Spring statement 2019 – a placeholder while the Brexit saga unfolds

It’s perhaps a sign of our times that a spring statement becomes a mere footnote to other political activity of the day. What would normally be considered primetime parliamentary business was today largely relegated to mood music to one of the biggest political decisions to confront MPs for a generation.

It’s a turbulent time for UK politics. Yesterday, Theresa May’s Brexit deal was roundly defeated in parliament, meaning attention today has turned to a subsequent vote on whether to reject a potentially damaging no-deal exit from the EU. Meanwhile the spectre of yet another ballot – on delaying Brexit, scheduled for tomorrow – hangs in the air.

Banksy image – a workman on a ladder chipping off the stars from an EU flag on a wall

A holding statement

Given all this political and economic turmoil, today’s announcement was, as expected, largely a holding statement in lieu of any other budgetary plans that might be needed following a potentially disruptive exit from the EU (such as an emergency budget). Only last month the Bank of England issued a sober warning that a no-deal Brexit could cause a recession.

There wasn’t any mention – despite speculation to the contrary – of how much money would be set aside for the all-important spending review (more below). If a Brexit deal is agreed over the next few weeks this will be launched before summer recess and conclude by Autumn Budget. Instead the chancellor decided to keep his powder dry pending the outcome of the parliamentary impasse before making any commitments.

Given the prominence of knife crime on the political agenda in recent weeks, it was perhaps unsurprising the chancellor pulled a rabbit out of the hat in the form of £100m for police funding. He also announced a number of other things that will be of interest to charities:

  • The government will use the forthcoming environment bill to mandate biodiversity net gain for development in England, ensuring that the delivery of infrastructure and housing does not compromise biodiversity
  • A review of the operation of Insurance Premium Tax, including where improvements can be made to ensure tax operates fairly and efficiently
  • A call for evidence on the use of Social Investment Tax Relief (SITR), including why it has been used less than anticipated and what impact it has had on access to finance for social enterprises
  • Free sanitary products will be provided for secondary schools and colleges for the next two years
  • A call for evidence on potential simplification and improvement of the VAT Partial Exemption regime and the Capital Goods Scheme

Apart from this, the chancellor largely stuck to the script of reserving major tax and spending decisions for autumn budgets, while using spring statements to announce consultations and respond to the Office for Budget Responsibility (OBR) forecast.

A mixed outlook for the economy

As expected, the OBR reported relatively healthy public finances. And continuing on from last October’s forecast, the spending watchdog reported that borrowing has returned to pre-financial crisis levels, ostensibly providing the chancellor with room to increase spending in future (assuming an orderly Brexit). Meanwhile the UK has the lowest rate of unemployment since the mid-1970s alongside encouraging signs of wage growth.

This good news was somewhat tempered, however, by a downgrade to the economic growth forecast for 2019, as Brexit uncertainty continues to dampen the appetite for business investment and the UK continues to suffer from slowing global demand and a productivity problem. Building a narrative around how the sector can help tackle poor productivity will be at the forefront of NCVO’s thoughts as we prepare for the spending review.

Looking towards the spending review

Attention is now squarely focused on the spending review which will be delivered later this year and the growing political pressure for the chancellor to deliver on his now renowned proclamation that austerity is coming to an end.

Mr Hammond has indicated to MPs that his capacity to spend rests on whether the ‘insurance fund’ set aside for a no deal scenario will be needed to prop up the economy in the event of a disorderly exit. If the threat of a no-deal exit were removed, any contingency fund could be used to boost stretched public services. Money pledged in last October’s budget to help protected departments – such as the NHS, defence and international aid – has done little to support cash strapped councils and other government departments that have experienced deep cuts since 2010 (which many charities receive funding from).

So what exactly does ‘austerity is coming to an end’ mean? The Institute for Fiscal Studies (IFS) predicts that a minimum of £2.2bn would be needed to merely freeze all budgets and protect them from inflation, while an extra £5bn would be needed to allow departments to maintain services in line with the UK’s growing population. At the other end of the austerity spectrum, the Resolution Foundation reports that to restore departmental spending back to its pre-crisis level relative to the size of the economy would require £56.3bn a year over the four years after 2019-20.

Mr Hammond also continues to face pressure to end the benefits freeze. Next month will see the start of a fourth year of the freeze which the Resolution Foundation reports will leave couples with children in the bottom half of the income distribution some £580 poorer in 2019–20 than they otherwise would be, with this figure rising to £710 for poorer single parents. Last week the work and pensions committee called on the government to end the benefits freeze which they predict would lift 200,000 people out of poverty.

And in anticipation of the spending review, the housing, communities and local government committee launched an inquiry last week to investigate the impact of the current arrangements for funding local government services. The Local Government Association (LGA) reports that an £8bn funding black hole by 2025 will swallow up popular council services without increased support from central government. We’ll be submitting evidence focusing on, among other things, the impact of cuts to the quality and delivery of public services.

Investing in communities, improving productivity

As well as keeping a keen eye out for departmental spending decisions, many charities will be eagerly awaiting more details of the UK shared prosperity fund (UKSPF). The amount of money designated to the fund – which will replace EU structural funds post-Brexit – will also be announced at the spending review. NCVO is keen to ensure that the funding provided – particularly the component that will replace the European Social Fund – is at least commensurate with the levels of funding currently provided by the EU.

We also want to ensure the UKSPF is designed and delivered correctly. We’ll be making the case – in response to the fabled UKPSF consultation (repeatedly delayed since 2017) – that unless funding is managed and distributed appropriately it’s unlikely to have the desired impact for communities and help address the UK’s productivity problem. Communities and the charities that represent them must be at the heart of the UKSPF, including the delivery and design of the programme.

As we approach the spending review and beyond, NCVO will also continue to make the case for the creation of a community wealth fund, using dormant assets to support deprived communities. Developing new approaches in communities that have not benefited from growth will help to address the UK’s low productivity.

Waiting to see which way the Brexit wind blows

Until there is a clearer understanding of what our future relationship with the EU will look like, the chancellor will likely play his tax and spending cards close to his chest. In the meantime, charities should remember Making Tax Digital (MTD) requirements and an increase in the Gift Aid Small Donations Scheme (GASDS) donation limit (from £20 to £30) kick-in next month. And in early summer the Charity Tax Commission will publish its final report with recommendations for reforming the tax treatment of charities.

Follow me on Twitter for updates or comment below if you have any questions or comments of your own.

 

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Paul Winyard Paul joined NCVO over seven years ago after working for a leading public affairs agency. Since then he’s led our policy work on a variety of issues, including welfare-to-work reforms, volunteering, the Compact, public service commissioning and procurement regulations. He now leads our work on funding and finance with a particular focus on charity tax relief and safeguarding EU funding post-Brexit.

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