Spending round 2019 – an end to austerity or a pause?

Buried among the unprecedented constitutional turmoil in Westminster today, the chancellor delivered a fast-tracked one-year ‘spending round’, with the eagerly awaited full multi-year ‘spending review’ postponed until next year.

Doubt surrounding the nature of the UK’s future relationship with the European Union means that the outlook for the UK economy continues to be highly uncertain. Setting departmental budgets for just one year while the Brexit saga unfolds has therefore been billed by government as an opportunity to allow departments to focus on delivering Brexit by 31 October, including a no-deal Brexit.

An eye on the polling data?

But the timing of the ‘fastest SR in history’ is telling. From an economic perspective, waiting until November to make funding allocations alongside other budget decisions when the UK’s relationship with the EU is more certain would arguably have made more sense.

Bringing the statement forward also meant there was no Office for Budget Responsibility (OBR) forecast, so the chancellor knew little about how much financial headroom he has to play with.

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All this has fuelled widespread speculation that today’s statement was a politically driven precursor to a snap general election, with Boris Johnson’s new administration setting out a pre-ballot giveaway aimed at winning potential votes in the Autumn. Austerity hurt the Tories in the last general election and the message from number 10 seems clear: ‘Not only can we deliver Brexit; we can do so while improving living standards and reducing the strain on public services’.

The giveaways

In what he claimed was as an ‘end to austerity‘, the chancellor made good on some widely trailed pledges that will have an impact on the services that some charities provide.

• Councils: Local authorities will get an extra £3.5bn over the next year — the first real-terms rise for a decade — with £1bn set aside for social care. Along with other sector bodies, we called on the government to address the impact that significant reductions to local authority budgets have had on disadvantaged communities and the charities which support them. We are therefore pleased to see the government provide this – albeit modest and temporary – respite to strained budgets. That said, we are clear that government must go further and address the long-term financial sustainability of councils with next year’s full spending review.
• No-deal Brexit funding: The chancellor committed an extra £2bn – on top of an existing £6.3bn – for no-deal Brexit planning. We’ve asked that any funds made available must be available to civil society organisations, and that consideration should also be given to the creation of a ‘resilient communities fund’, set up specifically for charities working with and supporting local communities in the event of a no-deal Brexit.
• Health: NHS spending will be increased by £6.2bn next year. This includes £210m for frontline NHS staff and around £2bn of new capital funding, starting with an upgrade to 20 hospitals this year.
• Environment: The Department for Environment, Food and Rural Affairs will get £422m to create ‘world leading environmental standards’ once Britain has left the EU. Another £30m was earmarked for tackling air quality alongside £30m for biodiversity, including widening the Blue Belt programme.
• Schools: The schools’ budget will rise by £2.6bn in 2020–21. This includes around £700m to support children and young people with special educational needs
• Criminal justice: There will be £750m to fund the first year of the government’s plan to recruit 20,000 new police officers. An extra £45m will be available immediately so 2,000 officers can be put in place by end of March. There will also be £30m to tackle online child exploitation.
• Charity Commission funding: The additional £2.4m funding for the Charity Commission over the next year (2020–21) is helpful, as hopefully it will enable the Commission to more efficiently carry out its statutory duties. A swifter registration process, more regular updates to the register itself, and a better response to serious incident reports are improvements that would greatly increase the effectiveness of the regulator. We would however be concerned if this additional funding were used by the Commission to act outside its scope, as a recent speech by its chief executive Helen Stephenson seemed to imply.

What was missing?

Our call for more details on the long-awaited UK shared prosperity fund (UKSPF) went unanswered. The amount of money designated to the fund – which will replace EU structural funds post-Brexit – remains unknown. Meanwhile, the consultation that will shape the design and delivery of the programme – repeatedly delayed since 2017 – still hasn’t materialised. We will continue to make the case that communities and the charities that represent them must be at the heart of the UKSPF, and that funding needs to be in place as soon as possible to avoid gaps in funding and the loss of support for disadvantaged communities across the country.

Postponing the big decisions

The £13.8bn real-term increase in day-to-day spending set out today has undoubtedly reduced the strain on some public services, for the next year, at least. We will need to wait and see whether the decisions taken will address the urgent issues identified by Institute for Government.

The fog of Brexit looms large, casting a shadow over the long-term prospects for the economy, and as a consequence, public spending. A disorderly no-deal Brexit could cause significant disruption to productivity and household incomes, resulting in fewer tax receipts to spend on public services. All this means that today’s announcement might only represent a temporary break, rather than an end to austerity.

The coming months will be key. The big spending and fiscal decisions can only be taken when the nature of our relationship with the EU becomes clearer, not least whether Britain exits the EU without a deal. The budget in November and the postponed full three-year spending review, probably around this time next year, will be more important than ever.