Box sets » Fiscal risks report
Fiscal risks report - July 2019
Between our 2017 FRR and our 2019 FRR the Government undertook a number of initiatives to deepen its risk management. This box summarised these changes.
Monthly output data and the PMIs weakened in the second quarter of 2019, leading some commentators to suggest GDP would fall. This box considered what was behind the weaker data and whether it would persist into the third quarter, leading to a technical recession.
In June 2019 the BBC announced its decision to begin means-testing eligibility for Free TV licences for those aged 75 and over, based on households containing someone aged 75 or over and also claiming pension credit. This box explores the impact the BBC’s policy could have on pension credit take-up and welfare spending.
In recent years, local authorities have increased their 'prudential' borrowing to take advantage of the low interest rates offered by the Public Loans Work Board. In this box we discussed the example of Spelthorne Borough Council, looking at some of its riskier investments in commercial property and how those may pose a risk to the public finances in the event of an economic downturn.
Where the Government uses off-balance sheet financing to deliver public services this results in a 'fiscal illusion', where the recorded measures of debt and deficit do not reflect economic reality. In this box we looked at the case of housing associations (HAs). These came onto the balance sheet after the Government was given significant controls over them. The Government then legislated just enough to move HAs off-balance sheet. Neither movement made any fundamental change to fiscal sustainability.
The accounting treatment for student loans changed dramatically in 2019 adding more than £10 billion to the deficit. This box summarised the history of this change and a review into the design of post-18 education financing.
By issuing gilts linked to the Retail Prices Index (RPI) the Government exposes itself to inflation risks on interest payments. In this box, we looked at how changes to the formula for calculating RPI would affect our forecast.
The 2008 Climate Change Act requires the Government to assess the risks from climate change every five years. In this box, we looked at the most recent assessment published in 2017 and linked the six priority risk areas to how they are fiscal risks.
In 2016, the Office of Management and Budget and President Obama’s Council of Economic Advisors produced a preliminary assessment of some of the fiscal risks associated with climate change. In this box, we describe the estimated potential costs of these fiscal risks, which could affect both expenditure and revenue.
In April 2019, the Network for Greening the Financial System (NGFS) issued a ‘call for action’ that sets out the next steps for assessing climate-related risks to financial stability. In this box, we looked at the scenario framework used by the NGFS, and the Green Finance Strategy – in which the UK Government set out how it will ensure the management of climate-related financial risks.
In the event of a 'no-deal' Brexit, the UK would be able to apply its own external tariff to goods imported. In this box, we explored the impacts of customs duties on borrowing, what a preliminary estimate of potential revenues would be and what else we would need to consider if this were to be our central forecast.
Fiscal risks report - July 2017
When discussing the potential impact of fiscal risks on the public sector balance sheet in our 2017 Fiscal risks report, we focused on the Government’s target measure of public sector net debt and its broader, but less-well-known counterpart, public sector net financial liabilities. In this box we considered some of the pros and cons of three even broader measures of the public sector balance sheet.
Our 2017 Fiscal risks report noted the historical and international evidence that financial crises have been a major source of risk to the public finances. Since the crisis of the late 2000s, the UK Government has reformed its regulation of the financial system. In this box we outlined key elements of those reforms, which aim to ensure that should a bank fail it can be managed in a way that protects the wider economy and financial system.
In each Budget or Autumn Statement, there are typically lots of policy giveaways (tax cuts or spending rises) and takeaways (tax rises or spending cuts). The net effect of these will be to raise or reduce borrowing in specific years and on average over the five years of the forecast – in other words to loosen or tighten fiscal policy. In this box from our 2017 Fiscal risks report we considered the pattern of those policy changes since 2010, noting that near-term giveaways are often financed by the promise of medium-term takeaways.