Planning for revisions to UK government expenditure plans

While fiscal policy should respond to market failures, it also has a role in offsetting economic shocks and reducing the overall level of economic uncertainty. Building on a Nuffield Foundation-funded pilot study, this project will explore how the UK government should respond to evolving demands on its expenditure plans.

Changes in our knowledge of the state of the economy induce significant shifts in the path of public spending and force governments to make choices about functional expenditures that may or may not match social needs.

NIESR’s economic model provides real-life data, which will be used to evaluate how successive government expenditure plans responded to changes in the real economy, and why. The statistical analysis will be cross-checked by conducting in-depth, structured interviews with key decision-makers.

The research will demonstrate that knowledge of the current and future state of the economy is subject to significant revisions over time. It will explore how Departmental Expenditure Limits (DEL) and Annually Managed Expenditure (AME) plans change over time and examine why. It will also construct a measure of the risk for any given government expenditure plans and examine how expenditure changes could be viewed as warranted or unwarranted. A model will be developed that motivates fiscal stabilisation policy in the presence of economic and control uncertainty.