How would you deal with the deficit ?

On the 8th July, George Osborne will deliver the Summer Budget – the first Budget from a Conservative government for almost 19 years.
While the Chancellor puts his Budget together, what would you do if you held the purse-strings ? What decisions would you make on how much to tax, how much to spend, and therefore how much to borrow over the next few years ? This interactive tool allows you to act as Chancellor, set your own Budget and see the consequences of your choices.

Disclaimer: Please note that the figures generated by this simple online form may not match those in IFS analysis, since the latter uses unrounded numbers and may make more sophisticated assumptions about the profile of fiscal choices between 2015-16 and 2019-20.

The headline figures

Your first task as Chancellor is to decide how much you want to borrow in future. The advantage of lower borrowing is that the national debt will fall more quickly and future debt interest costs will be lower. But lower borrowing requires higher taxes or lower public spending. Look at the implications for public spending of different levels of future borrowing and future taxes.

What level of borrowing Borrowing is the difference between government spending and receipts, while the “current budget” is the difference between non-investment spending and receipts. The 2014 Autumn Statement forecast a surplus (i.e. negative borrowing) in 2019–20 of just over 1.0% of national income.
The Conservatives' proposed fiscal rule requires them to run a surplus. Labour’s proposed fiscal rule requires a current budget surplus (e.g. if investment is 1.2% of national income then borrowing must be less than 1.2% of national income). The Liberal Democrats’ proposed fiscal rule requires a current budget surplus after adjusting for the economic cycle.
do you want to aim for in 2019-20 ?

Note: Assumes 1.4% GDP investment spending

Do you want to cut or raise taxes For more detail on the options for raising taxes see Chapter 10 of the IFS Green Budget 2015. ?

To give a sense of scale, a 1 percentage point increase in all rates of income tax would raise around £5.5 billion, while a 1 percentage point increase in the standard rate of VAT would raise around £5.2 billion.

Public spending would amount to Q% of national income, while tax revenues would amount to Y% of national income; borrowing would therefore amount to W% of national income as you planned. This compares to the coalition government plans for 2019-20 from the 2015 Budget of spending equalling 36.0% of national income, tax revenues amounting to 36.3% of national income, and borrowing therefore being -0.3% of national income.

Note: Figures for 2016-17, 2017-18 and 2018-19 assume that borrowing will be as forecast by the 2014 Budget plus 1/4, 1/2 and 3/4 (respectively) of the difference between your plans for 2019-20 and the Budget forecast for that year.

Implications for public spending

Your plans imply that total public spending would increase by X.X% in real terms between 2015–16 and 2019–20. That’s equivalent to £X billion in today’s prices.

However, only half of public spending is allocated to departments for spending on public services (a further 30% goes on social security – that is benefits, tax credits and state pensions – and 6% on debt interest spending). The latest forecast from the Office for Budget Responsibility is that non-departmental spending will increase by 6.4% between 2015–16 and 2019–20 in the absence of any policy changes.

In the absence of any changes to social security spending, your plans for borrowing and tax would imply that departmental spending would be cut by X% in real terms between 2015–16 and 2019–20 (equivalent to £Y billion in today’s prices).

To explore the implications of cutting or increasing social security spending on overall departmental spending, and to see what impact protecting some areas of spending has on other services, click here.

If you have any feedback on this budget calculator please contact us.