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Institute for Fiscal Studies faces ‘difficult’ future

ESRC criticised for cuts to influential centres of scrutiny

Cuts to research centres including the Institute for Fiscal Studies will lead to fewer independent economic analyses, which could have a major impact on public and political debate, senior economists have warned.

The budget for the institute’s flagship Centre for Microeconomic Analysis of Public Policy (CPP) is to be £6.9 million for the next five years, down from £7.6m for 2010-15. Paul Johnson, the director of the IFS, confirmed to Research Fortnight that the centre will receive about 15 per cent less than it requested.

The decision was announced by the Economic and Social Research Council on 26 March. The Centre for Economic Performance at the London School of Economics and Political Science will also have its funding cut, from £6.5m in 2010-15 to £5.5m for the next five years—a decrease of 15 per cent, and 30 per cent less than it requested. The CEP’s director John Van Reenen says he hopes to bridge the gap with money from research foundations.

Both centres are relied on by politicians, officials and journalists. But according to Johnson, the IFS’s research director Richard Blundell has told the ESRC that he may now have to cancel proposed work on top-income distribution, earnings and tax shelters, tax competition, and credit and insurance markets. “It will be difficult,” says Johnson. “We have nothing in the bank and our rent is rising quite steeply. We will end up inevitably having to do less than we would have done.”

A spokesman for the IFS, which is based in Central London, says that core funding for the CPP is “essentially the same” in cash terms because the 2010-15 grant included money for work on Scottish independence that has now been discontinued. But in real terms, the centre could be looking at a cut of 6 per cent.

The IFS website says that the microeconomics centre is fundamental to the institute’s success, allowing it to carry out long-term, independent research that underpins its broader economic analyses. Among other things, the centre’s work covers the tax system, consumer choices and public finances.

Although the IFS raises funds from other sources, Johnson says, “There’s a limit to the extent to which it can do that because it’s really only the ESRC money that gives it the time and space to turn things into academic articles.”

Just over half of the institute’s funding comes from the ESRC. Other sources include charities and the European Union, as well as government departments, which have provided a diminishing share of the institute’s funding over recent years: from 2009 to 2013, it fell by almost half.

Jonathan Portes, the director of the National Institute of Economic and Social Research, says the IFS centre is an important contributor to political debate: it recently debunked a Conservative claim that Labour’s spending plans for the next government would leave the average British household £3,000 worse off. “It was important that the IFS came out clearly and said it had no basis in fact and that no-one should take it seriously,” he told Research Fortnight.

The Academy of Social Sciences has described the drop in funding as “dismaying”, especially at election time when the IFS is “worth its weight in gold”. David Walker, the academy’s head of policy, says: “In our advocacy of the social sciences we cite the example of the IFS all the time. So does the ESRC itself.”

Walker says the ESRC should increase support for the IFS or at least keep its funding the same in real terms. Others go further. Economist Diane Coyle, a former Treasury insider and one-time economics editor of The Independent, suggests that it could be given permanent core funding. “The idea that there would be no research funding for the IFS at some stage is unthinkable,” she says.

A spokesman for the ESRC, which launched three centres—for higher education, sustainable prosperity and big data—when it announced the cuts, says that centres compete for funding in open competition and that the review panels applied competition rules to the CPP and CEP bids.

This article also appeared in Research Fortnight. Telephone 020 7216 6500 or email Adam.Smith@ResearchResearch.com or James.Field@ResearchResearch.com for more information