Reflections on the Autumn Statement

There’s always more to the autumn statement than the numbers that the chancellor chooses to dwell on. After a week of reflecting on the statement, the OBR’s forecasts, and the myriad economic analyses, it seems like a good moment to follow up on the questions we posed regarding the new direction of travel the government and the UK’s main independent forecasters have indicated.

Austerity is dead, long live austerity

Our autumn statement highlights blog already emphasised that austerity is not by any means over, but it’s worth taking a closer look at the detail. If anything, the chancellor confirmed the extension of austerity well into the next decade. Departmental spending per person will continue to fall, with a particularly sharp drop in 2019/20. While the trajectory will be slightly slower than set out in March, it’s now confirmed to go on falling in real terms in 2021/22. The fact the chancellor didn’t abandon the fiscal surplus target entirely, but instead pushed it back into the next parliament has led the IFS to anticipate that an ‘additional dollop’ of austerity will be necessary after 2020 (PDF, 300KB).

RDEL

Source: OBR

So almost all key commissioners for the voluntary sector are still expected to see real-terms falls in their spending. Health commissioners may be the notable exception to this, but they will also be experiencing the greatest upward pressure on account of the greater demand from an ageing population, with social care and the NHS receiving no further funding in the autumn statement.

This pressure will be felt particularly keenly at a local level, with changes to the business rates system likely to leave a large number of county councils worse off, and the Better Care Fund not due until the end of the decade. Even under current conditions, local authorities are reporting financial difficulty and failure among care providers (PDF, 1MB), as they struggle to make contract delivery viable.

The recently trailed public services reforms being developed by OCS will need to be meaningful and fast-acting if they are to improve the ability of charities to bid for and deliver public services in this environment.

No change is bad news

Much of the autumn statement coverage has rightly focused on the lower growth forecast, but there’s another important story in the OBR’s figures – we’re likely to have at least another parliament with no real wage growth.

The economic recovery over the last seven years has been notable for low level of wage growth compared the periods following other recessions. Following the referendum, that trend now looks set to continue into the 2020s, or even worsen in some cases – the poorest third of households will be worse off in five years than they are today.

Income growth

Source: Resolution Foundation

Real average earnings will grow only 5% between now and 2021 (3.7% lower than forecast in March) due to both to lower than expected earnings and the reduced spending power caused by inflation. The jump in inflation due to start early next year also means the cash-terms freeze for benefits will lower claimants’ spending power even further than previously forecast. In short, the outlook for living standards over the next five years is one of stagnation at best, rather than steady progress.

The impact of this trend will be felt by the voluntary sector beyond its direct bearing on low income households. Real household disposable income is forecast to grow just 0.1% in 2017, and stay well below its current levels for the rest of the decade. Charities thinking about how they want to engage their volunteer and donor bases over the next five years will need to understand the context their supporters will be living in – which for many will be one of no real year-on-year improvement in their finances for the foreseeable future.

The biggest consequences of Brexit have yet to be felt

While the pound’s fall pound since May has been dramatic, the true impact of the decision to leave Europe has yet to be felt in the economy. Across all of the OBR’s forecasts, the largest effects only begin to develop fully over 2017.

The uncertainty surrounding the consequences is such that two of our most significant independent forecasters – the OBR and the Bank of England – are disagreeing on the details of what will happen. The OBR’s forecasts for GDP growth (referred to throughout this blog) are around 20% more optimistic compared to the Bank of England, who also think inflation will be higher for longer.

The outlook is so dependent upon the manifold terms on which the UK could leave the EU that such a difference is understandable – and not materially significant in terms of the broader understanding charities will want to have about their economic environment. The economic challenges that charities and those they support have faced over the last five years will in many ways continue to be those of the next five.

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Michael Birtwistle Michael is our senior policy officer, covering issues around charity tax and finance (including social investment) and the impact of the economy on the sector.

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