Facing choices: Spending Review and Autumn Statement 2015

The Chancellor of the Exchequer’s Spending Review and Autumn Statement announcements were headlined by a surprise U-turn on previous plans to cut tax credits. Mr Osborne said that he had ‘listened to the concerns’ and that higher than expected tax revenues and lower interest payments on government debt had created an extra £27 billion, allowing him to cancel the planned £4.4 billion cuts altogether. However, the Chancellor also confirmed that the previously announced £12 billion in welfare cuts would still be delivered in this Parliament.

What additional announcements were made? And, how are different sectors going to be affected?

Voluntary, Community and Social Enterprise (VCSE)

Funding for the Charity Commission will be frozen at £20.3 million until 2020, prompting fears that this could translate into a real-terms cut as high as 8.5% if inflation rises. Chair of the Charity Commission, William Shawcross, described the freeze as ‘recognition of the importance of the Commission’s work’, but warned that it would place more pressure on its staff and restated his commitment to finding ‘a more sustainable funding base for the commission’.

Despite widespread reports of major cuts, the Chancellor announced that the Big Lottery Fund would not have its budget cut, which was welcomed across the VCSE sector, following fears of the impact on services supported by BIG funding. An additional £80 million will also be invested in Social Impact Bonds over the next four years to help tackle issues including homelessness, mental health and youth unemployment.

VCSE housing groups and up to 1.3 million households will be affected by the extension of the Right to Buy to housing association tenants. A pilot scheme has been launched with five Housing Associations (L&Q, Sovereign, Riverside, Saffron Housing and Thames Valley), to inform the design of the final scheme.

Despite budget cuts to the Department for Culture Media and Sport (DCMS), Arts Council England and the UK’s national museums and galleries will receive a funding boost between now and 2020. Arts Council England’s grant is expected to rise by between 1-2% over the next five years, and national museums and galleries will remain free to enter, with the possible creation of tax credits to help them further. However, Museums Association director, Sharon Heal, warned that civic and local museums would face ‘closures, job losses and the introduction of charging’ due to cuts to local authority budgets.

The Chancellor announced that the ‘tampon tax’ on women’s sanitary products will be used to provide £15 million a year of grant funding for women’s health and support charities. The first £5 million from the tax will be divided between four charities: the gynaecological cancer charity The Eve Appeal; domestic abuse charities Safe Lives and Women’s Aid; and breast cancer charity The Haven. The fund will run over the course of this Parliament, or until the UK can apply a zero rate.

The Chancellor also announced that the Government has committed £25 million of banking fines over the next three years to support military charities and other good causes including:

  • £4.7 million for Guide Dogs for Military Veterans to provide a guide dog and support for life, for each of the 90 blind veterans registered with the charity.
  • £2 million for Direct Skeletal Fixation to trial a pioneering surgical procedure which has the potential to dramatically improve the quality of life for military amputees.
  • £1.5 million for the Jon Egging Trust to improve the life chances of vulnerable young people in deprived areas using the skills of serving and veteran military personnel.

Despite consistently failing to hit its participation targets since it was launched in 2010, the Government will expand the National Citizen Service programme for young people to 300,000 places by 2019/2020. Although the Chancellor did not confirm how much the expansion would cost, the Cabinet Office issued a statement that the expanded NCS would support ‘hundreds of charities and third sector providers’.

Public Sector

The Spending Review announced a significant reduction to the central grant from the Department for Communities and Local Government (DCLG), which will fall by 56% over the next four years from £11.5 billion this year to £5.4 billion in 2019/20. However, funding pressures will be offset by other changes to local funding, including the ability to retain business rates and the new council tax precept for social care. Councils will be allowed to increase council tax by up to 2% in order to fund adult social care, which is expected to bring in almost £2 billion a year into the care system.

Other key announcements affecting local councils included:

  • The Government will consult on changes to the local government finance system to rebalance support including to those authorities with social care responsibility by taking into account the main resources available to councils, including council tax and business rates.
  • The revenue support grant will be phased out.
  • From 2017, the Spending Review makes available social care funds for local government, rising to £1.5 billion by 2019-20, to be included in an improved Better Care Fund.
  • Measures to encourage local authorities to release surplus assets such as giving local authorities the flexibility to spend capital receipts (excluding Right to Buy receipts) from asset sales on the revenue costs of reform projects.
  • New guidance will be issued to local authorities ‘to encourage them to rein in excessive salaries and do more to drive efficiencies for local taxpayers’.

Lord Porter, Chairman of the Local Government Association said: ‘This Spending Review was never about just spending less it was about spending smarter. Local government has led the way at finding innovative ways to save money but after five years of doing so the majority of savings have already made.’ The mood within local government is that the measures outlined by the Chancellor to bridge the funding gap do not provide long-term sustainability for local services or support councils, ‘to plug the financial black hole they face by 2020’. In addition, it is argued that inequalities in the generation of revenue will be inevitable as those councils with a healthy council tax base benefit more from the levy. Critics argue that the devolution of business rates will also amplify economic imbalances between the north and south.

All in all, with key reforms yet to be set out in detail, the public sector faces a challenging time in the months ahead.

Education

The Chancellor’s statement also included investment in education, ‘from childcare to college’ and announcements that will see a major shake-up of funding for the education sector.

Funding for further education colleges will be protected in cash terms. Tuition fee loans will be extended to include those aged 19-23 studying for a Level 3 or 4 qualification, and for those 19 and over studying for a Level 5 or 6 qualification. The Government will also consult on introducing maintenance loans for people who attend specialist, higher-level providers, including National Colleges. The Government’s decision to pull back on more cuts to the further education sector has been met with huge relief, with stakeholders commenting that the Chancellor’s announcements were a step in the right direction to close skills gaps and improve the life chances of students.

With the unprotected Department for Business, Innovation and Skills (BIS) expected to face severe cuts, the announcement of a 17% cut was less than many feared. George Osborne’s announcement that the current £4.7 billion research budget is being protected in real terms over the Spending Review period to 2019-20 has been welcomed by many in the research community. This means the science resource budget will be over £500 million higher by 2020. The Settlement includes a £1.5 billion new Global Challenges Fund, to ensure UK science takes the lead in addressing the problems faced by developing countries.

Other announcements of interest to science and research:

  • A reaffirmed commitment to long term science capital investment of £6.9 billion between 2015-2021.
  • Recommendations from the Nurse Review of the UK Research Councils will be implemented.
  • A review of the Research Excellence Framework in order to examine how to simplify and strengthen funding.
  • A Global Antimicrobial Resistance Innovation fund, to be launched in partnership with China and a new £1 billion Ross Fund, partnered by the Bill and Melinda Gates Foundation.
  • £250 million for the 100,000 Genomes Project to introduce whole genome sequencing technology in the NHS.

The education sector heaved a huge sigh of relief as anticipated cuts did not fall, with Nick Hillman, director of the Higher Education Policy Institute (HEPI), commenting, ‘the Spending Review could have been worse for universities and students than it has turned out to be’. However, the sector continued to voice its concerns that Government reforms would create a barrier to education for the poorest students in society and risk burdening young people with huge debts. Sally Hunt, the general secretary of the University and College Union, said that George Osborne’s main funding solution ‘appears to be extending loans and loading more debt onto students’.

Business

Addressing the overall health of the economy, the Chancellor declared that ‘no economy in the G7 has grown faster than Britain’, and confirmed that the OBR’s growth forecasts would result in an additional one million jobs over the next five years. Mr Osborne stated the Government ‘backs all our businesses, large and small’ and that the Spending Review ‘delivers what businesses need’.

The additional £27 billion forecasted by the OBR gave the Chancellor room to implement measures designed to support business growth and innovation. However, the fact that the OBR was only 55% certain that the Chancellor would achieve a budget surplus of £10.1 billion by 2019-20 meant that the Chancellor adopted a cautious approach, and the statement therefore ensured that business plays its part in delivering a sustainable economy.

Key Autumn Statement and Spending Review 2015 announcements affecting business included the following:

  • The business levy rate for apprentices will be set at 0.5% of an employer’s wage bill and will come into force on 1 April 2017. It is expected that this will raise £3 billion a year, which will go towards financing three million apprenticeships.
  • Approximately 600,000 small businesses are expected to benefit from an extension of the doubling of Small Business Rate Relief by an additional year from 1 April 2016.
  • Confirmation that the uniform business rate is to be scrapped. Local councils will have the power to reduce business rates and collect all of the revenue generated through this tax in their areas, thereby incentivising local authorities to establish the right conditions for enterprise to flourish. Elected mayors will also have the power to raise local business rates, but only where the resulting funds will benefit specific infrastructure projects backed by local businesses.
  • Energy-intensive businesses will be exempt from environmental tariffs, reducing taxes paid by industries such as steel and chemicals and helping to increase their competitiveness.
  • Catapult centres will receive increased levels of investment and the nation’s more advanced industries will be supported with additional funding for the Aerospace Technology Institute (ATI) and the Advanced Propulsion Centre (APC).

Reaction to the statement from the business world was mixed, with many praising the Chancellor’s long-term ambition to balance the nation’s books and welcoming announcements to support infrastructure and increase spending on science and innovation. However, the announcement of the apprenticeship levy rate was met with concern by the business community, and particularly big business.

Such concerns were encapsulated by CBI Director-General, Carolyn Fairbairn, who acknowledged the scale of the Chancellor’s task to rebalance the economy but warned that the apprenticeship levy was not good news for business. She said:

‘Business recognises there are tough choices to be made in balancing the books, but many are reaching a tipping point, where the cumulative burden of the living wage, apprenticeship levy and business rates risk hurting competitiveness.

‘Businesses will be pleased to see the Chancellor staying the course on deficit reduction, his commitment to an industrial strategy, and the emphasis on nurturing a vibrant business community. Standouts include maintaining spending on infrastructure; ramping up housebuilding; support for energy-intensive sectors and for advanced manufacturing.’

Conclusion

The Chancellor delivered a highly political Spending Review and Autumn Statement, building on the Summer Budget and delivering expected deep cuts to departmental budgets. Buoyed by better-than-expected forecasts from the OBR, Mr Osborne was able to perform a U-turn on politically damaging cuts to tax credits and make headline-grabbing pledges on NHS and police funding, while pushing forward plans to slash public spending and run a surplus by 2020.

Spending will fall from 45% of GDP in 2010 to 36% in 2020, the largest cuts of any major economy over the same period, with inevitable consequences for front-line services across all sectors. For example, while overall funding to local authorities is predicted to fall by 6.7%, offset by other changes to local funding, including the ability to retain business rates, research by the Resolution Foundation suggests that local authorities face an overall 77% cut in central government funding over 2010-20.

With one eye on the 2020 General Election, the Chancellor has staked both his own political future and the future of services that millions depend on daily on his belief that rolling back the state and transferring responsibility for public services to the private sector can deliver a sustainable economic future for Britain.

POLICYfinder – Idox’s essential online tool keeping organisations up to date with the policy changes affecting their work – will report further on the content and implications of the Spending Review and Autumn Statement over the year ahead.

For further information, click here or contact grants.marketing@idoxgroup.com

By the Idox Policy Team

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