Supporting fiscal policy decisions in the crisis
Lead Research Organisation:
Institute for Fiscal Studies
Department Name: IFS Research Team
Abstract
We are going through an economic crisis. The government has responded with an unprecedented policy package, costing many tens of billions of pounds over just a few months - paying for employees to be furloughed, making payments to the self-employed, forgiving business rates, increasing public service spending and making the benefit system much more generous.
Over the coming year, the government will have to decide whether to do more to insure households' incomes and prevent business failure, whether to use fiscal policy to kickstart the economy as the health crisis subsides and, ultimately, how to unwind these measures or whether to make some of them permanent. To guide these momentous decisions we propose targeted new analysis of new data sources, including a soon-to-be-available covid-19 module in a large-scale longitudinal household survey and real-time bank account data from a budgeting app. Combined with IFS' world-leading expertise on tax and benefit policy design and unrivalled familiarity with the institutional and policy context around the UK's labour market, taxes and benefits and the public finances, will inform how fiscal policies should be adjusted in the coming 12 months.
We are having regular discussions and seminars with civil servants and policy advisors at the top of government through this crisis. The new work proposed here would feed in to this engagement directly, allowing us to help policy-makers take difficult decisions in this highly unusual and fast-moving economic environment, including through taking advantage of novel and timely data sources to produce the best possible empirical evidence.
Over the coming year, the government will have to decide whether to do more to insure households' incomes and prevent business failure, whether to use fiscal policy to kickstart the economy as the health crisis subsides and, ultimately, how to unwind these measures or whether to make some of them permanent. To guide these momentous decisions we propose targeted new analysis of new data sources, including a soon-to-be-available covid-19 module in a large-scale longitudinal household survey and real-time bank account data from a budgeting app. Combined with IFS' world-leading expertise on tax and benefit policy design and unrivalled familiarity with the institutional and policy context around the UK's labour market, taxes and benefits and the public finances, will inform how fiscal policies should be adjusted in the coming 12 months.
We are having regular discussions and seminars with civil servants and policy advisors at the top of government through this crisis. The new work proposed here would feed in to this engagement directly, allowing us to help policy-makers take difficult decisions in this highly unusual and fast-moving economic environment, including through taking advantage of novel and timely data sources to produce the best possible empirical evidence.
Publications
Bourquin P
(2020)
IFS Green Budget 2020
Isaac Delestre
(2020)
Income protection policy during COVID-19: evidence from bank account data
Alex Davenport
(2020)
Spending and saving during the COVID-19 crisis: evidence from bank account data
| Description | One of the biggest issues arising from Covid was how the government could support people and businesses while the economy was effectively partially closed. As part of this project, we undertook a large amount of analysis to inform the government's decisions as they implemented, extended and then withdrew temporary support. We analysed the Coronavirus Job Retention Scheme (the 'furlough' scheme), including its extension. For example, we wrote a piece discussing the trade-offs involved in extending the scheme, importantly including how it could support those who returned to work but still on reduced hours. Our key findings included: Extending the CJRS to those returning to short-time encouraged employers to bring people back to work and supported the incomes of those employees who moved back to short-time work. But, restricting support to those who were previously furloughed meant that those who are already working reduced hours continued to miss out on support. We analysed the Self Employment Income Support Scheme, including by laying out which types of people were most likely to be affected when the scheme ended, and what other forms of support were available through the benefit system. For example, one of our key findings was: the financial eligibility criteria for the grant excluded many self-employed workers. We estimated that 18% of those for whom self-employment makes up at least half their income were ineligible for SEISS, while 38% of those with any self-employment income are ineligible. Among those who did not claim SEISS, survey evidence indicated that two-thirds saw a decline in income, and about a sixth were not working at all. We conducted and published new analysis on benefit spending, including on the temporary increases in the generosity of the working age benefit system and on the triple-lock indexation of the state pension. In both cases we laid out the effects on individuals and the policy options faced by government. We wrote a report considering the possible role of a temporary VAT cut. In short, our finding was that, while the economy was not expected to bounce back on its own, and a VAT could stimulate spending, the success of such measures in the past did not necessarily make it an appropriate tool for the covid crisis and (relative to when we were writing), cutting at a later date may be advisable. Alongside the analysis of specific policy design, we published two reports that made use of novel real time bank account data to study people's income and spending. One examined the path of financial outcomes observed for those receiving one (or more) of the three key elements of income protection provided through the crisis: the Coronavirus Job Retention Scheme, the Self-Employed Income Support Scheme and Universal Credit. Key findings included: Different forms of income protection played very different roles. On average, new claimants of UC saw a fall in net income of about 40% during the crisis (even including UC itself). For households with a furloughed employee (whose employers did not voluntarily top up the government's support to maintain full pay), this figure was 13%. And for the self-employed receiving the SEISS grant, it was just 4% on average. The second report laid out trends in household spending through the crisis and how these vary across the income distribution and by the prevalence of COVID-19 cases in the local area. Key findings included: spending stalled at around 90% of the level we would have expected in the absence of the pandemic and 'forced saving' - declines in spending on goods and services that were substantially affected or shut down by lockdown - was significant across the income distribution, but greater for higher-income households. We laid out possible scenarios for the overall economy and what they would mean for the public finances. We concluded that "It is clear that the COVID-19 outbreak - and the public health response to it - will dramatically reduce economic activity in the second quarter of 2020. This in turn will depress tax receipts and add to government spending, increasing government borrowing and in turn adding to government debt. The package that, appropriately, the government has announced to help support public services, households and employers will also have the direct impact of increasing borrowing. A key issue is how quickly - and how fully - the economy, and with it the public finances, recover over subsequent years." |
| Exploitation Route | As well as providing evidence that was directly relevant for analysing policy options in the Covid crisis, the analysis we produced provides an evidence base that can also be drawn on in future crisis and in preparation for such events. For example, we highlighted how the type of information that HMRC has about self-employed people limits the kind of income-based support they can offer. |
| Sectors | Government, Democracy and Justice |
| Description | Our project has produced a large number of outputs with new findings that we have in turn used to inform policy makers and public understanding As well as the many written publications, we have spent significant time giving advice on economic policy - based on our analysis and expertise and including on both how to set up policies initially and how to unwind them - directly to policy makers and with a view to improving policy decisions. Meetings have been with senior civil servants in HMT and HMRC, senior staff at the OBR and officials from No 10 and the Cabinet Office. All of our work has been released to the press and received significant pick up. To give one example: for our publication 'Who is excluded from the government's Self Employment Income Support Scheme and what could the government do about it?', we worked closely with the BBC and examined some of the groups of self-employed who have not been covered by the Self Employment Income Support Scheme and what the fiscal cost would be of some possible ways of extending support to them. This analysis was picked up widely. Interviews were given to Times Radio, Today programme and BBC Radio Scotland and the story was on all morning on Radio 4 radio bulletins. The BBC featured our analysis along with their own case studies on their website - this was the third most read piece that morning on the BBC website and gained wide traction on twitter. BBC Breakfast did a whole package on the analysis, ensuring that it reached wide audiences. The Independent and Bloomberg also covered the story. Our release prompted a question at PMQs by two MPs and was picked up by others, such as Dan Jarvis MP, on facebook. We have also used the IFS podcast (set up during the covid crisis) to disseminate our findings to a broad audience and therefore promote a more informed public debate |
| First Year Of Impact | 2020 |
| Sector | Government, Democracy and Justice |
| Impact Types | Societal,Economic,Policy & public services |
| Description | 1.5 million currently excluded from claiming SEISS could easily be supported by government at modest cost |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | IFS Press release |
| Year(s) Of Engagement Activity | 2021 |
| Description | A temporary VAT cut could help stimulate the economy, but only if timed correctly |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | IFS press release |
| Year(s) Of Engagement Activity | 2020 |
| Description | BBC Northern Ireland Radio- Business interview on Budget and furlough - Jonathan Cribb |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | IFS interview by Jonathan Cribb |
| Year(s) Of Engagement Activity | 2021 |
| Description | BBC Scotland News interview on Budget + Self employed support by Jonathan Cribb |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | IFS interview by Jonathan Cribb |
| Year(s) Of Engagement Activity | 2021 |
| Description | COVID-19 will bring forward the date when the pensions triple lock is unpicked |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | IFS Observation on Covid-19's impact on pensions. (Emmerson C.) |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/publications/15132 |
| Description | Comment piece on job retention scheme extensions after the pandemic |
| Form Of Engagement Activity | Engagement focused website, blog or social media channel |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Comment piece by Stuart Adam on IFS website entitled 'Extending the Coronavirus Job Retention Scheme: trade-offs and balancing acts'. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/publications/14847 |
| Description | Comment piece on pensions triple lock and Covid-19 |
| Form Of Engagement Activity | Engagement focused website, blog or social media channel |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Comment piece on IFS website by Carl Emmerson entitled "COVID-19 will bring forward the date when the pensions triple lock is unpicked". |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/publications/15132 |
| Description | Comment piece: A shock to come at the end of furlough? |
| Form Of Engagement Activity | Engagement focused website, blog or social media channel |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | A comment piece by Jonathan Cribb and Tom Waters published on the IFS website |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://ifs.org.uk/publications/15501 |
| Description | Comment piece: What kind of government support might replace the UK's job furlough scheme? |
| Form Of Engagement Activity | Engagement focused website, blog or social media channel |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Comment piece by Jonathan Cribb and Tom Waters on the Economics Observatory website, aimed at bringing the findings of economic research to a wide public and to policymakers. |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://www.economicsobservatory.com/what-kind-of-government-support-might-replace-the-uks-job-furlo... |
| Description | Extending the Coronavirus Job Retention Scheme: trade-offs and balancing acts |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | IFS Observation on the Coronavirus Job Retention Scheme. (Adam S.) |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/publications/14847 |
| Description | Jonathan Cribb interview on self employed support - BBC Radio 5 Live - Drive time |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | IFS interview by Jonathan Cribb- BBC Radio 5 Live |
| Year(s) Of Engagement Activity | 2021 |
| Description | Jonathan Cribb interview on self employed support for BBC Radio Scotland |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | IFS interview by Jonathan Cribb- BBC Radio Scotland |
| Year(s) Of Engagement Activity | 2021 |
| Description | Jonathan Cribb interview on self employed support for Times Radio |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | IFS interview by Jonathan Cribb- Times Radio |
| Year(s) Of Engagement Activity | 2021 |
| Description | Jonathan Cribb interview on self employment support - Daily Mail podcast |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | IFS Interview by Jonathan Cribb- Daily Mail podcast |
| Year(s) Of Engagement Activity | 2021 |
| Description | Look to the Budget to secure the recovery, not to fix the public finances |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | IFS press release |
| Year(s) Of Engagement Activity | 2021 |
| Description | Podcast | Universal Credit: The future of benefits? |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Podcast: IFS Zooms In Universal Credit is a benefit for working-age people, which combines six existing benefits payments into one payment. Launched in 2013, there are now about 5 million households claiming Universal Credit in the UK. What was the thinking behind this new policy? Has it been successful? And how has COVID affected the trajectory of Universal Credit? This week, Paul speaks with Charlotte Pickles, Director of Reform and a member of the Social Security Advisory Committee, and Tom Waters, Senior Research Economist at IFS and expert on benefits. |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://ifs.org.uk/podcast/universal-credit-the-future-of-benefits |
| Description | Podcast: Budget 2021: the road to recovery? |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Podcast: IFS Zooms In The Spring 2021 Budget will be the first one since the UK entered a series of lockdowns and Great Britain left the EU's Single Market and Customs Union. The Chancellor has immediate decisions to make over many aspects of the emergency support packages that will otherwise expire soon. In addition there is a clear need for policies to help the economy to recover and to adjust to a post-Covid, post-Brexit world in which we are moving towards Net Zero. In this episode, Paul speaks with IFS Deputy Directors, Carl Emmerson and Helen Miller to explore the kinds of things the Chancellor should be thinking about. |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://ifs.org.uk/podcast/budget-2021-the-road-to-recovery |
| Description | Podcast: Has COVID transformed the labour market? |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Podcast: IFS Zooms In Since the start of the COVID pandemic, the government has stepped in to pay the wages of millions of workers through the furlough scheme. As restrictions ease, and economic life begins to recover, we ask what changes COVID brought to the labour market, and what jobs could look like in future. This week, we speak with Sarah O'Connor, Employment Columnist at the Financial Times, and Jonathan Cribb, a Senior Research Economist at IFS who studies the labour market. |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://ifs.org.uk/podcast/has-COVID-transformed-the-labour-market |
| Description | Podcast: Have the Chancellor's policies been stimulating enough? |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Podcast: IFS Zooms In In July's Summer Economic Update, the Chancellor announced another significant spending package. In normal times, even in times of recession, this package would have been seen as huge. But, of course, these are not normal times and this is no normal recession. Joining us this week to discuss the spending package is Helen Miller, Deputy Director at the IFS and Chris Giles, Economics Editor at the Financial Times. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/podcast/have-the-chancellors-policies-been-stimulating-enough |
| Description | Podcast: Taxing times ahead? When and how to raise taxes |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | The coronavirus pandemic has brought new and severe pressures on the UK economy. The challenge now facing Her Majesty's Treasury will be how to balance the need for increasing revenues through taxes with stimulating much-needed economic growth. This week, our host and IFS Director Paul Johnson speaks to Helen Miller, Deputy Director of the IFS and expert on tax policy, to discuss how the Treasury might raise revenues in the future and how our current tax system can be reformed. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/podcast/taxing-times-ahead-when-and-how-to-raise-taxes |
| Description | Podcast: The long shadow of COVID-19 on the economy and the public finances |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Podcast: IFS Zoom In We found out that the UK came close to insolvency in March as a result of the turmoil caused by the coronavirus pandemic. Thankfully, the country managed to avoid that. Nevertheless, the COVID-19 pandemic has resulted in unprecedented damage to the UK economy. In this episode, we speak with Benjamin Nabarro, a senior economist at Citi Group and IFS Deputy Director, Carl Emmerson. We ask what the forecast is for the economy, how Brexit will impact that forecast, how the government can help the economy recover and what the long-term effects of this crisis might be. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/podcast/the-long-shadow-of-covid-19-on-economy-and-public-finances |
| Description | Podcast: What's happened to benefits through the pandemic? |
| Form Of Engagement Activity | A broadcast e.g. TV/radio/film/podcast (other than news/press) |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | Podcast: IFS Zooms in. There has been significant analysis of the furlough scheme in the wake of COVID-19, but far less attention has been paid to the welfare system and how benefits are being affected by the pandemic. The temporary increases to working age benefits implemented this year take total welfare spending to record levels, though the UK's support system is still thin by international standards. This episode, we speak to Robert Joyce, IFS Deputy Director and Head of our Income, Work and Welfare sector, about how COVID-19 has impacted the UK's welfare system and what might happen to benefits in future. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/podcast/whats-happened-to-benefits-through-the-pandemic |
| Description | Presentation about Covid-19 and fiscal strategy |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | Covid-19 - and the public health response to it - has pushed government borrowing to levels not seen previously in the UK in peacetime and will leave a lasting impression on the public finances for many years to come. In this special joint webinar, the Institute for Fiscal Studies (IFS) and the National Institute of Economic and Social Research (NIESR) examined the impact of the Covid-19 crisis on the public finances. Deputy Director of NIESR, Dr Garry Young, outlined some of the possible macroeconomic scenarios. IFS Deputy Director, Carl Emmerson discussed the government's response and the impact on the public finances. Director of NIESR, Professor Jagjit Chadha looked at measures of how much fiscal space there is and risks associated with elevated debt and deficits. |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/publications/14913 |
| Description | Presentation at briefing about support for households in the pandemic |
| Form Of Engagement Activity | Participation in an activity, workshop or similar |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Media (as a channel to the public) |
| Results and Impact | Presentation by Jonathan Cribb at an online briefing about the future of pandemic support for households. |
| Year(s) Of Engagement Activity | 2021 |
| URL | https://ifs.org.uk/publications/15308 |
| Description | Self-employment income support and the second national lockdown |
| Form Of Engagement Activity | A talk or presentation |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Policymakers/politicians |
| Results and Impact | IFS Observation on the second national lockdown's effects on self-employment. (Waters T.) |
| Year(s) Of Engagement Activity | 2020 |
| URL | https://ifs.org.uk/publications/15157 |
| Description | Tough choices ahead as spending on working-age benefits set to hit record levels |
| Form Of Engagement Activity | A press release, press conference or response to a media enquiry/interview |
| Part Of Official Scheme? | No |
| Geographic Reach | National |
| Primary Audience | Public/other audiences |
| Results and Impact | IFS press release |
| Year(s) Of Engagement Activity | 2020 |