Budget 2013: Foregone conclusions?

On Wednesday, the Chancellor will return to the House of Commons to deliver his fourth Budget. NCVO will be live tweeting using hastag #volsecbudget

You could be forgiven for thinking that it’s a foregone conclusion. As PwC’s Chief Economist has put it: ‘the Chancellor has made his bed and probably has to lie in it’. Pretty much all the experts agree. The Chancellor will press ahead with austerity economics, despite recent warnings from the OBR that austerity measures are limiting growth.

But is all of this inevitable? And what will the Chancellor’s big choices mean for charities?

The economic debate

Aiming to balance the country’s books, the Chancellor has embarked on large cuts – particularly to capital investment, public sector jobs and welfare spending. His justification sounds intuitive: the country cannot continue to spend more than it earns. Yet, critics say these type of cuts are leading to job losses and to businesses and households spending less money.

As a result, Government borrowing is actually rising. Because without jobs, more people draw on benefits. And without people spending and businesses growing, tax receipts fall.  All the more reason then, that some politicians and pundits say Government needs to cut further and faster.

But the Opposition and many other commentators argue that there are good types of borrowing and bad types of borrowing. They claim that what’s currently happening is bad borrowing and what needs to happen is more good borrowing – to finance new investment in jobs and infrastructure, and to ease financial pressures on households. This is essentially the ‘borrow more – to borrow less’ position.

There are different ‘stimulus’ options that the Chancellor could consider:

–  Monetary policy and expansion of ‘Funding for Lending’ scheme could push banks to lend more. This is generally considered to be helpful, but takes time to have an effect and may not lead to new jobs in the short-term.

– New capital expenditure on infrastructure such as roads and railways. This would give a boost to key sectors of the economy and have direct impact on jobs. Signs are that the Treasury is keen to adopt many of Lord Heseltine’s proposals around regional investment.

– Cutting business taxes and red tape, so that businesses are encouraged to invest and create more jobs. For example, by reducing National Insurance contributions.

– Putting money in people’s pockets. Economically, increasing benefits and/or incomes of low paid workers is one of the fastest ways to increase demand in the ‘real economy’. Politically, there may be limited room for manoeuvre given the Government’s commitment to welfare reform. But increasing the personal tax allowance or encouraging employers to pay a living wage could achieve similar objectives.

The Chancellor’s choices

What the Chancellor decides on these big economic questions will matter for charities, as it matters for everyone.

Cuts will continue to affect the sector – directly and indirectly. Any changes to welfare cuts in the Budget – details, pace, scale – would be noteworthy.

We will also find out about the overall envelope for the 2015-16 spending review. If certain departments are protected, others will likely experience deeper cuts – so we’ll be listening out for the details.

While inflation remains above target, charities’ financial difficulties are compounded by increasing costs. A related issue is the erosion of asset values – particularly significant for charitable foundations.

Certain stimulus measures could potentially benefit the sector and our beneficiaries – but most commentators think the Chancellor is more likely to consolidate his position than change it.

And finally, while we’re not expecting charities to feature heavily, we’re hopeful that the Budget will include specific measures supporting social investment and digital giving, that we’ve campaigned for.

All in all, after last year’s charity tax debacle, it seems likely that this Budget will be more predictable. What may end up being the most interesting talking points are the opportunities foregone to do something different.

See also: What Next for the Economy? – my blog following a recent IFS seminar

NCVO Policy Team’s blog

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Charlotte Ravenscroft was NCVO’s head of policy and public services. Charlotte’s wrote about funding, public service delivery, and strengthening the evidence base for voluntary action. She has also worked at The National Lottery Community Fund and the Department for Education.

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