how we interpret that. There are
:23:38. > :23:41.advantages to the Conservatives to people thinking it is extra money,
:23:42. > :23:45.even if that suggests they have not put a costing to that. There are
:23:46. > :23:49.areas where we do think it would be additional money. If they introduced
:23:50. > :23:56.a cap on social care, that would be additional money. It is tricky
:23:57. > :24:00.because after 2020, or 2021 in the case of health, there are not actual
:24:01. > :24:04.plans for spending at a departmental level because there is not a
:24:05. > :24:07.spending review that is set. So short of the government having a
:24:08. > :24:13.full spending review to say exactly where money is going, you have a set
:24:14. > :24:17.budget, so to some extent extra money for health means there is less
:24:18. > :24:22.for other areas. Without setting out exactly where it is across all
:24:23. > :24:27.areas, you cannot say, we have funded it by this, because it is not
:24:28. > :24:30.a simple answer. Our take is essentially that the increase
:24:31. > :24:32.between now and the end of the parliament the Conservative
:24:33. > :24:37.manifesto is committing to is perfectly achievable within the
:24:38. > :24:41.March Budget plan. We were not thinking the March Budget plan would
:24:42. > :24:45.be less generous to the NHS or schools than the Conservative
:24:46. > :24:50.manifesto suggests. So it is not additional over and above the March
:24:51. > :24:53.Budget plan, and it means you do not need to offset the effect of those
:24:54. > :25:06.measures if you want to keep the deficit on the same path. Faisal
:25:07. > :25:09.Islam, Sky News. I might have missed this, but have you done an
:25:10. > :25:15.assessment on the winter fuel allowance? I know they have not set
:25:16. > :25:17.where the means test would be, but for plausible interpretations of
:25:18. > :25:22.what the manifesto and briefing materials have said, can we say
:25:23. > :25:35.several million would lose the winter fuel allowance? What savings
:25:36. > :25:43.are we talking about? We will take a question here. BuzzFeed News. I have
:25:44. > :25:50.a question on the cost effectiveness of free school breakfasts versus
:25:51. > :25:54.lunch. Some other analysts have suggested your analysis of the cost
:25:55. > :26:03.effectiveness of the breakfast depends on a relatively low take-up.
:26:04. > :26:07.I wonder if you could talk to that. From the Financial Times. Just a
:26:08. > :26:13.question of detail on the Labour plans. You suggested the offshore
:26:14. > :26:25.property measure and the excessive pay measure would bring in zero
:26:26. > :26:31.revenues. Can you explain why? Starting with winter fuel, in many
:26:32. > :26:35.ways the obvious thing to do when you hear they are going to means
:26:36. > :26:39.test winter fuel would be to use an existing part of the system, by
:26:40. > :26:44.which I mean to use the fact that you could restrict it to those
:26:45. > :26:47.already entitled to pension credit, which is already assessed as the
:26:48. > :26:54.people with highest needs amongst pensioner households. That would
:26:55. > :26:57.save just over 1 billion of the 2 billion in total we spend on winter
:26:58. > :27:02.fuel payments. That is the thing the Conservatives now seem to have all
:27:03. > :27:06.out. That would take winter if you from around about 10 million
:27:07. > :27:11.pensioners. Given that they have ruled that out, frankly I have no
:27:12. > :27:15.idea what they will do. The big picture is that the total spending
:27:16. > :27:19.on winter fuel payments is only 2% of all benefit spending on
:27:20. > :27:24.pensioners. So whatever they do, at an aggregate level, it will be small
:27:25. > :27:29.in terms of spending on pensioners. It could affect some households up
:27:30. > :27:33.to ?300 a year. But given that they seem to have ruled out the most
:27:34. > :27:37.obvious way of means testing winter fuel payments, I don't know what
:27:38. > :27:41.they will do. Any means test is costly to set up and administer, and
:27:42. > :27:46.given that this is only a small pot of money, actually, arguably if you
:27:47. > :27:48.on controlling spending on on controlling spending on
:27:49. > :27:51.pensioners it would be better to look at things like the state
:27:52. > :28:07.pension. For free school meals, we have not
:28:08. > :28:13.done a costing of the policy, given their manifesto commitments. What we
:28:14. > :28:17.think you would get from restricting free school lunches back to this
:28:18. > :28:22.advantage to pupils for those first three years would be around 700
:28:23. > :28:26.million saving. In terms of free school breakfasts, if you had 100%
:28:27. > :28:31.take-up, we think the cost would be relatively similar to what you would
:28:32. > :28:37.gain from that, around 700 million. The reason why it is so much more,
:28:38. > :28:40.even though free school breakfasts are cheaper, obviously you are
:28:41. > :28:44.extending it to a larger cohort because you are doing it across the
:28:45. > :28:47.whole of primary school, not just the first three years. You are doing
:28:48. > :28:51.it for more pupils within each cohort because you are giving it to
:28:52. > :28:57.all pupils, rather than those that would have got free school meals.
:28:58. > :29:01.And also, that is assuming basically 100% take-up. Take-up is clearly
:29:02. > :29:06.crucial here. And there are suggestions that the Conservatives
:29:07. > :29:11.assume around 25% take-up. I do not think that is unreasonable. Pilots
:29:12. > :29:15.that have done this have found relatively low take-up. So if you
:29:16. > :29:20.were going for a costing of what might be the likely indications of
:29:21. > :29:23.that, low take-up is not the on the realms of possibility but it is
:29:24. > :29:29.quite sensitive to that. The Conservatives have not explicitly
:29:30. > :29:32.put a costing, they have just said that additional savings will be
:29:33. > :29:35.given back to schools. So the vocation of a costing being slightly
:29:36. > :29:39.higher than they expect is that residual money going to schools
:29:40. > :29:43.might be slightly lower, but until you roll it out it is uncertain what
:29:44. > :29:48.the level of take-up would be. The 25% take-up which you got in
:29:49. > :29:51.deprived areas, you might think nationally the take-up would be
:29:52. > :29:55.lower because those in advantaged areas would not be so keen on taking
:29:56. > :29:59.advantage of a free breakfast. However, you might think that
:30:00. > :30:02.parents in work might like to send their child to school earlier and
:30:03. > :30:12.take advantage of more free childcare. It could go either way
:30:13. > :30:17.and it is hard to know. A couple of the policies and why we think they
:30:18. > :30:21.are more likely to raise nothing. On the excessive papal see, this is a
:30:22. > :30:30.Labour proposal to introduce a levy on employers, on income. We are not
:30:31. > :30:33.sure if it is on earnings, income or somewhere in between, earnings above
:30:34. > :30:40.?330,000, a couple of different rates above that level. You can
:30:41. > :30:46.think of it like employer national Insurance. Labour think this will
:30:47. > :30:53.bring in 1.3 billion a year. We think up to around half of that you
:30:54. > :30:57.will not get because some of that 1.3 billion would have been taxed
:30:58. > :31:03.anyway. For example, let's say the effect is to reduce the earnings
:31:04. > :31:08.that are actually paid to workers. These very high income workers, half
:31:09. > :31:12.of their marginal earnings would have been taxed anyway, income tax
:31:13. > :31:15.and National Insurance. That is part of the reason why we think it should
:31:16. > :31:19.be closer to zero. And we think plausible degrees of behavioural
:31:20. > :31:24.response would eliminate the rest of the revenue. There is uncertainty
:31:25. > :31:27.around that because there is uncertainty about exactly how much
:31:28. > :31:32.these high income people respond, but given what we know about the
:31:33. > :31:36.responses of people above ?150,000 a year, it seems plausible that the
:31:37. > :31:47.remaining revenue would be likely to be mopped up just from behavioural
:31:48. > :31:51.response. The offshore reporting levy. Our understanding is that
:31:52. > :31:55.Labour would like to find properties that are being held in offshore
:31:56. > :32:00.properties in countries that are going to be put on some new
:32:01. > :32:04.blacklist. Having spoken to lawyers who specialise in helping clients do
:32:05. > :32:08.this, we understand that those companies are already not being used
:32:09. > :32:13.because the law has changed in ways that makes it unattractive. Also,
:32:14. > :32:18.this would be a tax on new arrangements. So people would just
:32:19. > :32:22.stop using companies in these blacklisted countries and instead
:32:23. > :32:27.use companies in countries such as the US, which I suspect would not
:32:28. > :32:30.make the blacklist. People just would not use these structures. We
:32:31. > :32:40.think a better central estimate of what you would raise is something
:32:41. > :32:45.like zero, not 1.6 billion. From the daily Mirror. I want to pick up on
:32:46. > :32:49.something from your opening about the Tory spending plans for the NHS
:32:50. > :32:53.where you said there must be serious doubts as to the deliverability of
:32:54. > :32:57.such a tight spending plan. Do you mean they will be forced to put in
:32:58. > :33:00.more money as Parliament goes on, or that by not putting in more money it
:33:01. > :33:10.raises questions about the long-term future of the NHS, and if so, what
:33:11. > :33:16.would be the consequences? From the Guardian. You seem negative about
:33:17. > :33:20.the rising minimum wage from both parties but obviously more from
:33:21. > :33:25.Labour. Labour think that will raise income levels and therefore GDP by
:33:26. > :33:32.virtue of increasing demand in the economy. Do you think that is
:33:33. > :33:37.plausible? Also, Robert, you made great emphasis of the circularity of
:33:38. > :33:41.taxing corporations and it feeding back into households. Do you have a
:33:42. > :33:59.proportion of the amount of pension funds that invest in UK domiciled
:34:00. > :34:08.companies? At the very back. From the Independent, and others. Also on
:34:09. > :34:13.the minimum wage, how much do the respective plans stand to save the
:34:14. > :34:21.Treasury on the basis that the tax credit will could be rigid used? --
:34:22. > :34:32.on the basis that the tax credit bill could be reduced.
:34:33. > :34:46.On the NHS... So I think the... It could plough in two ways. If the
:34:47. > :34:51.risk is that the debt settlement is tight and that could manifest itself
:34:52. > :34:53.either the quality of NHS doesn't meet expectation and the
:34:54. > :34:59.Conservative Government would respond by having to top up the
:35:00. > :35:03.plans. So it would be a risk for the public finances and another risk is
:35:04. > :35:06.it shows that the deterioration in the quality doesn't meet our
:35:07. > :35:11.expectation and the risk is our expectations have to be
:35:12. > :35:16.disappointed. I don't know how it plays out. In a narrow public
:35:17. > :35:19.finance sense it is a risk to the public finances that it would be
:35:20. > :35:25.undeliverable and they would respond by topping up the plans. We don't
:35:26. > :35:31.know that is the way they would go. We have big long-term pressures on
:35:32. > :35:37.the NHS spending and it may be the choice we make is to lower our
:35:38. > :35:46.expectation given the price tag of maintaining our current expectations
:35:47. > :35:51.in the context of an ageing society. A couple of questions on the minimum
:35:52. > :35:58.wage. Philip, I think just important to clarify what we are saying about
:35:59. > :36:00.the minimum wage. It is not necessarily negative about
:36:01. > :36:05.increasing it. What would be negative about it doing it in a
:36:06. > :36:12.sudden large way, because what we do know that is there will be a point
:36:13. > :36:18.beyond which higher minimum wages have to impact on employ. If we
:36:19. > :36:25.outlawed contracts of ?100 an hour fewer people would be employed. It
:36:26. > :36:32.follows you want a cautious process to incrementally increase and assess
:36:33. > :36:37.the impacts. So it is the sudden large increase that we think is
:36:38. > :36:43.risky and setting a key economic policy without reference to its most
:36:44. > :36:47.potentially harmful side effect, which is the employment effect,
:36:48. > :36:53.seems not a sensible way to proceed. In terms of I think you asked a
:36:54. > :36:59.question about the wider effects on national income, there is a lot of
:37:00. > :37:07.issues. The OBR think introducing the national living wage would
:37:08. > :37:11.reduce national income. Because of enlarged, because of the employment
:37:12. > :37:17.effects you would expect. In principle, if it leads to
:37:18. > :37:23.productivity increases which it may well do, you may think some of the
:37:24. > :37:30.cost can pay for itself. But to think that a large, huge increase in
:37:31. > :37:36.the contractual minimum can pay for itself entirely would at least be
:37:37. > :37:40.imprudent. There is a related question from the back about the
:37:41. > :37:48.knock on effects on what the Treasury gets in. This relates in a
:37:49. > :37:51.way I will explain, so, yes, if you have higher wages entitlement to
:37:52. > :37:56.benefits go down and there is a saving to the Treasury. That is not
:37:57. > :38:01.the same as saying there is an over all saving. That money is coming
:38:02. > :38:04.from somewhere. There is redistribution from some other
:38:05. > :38:08.household have to people that are being paid a higher minimum wage.
:38:09. > :38:13.The issue is whether the people the money is coming from would be taxed
:38:14. > :38:22.more or less heavily than the people that the money is going to. Because
:38:23. > :38:26.a lot of minimum wages are on means tested, they face higher tax rates
:38:27. > :38:30.than say if that money had stayed within corporate profits and charged
:38:31. > :38:37.corporation tax. There may be an argument that it could save money.
:38:38. > :38:40.But even that is not simple, because over all it probably reduces
:38:41. > :38:48.national income and there is less income to tax. So certainly banking
:38:49. > :38:57.on the national higher minimum wage saving you money which you can then
:38:58. > :39:05.spend would be risky. I think that is everything on the minimum wage.
:39:06. > :39:15.On pension funds investments in UK companies, I'm afraid I don't have
:39:16. > :39:19.those figures. Helen may have them. In pension funds when you think,
:39:20. > :39:24.this is not just today, but over a long period of time. When thing
:39:25. > :39:30.people do is take FTSE company shares and you can get ONS data on
:39:31. > :39:37.the portion held by foreigners. That is misleading, there is other shares
:39:38. > :39:41.out side the FTSE 100 and some of the big companies like a big Chilean
:39:42. > :39:49.mining company haven't got any profits in the UK and are not hit by
:39:50. > :39:54.UK corporation tax. Some of the corporation tax will be passed on to
:39:55. > :40:03.foreigners that is politically great because they don't vote in our
:40:04. > :40:07.Lexes. Elections. But the UK will be paying some corporation tax for
:40:08. > :40:17.other companies. But we can't say how much any given individual is
:40:18. > :40:22.bearing. One more. I would ask another one. In Labour's plans there
:40:23. > :40:29.is one quite big figure that is quite opaque, that is about
:40:30. > :40:32.reorganising tax relief for companies, something like 3.6
:40:33. > :40:46.billion, do you have a sense of what that could include. There is no
:40:47. > :40:54.detail so far. There is no detail. We, there are various corporate tax
:40:55. > :40:58.relief you could have a go at. They're already engenerous compared
:40:59. > :41:03.to other countries. You could take aim at things like are there any tax
:41:04. > :41:09.credits and chop a lot out of that. Not you would want to, but you could
:41:10. > :41:15.take aim at that. There are various reliefs. We have funny film schemes.
:41:16. > :41:18.There are things you could aim at. There are probably a enough you
:41:19. > :41:24.could raise that money. But there are plenty of things you could do to
:41:25. > :41:31.make our tax system worse. For now, we have no idea what the Labour
:41:32. > :42:06.Party would take aim at. Thank you very much everyone.
:42:07. > :42:16.Could you be in charge of army, the navy and air force and still be
:42:17. > :42:21.responsible for the lives of all service perm knell. Personnel. So
:42:22. > :42:31.you want to be Secretary of State for defence. If I was walking down a
:42:32. > :42:35.corridor, even a civilian civil servant would say good morning.
:42:36. > :42:39.Walked down with a staff of three