Policy, campaigns & research, Government and the Voluntary Sector

Autumn Budget 2021 – beware the smoke and mirrors

Read Jay Kennedy's, Director of Policy and Research at DSC, analysis of the autumn budget 2021.

Chancellor of the Exchequer Rishi Sunak MP presented the Budget and Spending Review on 27 October. After the pandemic had disrupted previous events, this was an opportunity for the government to set out a longer-term plan providing some much-needed certainty to government departments, the NHS, local authorities and the devolved administrations about their spending over a three-year period.

In the run-up, economic forecasts were looking better than predicted earlier in the year, but there remain serious pressures on living standards, with high fuel and energy prices and shortages of goods and materials driving inflation and a general feeling that ‘all is not well’ in the UK economy. You could almost hear the sound of many eyebrows raising in unison on Twitter as the Chancellor sought to deflect criticism on these issues by claiming they were world-wide problems, not unique to the UK (or the unspoken effects of Brexit).

Further tax increases could add further inflationary pressure, such as the already announced 1.25% National Insurance rise planned for April to provide billions in funding for health and social care. This will add to the costs of employment but also will also eat into the spending power of people in work – with the low-paid hit proportionally hardest.

Rabbits out of hats

Against these trends Sunak presented a bookend of two major announcements. The increase in the minimum wage to £9.50 from April for people over 23 had already been trailed before his speech, whereas he left his biggest rabbit to pull out of the hat until the very end – changes to Universal Credit.

DSC and many other charities had called for the reversal of the cut to Universal Credit in their submissions to the Spending Review. During the pandemic, benefit levels had been increased by £20 per week, but this was recently withdrawn. In the final minutes of his speech, the Chancellor announced a cut of 8% in the ‘taper rate’, from 63% to 55%. This rate dictates how much the benefit reduces for claimants, as their income from employment correspondingly increases. Sunak claimed this will amount to a tax cut for working people on low incomes costing £2bn in total, to take place before 1 December [Red Book p4].

The announcement wasn’t so much the ‘U-turn’ that many had hoped for – more a recalibration of the sat nav. Experts have been crunching the numbers to see what the real impact will be – in short it looks like some good news for people in work that receive the benefit, but it won’t help the many more unemployed people in receipt of Universal Credit. And the Chancellor again used rather Victorian framing about ‘making work pay’ – almost making a virtue of ignoring the reality that unemployed people aren’t work shy; they can’t work for a variety of reasons.

Sadly, it’s doubtful that either of these announcements will mean an end to choosing between ‘heating or eating’ for many this winter, or lead to less demand for charity food banks, especially given such steep rises in energy and other costs. It’s likely that many people will continue to depend on a diverse range of charity services if inflation remains at current levels and incomes continue to get squeezed.

Looking more specifically at what the review means for charities, there were several notable areas to consider.

Conjuring some extra funds for charity regulation?

The Budget Red Book shows that the Charity Commission’s spending allocation will remain broadly stable until 2024-25, with a slight rise from current levels to £29.8m in 2022-23 then dropping slightly to around £29m in 2024 and £29.3m in 2025. Following deep cuts after 2010, the budget was increased several years ago, but there was no guarantee at that time for how long this would be sustained, so this is some good news from the Budget [Red Book Table 4.21].

Hopefully the Charity Commission’s leadership will now take the opportunity to invest wisely in improving its services to charity trustees, upgrading the register of charities, and updating guidance and advice that charity trustees depend on. The shift towards prioritising enforcement actions above all else in recent years needs to end. Instead, the Commission must use this opportunity to work constructively with the sector and invest in preventative work that helps charities to get it right.

Smoke and mirrors for local government

The Chancellor claimed that the Spending Review would show overall increases in spending for government departments and the devolved administrations in Scotland, Wales and Northern Ireland over the three-year period. For local government, he claimed that £4.8bn in ‘new grant funding’ for councils was ‘the largest increase in a decade’, and that the ‘Conservatives are the real party of public services’.

Beware the smoke and mirrors. The Budget Red Book indicates that £3.6bn of this funding is for ‘social care and other services’ – presumably gleaned from the National Insurance hike. No doubt this will be welcome and is desperately needed, but it won’t help fund everything else that councils have to do, or necessarily cover the costs of all the other inflationary pressures such as increasing those very National Insurance contributions for their own staff. At any rate, this appears to be the substantive portion of funding ‘increase’ for local government, which has already been announced (and now re-announced).

For the devolved administrations, the Chancellor claimed he was providing ‘the largest block grants above the Barnett formula’ since devolution began, totalling £8.7bn on average to the three governments over the period above the Barnett formula allocation of £66bn. Political leaders of other parties outside of England may express alternative views over coming days, but the Red Book does show real terms increases for each year of the spending review period for all three administrations of between 2-2.6%. Again, the same logic applies here as for local councils – although these are supposedly real terms increases, will they cover their increasing costs? [Red Book p8].

These announcements will affect many charities in some way because for most of them, if they have any funding or other relationship with government it will be at the local level. Relationships are also arguably closer between the voluntary sector and the devolved administrations outside of England, so the context is important for the environment charities will be working in during the coming years.

Sleight of hand

If the boost to council funding seemed centred around social care, what about the oft repeated ‘Levelling up agenda’? The Chancellor announced the first tranche of successful bidders for the Levelling Up Fund, providing £1.7bn for 105 projects. The Budget also apparently ‘launches’ the long-awaited UK Shared Prosperity Fund [UKSPF] to replace EU Social Funds after Brexit [Red Book p6].

I’ve lost count of how many times the UKSPF has been mentioned in similar statements since the Brexit vote in 2016, without much follow up detail. In our submission to the Treasury, DSC and other charities argued that the UKSPF should invest in services that support people and communities experiencing disadvantage and discrimination neglected by mainstream state provision and have a genuine focus on reducing inequality. The Budget Red Book tells us that the fund will be worth £2.6bn over the period, and will focus on skills – but that amount won’t go close to replacing the previous level of EU funds.

Although the previous EU funds made up a relatively small portion of charities’ overall income, they were concentrated in certain areas such as employment and skills. So, it’s important that any future fund addresses those needs and improves upon previous iterations. It’s likely that more of the policy details about Levelling Up will be published in the Levelling Up White Paper, expected towards the end of the year.

Hocus pocus

The Chancellor and the accompanying Red Book also contained important announcements for many policy areas that charities are involved in, such as health, education, the environment, criminal justice and international aid. These are too complex to examine fully here, but it’s worth noting that in places the magic show started to look like amateur hour.

For example, the Red Book document contains many details of substantial spending on the climate emergency, including £3.9bn to decarbonise buildings, £1bn for carbon capture and storage, and £630m to support the transition to electric vehicles [Red Book p5]. Yet the Chancellor went big in his speech on cuts to air passenger duty for domestic flights – hardly an ideal sound bite in advance of the COP26 conference? Surely, he should be reducing the cost of train travel rather than flying within the UK?

Similarly, facing pressure to reverse the cut to international aid spending from 0.7% to 0.5% of gross national income on international aid, the Chancellor tried some hocus pocus. He claimed that the current economic forecasts meant that the government could honour its commitment to return to that level by the end of the spending review period, eliciting howls from the opposition benches.

There were a number of funding announcements that will affect charities working in specific areas, for example £560m for youth services. But a similar initiative to build facilities for youth groups had already been announced by his predecessor all the way back in 2019! To the frustration of youth groups across the country, it has been stuck in the Whitehall machinery ever since. Now, the magically reappearing fund looks like it also includes the cost of the National Citizen Service. [Red Book p6]. Abracadabra! Hey Presto!

On a final note, it is important to say no government in history has ever delivered on every single part of their budget as promised and none of it is set in stone. However, as a sector we won’t give up if we don’t get what we want, we will keep trying.

Other helpful documents about the SR and Budget (to be updated as they are published)

Budget Red Book document

Charity Finance Group – What the Autumn 2021 Budget Means for You

Pro Bono Economics – Budget 2021: what did it mean for charities?