Widely trailed to be a ‘quiet Budget’, the chancellor’s speech today nevertheless gave a clear idea of his approach to the uncertain economic environment. Having benefited from an unexpected £12bn underspend in the government finances, Mr Hammond chose to bank the vast majority of the windfall in anticipation of leaving the EU.
With so many pressures on government spending, his decision to not spend more is significant. This was very much a Budget about what the chancellor chose not to spend on – and where additional money was committed, it was funded from tax rises elsewhere.
While the chancellor projected a vision of strength for the UK economy, the overall context for charities remains one of austerity well into the next parliament, with a further £3.5bn of departmental cuts due to be announced later in the year. There remain serious long term challenges around health and social care, local authority funding, pensions and wage growth that may begin to be addressed through the many consultations announced today.
Triage for care
Following intense pressure in recent months, the chancellor announced a further £2bn for social care over three years. While significant, it’s less than the £1.5bn the cross-party Communities and Local Government Committee recently found was needed this year alone, with the annual funding gap expected to reach £2.6bn by 2020 according to the LGA.
Beyond being welcome news for care providers, today’s announcement should provide limited respite from the pressure that social care funding obligations have been placing on local authority budgets, and the knock on effects that limited care provision has had on NHS spending. Wider local services and commissioners will be under slightly less financial pressure than previously expected, but will likely still be reducing spending.
Just as significantly, the chancellor also announced a much called-for review of social care funding in the form of a green paper later this year – it will be important that charities make their voices heard in the consultation process. He also announced additional capital funding would be made available in the autumn budget for the NHS Sustainability and Transformation Plans currently in development.
In broader economic terms, the social care review will be welcomed. Without significant reforms, the OBR expects healthcare will take up an increasingly large share of the amount the government spends, and the solution is likely to be more complex than addressing demographic change.
Another spending decision the chancellor revisited was the ongoing business rates revaluation, which has sought to redistribute the balance of rates due across the country. London businesses and those in other wealthy areas are set to see particularly sharp rises in their rates bills, while other areas have seen their bills fall. Charities have been largely protected from the brunt of these revaluations by the availability of 80% mandatory relief, which the government recently reaffirmed would not be changed (PDF at para 87, 650KB) – but the voluntary sector’s overall rates bill is still expected to rise as charities are predominantly based in more valuable areas.
Today’s announcement provided a further £300m of transitional relief, which will be allocated to local authorities according to a DCLG formula, and distributed by them according to their priorities. Charities that expect to see large rate rises may wish to approach their local authorities to discuss their circumstances ahead of the money becoming available.
Mr Hammond announced a rise in national insurance contributions for the self-employed closer to the level of those in employment, rising to 11% by 2019. The move is significant because almost half of employment growth since 2008 has been self-employment.
While the chancellor stated that those earning under £16,000 would still see a fall in their NIC contributions, the tax rise forms part of a wider context of higher costs for households over the coming year. The unexpected strong performance of the economy since the referendum has largely been driven by consumer spending, which is now set to trail off as the effects of the weak pound kick in and make inflation jump to 2.5% this year, according to the OBR.
As well as leading to lower wage growth, high inflation is expected to impact particularly heavily on those receiving benefits, which were frozen in 2015, meaning low income households will find their benefits worth progressively less over the coming years. Inflation will not rise as high as previously forecast, but is now expected to stay high well into 2019.
Building the partnership with government
As ever, there was little direct focus on charities in the Budget, with the chancellor only highlighting the additional £12m raised by the tampon tax for women’s charities. Ahead of the Budget, NCVO called for the government to build a stronger partnership with the voluntary sector. In a relatively light Budget so closely focused on long term productivity, it is possibly a step forward that it was not peppered with a smattering of short term funding pots for the sector – a more strategic approach to funding is needed. The failure of further taxes to materialise that might have affected the sector, such as another rise in insurance premium tax is also to be welcomed.
This was in fact only the first of two Budgets due this year, as the chancellor is switching around the usual cadence of fiscal events to instead hold an autumn Budget (covering tax) and a spring statement (covering spending). We can expect the chancellor to take a more active approach in November’s Budget, once the impact of the UK’s impending departure from the EU starts to become clearer.
For a more in-depth overview of the economic picture over 2017, along with analysis of political, social and technological trends, our Road Ahead report is available to members for free.