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Who loses most from public service cuts?

Who loses most from public service cuts?. Cormac O’Dea. HM Treasury analysis of impact of cuts in spending on public services, by 2014-15. Source: Spending Review Fig. B6. HM Treasury analysis of impact of changes in spending on public services, benefits, tax by 2014-15.

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Who loses most from public service cuts?

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  1. Who loses most from public service cuts? Cormac O’Dea

  2. HM Treasury analysis of impact of cuts in spending on public services, by 2014-15 Source: Spending Review Fig. B6

  3. HM Treasury analysis of impact of changes in spending on public services, benefits, tax by 2014-15 Source: Spending Review Fig. B6

  4. What’s included and what’s excluded? • Included expenditure accounts for half of Departmental Expenditure Limits (excluding devolved administrations) • Accounts for approximately one-third of the change in DEL • Of that which is included: • Health (51%), Local Government (10%), Education (27%), BIS - higher education (5%), Other (8%) • Over 80% is accounted for by current expenditure on health and education • Excluded is: • All capital expenditure • Pure public goods (Defence, Environment, FCO etc.) • Central government administration costs • The modelled elements – include some clearly progressive elements • The unmodelled cuts – not so clear

  5. Adding in unmodelled expenditure

  6. Allocating unmodelled cuts:Equal in cash terms – one arbitrary assumption

  7. Allocating unmodelled cuts:Proportional to income – another arbitrary assumption

  8. Public Services – How to value? • Value of service is not equal to cost • Almost all studies that assess distributional impact of public spending assume that value is equal to cost • Questionable, but probably the only feasible starting point • Treasury acknowledges this clearly • Issue does not arise with cash benefits (£1 = £1) • Sensible measure of value is “willingness to pay”: • How much would different households be willing to pay to avoid a cut? • Best approach is perhaps to assess distributional impact under a variety of (equally sensible) assumptions on value to see assess robustness

  9. Conclusions • HMT analysis says yesterday’s announcements on both welfare and public services regressive • Overall package hits richest hardest because of Labour’s tax rises • Valuing public spending is hard to do precisely • Valuing the change in public spending is even harder • Good that Treasury have not shied away from the issue • The modelled elements include some clearly progressive elements • Nonetheless HM Treasury analysis implies modellable cuts to public services are regressive • Method of estimating usage is unclear at this stage (“black box”) • Analysis is (necessarily?) incomplete so precludes conclusive statement on precise level of progressivity of entire fiscal consolidation

  10. Who loses more from public service cuts? Cormac O’Dea

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