After one of the most unpredictable General Elections in recent memory, which saw the unprecedented rise of the SNP in Scotland, the collapse of support for the Liberal Democrats and the failure of UKIP and the Greens to translate widespread popular support into seats, the UK’s first-past-the-post system has returned a majority Conservative Government, something that was completely unforeseen until the night of the election itself.
As the dust begins to settle on the result, what implications does this unexpected scenario have for the funding environment of key sectors of society for the next five years? What effects will emerge now that the newly-elected Conservative majority Government has the legal prerogative to deliver the contents of its manifesto in full? Here, we examine existing manifesto pledges and the views of expert stakeholders to see what the next five years might hold for the funding landscape of four key areas: the public sector, business, the VCSE community and education.
Most striking for the public sector is the pledge to find an additional £13 billion in departmental savings and a further £10 billion in annual savings by 2017-18, and £15-20 billion by 2019-20. This is in addition to plans to reduce total Government spending in real terms by 1% for the first two years of Parliament. Although greater reductions were witnessed in the last Parliament, The Economist has warned that future cuts are likely to be more difficult to implement, as the ‘simplest’ cuts have already been made.
Along with this budget reduction are plans to empower local government by allowing councils to retain a higher percentage of business rates revenue generated by local companies and providing incentives for them to strengthen enterprise and growth. The Conservatives will also encourage the integration of services and administration between and within councils to maximise their efficiency, and plan to rebalance the economy through the much-vaunted Northern Powerhouse, providing cities with greater autonomy over their local finances. However, with some local authorities facing cuts approaching 50% in the last Parliament, and with further cuts expected in the future, local councils must ensure that they are maximising any funding opportunities that present themselves if they are to continue to operate effectively under the new Government.
In other areas, the Government intends to push ahead with plans to extend the Right to Buy scheme to housing association tenants, while building over 200,000 homes at 20% below the market price. For healthcare, the Tories are committed to introducing the NHS’ own plan to improve the delivery of healthcare services – the Five-Year Forward View – and to raise NHS spending to at least £8 billion above the rate of inflation, although there have been no concrete plans as yet detailing how this will be achieved. There are also plans to save money and increase efficiency by moving more government services online whilst tackling digital exclusion, while the Civil Service will be reformed to make it more ‘dynamic and streamlined’.
Nowhere was reaction to the election result more positive than from the business community. Emboldened by the stability that a majority Tory government is expected to bring, and having avoided the prospect of an energy price cap, mansion tax, 50% tax on the wealthiest members of society and abolition of non-dom status pledged by Labour, the markets responded overwhelmingly positively to the election result. The FTSE 100 index saw a rise of 2.3% the morning after the election – the biggest such rise since January – whilst the FTSE 250 index rose by 2.8% to reach a record high. The pound also rose by 1.6pc to 72.74p per euro, the largest daily increase since 2011. It was estimated that the total value of UK businesses increased by over £50 billion as a direct result of the outcome of the election.
More tangibly, the Tories have committed to developing small business in their manifesto by pledging to treble the start-up loans programme, allowing 75,000 more entrepreneurs the chance to access funds to start a business, in addition to over £100 billion being invested in small business infrastructure. Furthermore, the Employment Allowance will be maintained, meaning that employers’ National Insurance contributions can be reduced, while attempts will be made to cut administrative costs by £10 billion by 2020. Further pledges include preannounced plans to reform the business rate, a commitment to keep Corporation tax at 20% and the creation of a Small Business Conciliation service to mediate in business disputes.
However, amongst the generally positive news for businesses and markets remains an element of uncertainty brought about by the Tories’ pledge to hold a referendum on the UK’s membership of the EU by 2017. Initial surveys suggest that the public will reject the prospect of a so-called UK ‘Brexit’, with a recent poll by YouGov reporting that 34% of the public will definitely vote against leaving the EU, compared with only 18% who will definitely vote to leave. Many commentators have regarded the referendum as being more concerned with renegotiating the UK’s place in the EU rather than leaving it altogether. Nevertheless, business will hope that any uncertainty that such a poll will inevitably bring about will be minimal.
Voluntary, Community and Social Enterprise (VCSE)
So if the election result was met positively by business, what about the voluntary, community and social enterprise sector? Reaction has been more mixed here, but deputy chair of the Canal and River Trust and chair of the Commission on Ageing and the Voluntary Sector, Lynne Berry, reflected the thoughts of many in the sector that positives can be taken from David Cameron’s emphasis on a ‘one-nation’ brand of Conservatism, which implies consideration of the needs of all of society and all four constituent nations of the UK. One prospective policy that could bode well, for instance, is a requirement for large private and public organisations to allow all staff to take three paid days off from work a year to volunteer. Furthermore, a poll conducted by Baker Tilly in February 2015 revealed that only 9% of charities felt that a change of Government would be beneficial for them (although 58% were unsure), and67% had made plans to find alternative sources of funding in the future, implying the sector is in good stead to react to any future changes.
However, such assurances have been met with caution. In particular, the Conservatives’ pledge to reduce the UK’s deficit by cutting £12 billion from the welfare budget will inevitably impact on the less affluent members of society, further increasing the pressure on charities’ increasingly limited resources. Further uncertainty exists over the impact of future devolution agreements with Scotland, particularly on tax reliefs such as gift aid. Moreover, Rob White, Marketing and PR Manager of nfpSynergy, has drawn attention to the likely continuation of the Lobbying Act, a policy that restricts charities’ abilities to promote issues that may be interpreted as ‘political’, something particularly controversial given that research conducted by nfpSynergy suggests that only 15% of the public support the policy. Ultimately, whatever happens over the next five years, charities will need to develop robust governance procedures and exercise prudent financial planning if they are to be equipped to face the challenges ahead.
A number of issues relating to the higher education sector have been highlighted by the election result. Similarly to businesses, a crucial factor here is the result of the forthcoming referendum on EU membership, which has severe implications for higher education institutions (HEIs) given their reliance on international student fees and EU research funding. Indeed, the issue of international student numbers is particularly high on UK university agendas given the Tory manifesto pledge to reform the student visa system to tackle system abuse and to introduce ‘exit checks’ on whether migrants are leaving the country when their visas expire. This is something that will not sit well with HEIs that have long campaigned for a relaxation of student visa controls to encourage greater net migration of skilled international students to the UK. Tuition fees are also now back on the agenda, with William Hague recently confirming that a further rise has not been ruled out, while pledges have been made to introduce a new framework to ‘recognise universities offering the highest teaching quality’.
Elsewhere, positive news can be seen in the manifesto pledge to introduce three million apprenticeships by 2020, while developing skills in science, technology, engineering and maths (STEM) is high on the Government’s agenda, and will be boosted by a pledge to create 17,500 new maths and physics teachers. However, Martin Doel, Chief Executive of the Association of Colleges, has warned that the Conservative manifesto was the only one not to ring-fence the budget for 16-18 year olds, while national qualification provider NCFE also warned that adult skills training must be protected to ensure that all members of society have the opportunity to ‘upskill’, and warned against placing too great an emphasis on the ability of apprentices alone to meet the needs of the market. More broadly, pledges have been made to protect school funding per pupil, to ensure that there is a University Technical College ‘within reach’ of every city and to create an additional 500 free schools in England by 2020.
Ultimately, the future funding climate facing the range of sectors, organisations and bodies throughout the UK will not be known for certain until the release of the Programme for Government, details of which are expected before the Queen’s Speech at the State Opening of Parliament on 27 May. Even then, it will be difficult to predict how events such as the EU referendum – and even emerging questions over the future existence of the UK itself – will affect the UK funding landscape over the course of this new Parliament. If current predictions are anything to go by, public, private and voluntary organisations will have to maximise all sources of funding available to them to ensure that they are equipped to deal with a reduction in central Government spending in the next five years, and must keep up-to-date with all funding opportunities as and when they appear to give themselves the best chance of long-term success in the future. As Europe’s leading provider of funding and policy information, Idox will continue to monitor the evolving UK landscape, offering the latest funding and policy insight via its GRANTfinder and POLICYfinder services. For further details, please email email@example.com
By Chris Drake, Idox