Chancellor of the Exchequer George Osborne described his 2016 Budget as setting out ‘long-term solutions to long-term problems’. The Chancellor announced an expected £3.5 billion in public spending cuts, subject to a Treasury review that will report in 2018, warning that ‘storm clouds are gathering again’.
Mr Osborne insisted that the Government was still on course to achieve a surplus of £10.4 billion by 2020, but that the OBR had warned of a ‘materially weaker’ global economy and had revised down forecasts for economic growth in 2015 from 2.4% to 2.2%. Figures were also revised downwards for the following years: from 2.4% to 2% in 2016, from 2.5% to 2.2% in 2017, from 2.4% to 2.1% in 2018 and from 2.3% to 2.1% in both 2019 and 2020.
Taking a closer look at the significance of these measures, here Idox’s Policy team summarises the key announcements from the Budget and reaction from the sectors on which they will have a bearing.
In the lead up to Budget 2016, George Osborne commented that it would be ‘pro-enterprise, pro infrastructure, pro-devolution’. The Chancellor’s speech saw the Government drive forward ‘academisation’ and the radical devolution of power to school leaders, which will effectively end council control of England’s schools. The reform has proved unpopular with councils, with Lord Porter, Chairman of the Local Government Association arguing that only 15% of the largest academy chains perform above the national average in terms of pupil progress, compared with 44% of council-run schools.
The Budget also included the following headline measures to support the ‘devolution revolution’:
- Negotiations to open on city region deal funding for Edinburgh and south-east Scotland
- A £1.2 billion city deal for Cardiff Capital Region and a potential city deal for Swansea Bay City Region
- New mayoral devolution deals with the West of England, East Anglia and Greater Lincolnshire, as well as agreeing additional mayoral devolution deals with Greater Manchester and Liverpool City Regions
George Osborne said: ‘By the end of this parliament, 100% of local government resources will come from local government – raised locally, spent locally, invested locally’.
Responding to the Chancellor’s Budget, Jonathan Carr-West, chief executive of the LGiU, said: ‘This is a budget that will leave many in local government deeply anxious. The Chancellor announced £3.5 billion extra cuts in public sector funding by the end of the parliament. It’s not clear where these cuts will fall but experience suggests they will hit local government either directly or through the knock on effects of cuts to welfare benefits. Only two months ago local government was offered the “certainty” of a four-year funding settlement, but that certainty already looks illusory.’
The Budget also saw the Chancellor give the green light to a series of infrastructure projects recommended by the National Infrastructure Commission, including a trans-Pennine tunnel, £60 million for HS3 between Leeds and Manchester, and £80 million for Crossrail 2 – a new rail link across the capital. The Budget also marked the launch of the second Roads Investment Strategy, which will determine investment plans for the period from 2020-21 to 2024-25. Further to this, the Government will shortly publish a National Infrastructure Delivery Plan, setting out details of over £100 billion of public sector investment in infrastructure across this Parliament.
Announcements relating to housing included measures to encourage more shared ownership (the Government will launch the Help to Buy: Shared Ownership Prospectus in April), funding for community land trust schemes and the launch of the Starter Homes Land Fund prospectus (released on Budget day). Local authorities are invited to access £1.2 billion of funding to remediate brownfield land to be used for housing. The aim is to deliver at least 30,000 starter homes by 2020.
Housing experts criticised the Chancellor’s Budget as lacking any major new initiatives to tackle the UK’s housing crisis. The Federation of Master Builders described it as a missed opportunity in the race to build more homes in Britain. However, the new Lifetime ISA for the under-40s was welcomed by those trying to get onto the housing ladder. People who save £4,000 each year towards a deposit on a first home, or retirement, will get an annual £1,000 top-up from the state, paid until they turn 50. Accounts will be available from April 2017.
Measures relating to health included the Budget announcement that the Government is accepting the recommendations of an independent stakeholder group and will offer new peer and specialist support for those suffering from mental health conditions and young disabled people. The Government will publish a whitepaper later in 2016 which will focus on the roles that the health, care and welfare sectors can play in supporting disabled people and those with health conditions to get into and stay in work.
Other health measures included the following:
- The defibrillator grant scheme will be extended by a further £1 million
- An investment of £1.5 million by the Government in sports prosthetics for children and creation of a fund to develop innovative prosthetics for the NHS
- From April 2017, 4,000 Armed Forces veterans will be able to keep payments from their war pensions if they need social care
Education was identified as another priority area for George Osborne. According to the Chancellor, this was a Budget that ‘puts the next generation first’, with a ‘bold plan to make sure that every child gets the best start in life’.
To ‘set schools free’ from local bureaucracy, the Chancellor announced that schools in England must become academies by 2020, or have official plans to do so by 2022. Introduced by a Labour government, the move to academy status aimed to improve struggling schools, primarily in deprived areas. Schools continue to receive a start-up grant of £25,000 to help with the costs of converting. However, it is argued that the costs of conversion are much higher.
Currently, 2,075 out of 3,381 secondary schools are academies, while 2,440 of 16,766 primary schools have academy status. Further details on this policy are available in the Government’s whitepaper, Educational Excellence Everywhere.
Other key measures to support education, science and skills included the following:
- Extra funding for schools to speed up the introduction of the new national funding formula. The Government’s aim is for 90% of schools that will gain funding increases to have been fully moved to the new system by 2020
- Investing £20 million a year of new funding in a Northern Powerhouse Schools Strategy
- A new levy on soft drinks with added sugar from April 2018. This will be used to double the primary PE and sport premium (the additional money schools have to spend on PE and sports) to £320 million a year
- The Government will provide £14 million over the Spending Review period to deliver a mentoring scheme for disadvantaged young teenagers
- Loans for PhD students of up to £25,000 will be introduced from 2018-19. These will be available to any English student who can win a place at a UK university but doesn’t receive a Research Council living allowance
Concerns about the shift to ‘universal academisation’, and removing local authorities from the planning of education have been voiced both within and outside the sector, with the National Children’s Bureau stating: ‘There are also serious concerns that removing local authorities from the planning of education across an area could further disadvantage children who are already vulnerable because they have special educational needs, mental health problems or are at risk of missing education.’
Responses within the further and higher education sectors resonated with past criticism with regard to the escalation of student loans and their impact on students from low-income families; however, on a more positive note, the University Alliance chief executive, said: ‘Support for lifelong learning is essential if we are serious about boosting productivity and creating opportunity for all. We were therefore pleased to see today’s announcement on doctoral loans.’
Voluntary, Community and Social Enterprise (VCSE)
The Chancellor announced that £45 million of banking fines will be committed over the next four years to support military charities and other good causes, including the following:
- £4.5 million to help establish an Air Ambulance Service in Northern Ireland
- £5 million for a National Mesothelioma Centre, establishing a centre of research in the fight against mesothelioma, which is directly affecting service veterans
- £2 million matched funding for University Hospital Southampton Charity to help build a dedicated paediatric emergency and trauma department
A further £12 million from the ‘tampon tax’ has also been allocated to charities to support a range of good causes benefiting women, including £1 million for Breast Cancer Care to scale up their support services to women recovering from breast cancer; £1 million for Girlguiding to develop, implement and evaluate a renewed Youth Programme and revitalise their national framework; and £449,000 for Karma Nirvana to extend the hours of a helpline to support victims of honour-based violence and forced marriage and provide guidance to professionals tackling it.
The Government has also committed to grant-making partnerships with Comic Relief and Rosa Fund for Women to disburse tampon tax funding to a range of grassroots women’s organisations, in recognition of the high number of applications received from such organisations across the country. It will partner with Comic Relief to create a funding partnership of £4 million (including £1 million of match funding) to drive awareness of women’s issues and fund exceptional and varied partners to deliver; and Rosa Fund for Women will run a £2.2 million ‘Small Grants Fund’ for local grassroots organisations.
As announced as part of the Government’s strategy for housing, £60 million will be provided to enable community-led housing developments in rural and coastal communities, including through Community Land Trusts, where the impact of second homes is particularly acute. The South West will receive around £20 million of this funding.
Funding is also to be doubled for the Rough Sleeping Social Impact Bond from £5 million to £10 million, with the aim of driving innovative ways of tackling entrenched rough sleeping, including through ‘Housing First’ approaches. Crisis chief executive Jon Sparkes welcomed the commitment to tackle rough sleeping, but urged the Government to go further, saying: ‘Without stronger action, including a change in the law and the funding to make it work, these measures do little to tackle the underlying problems, both in the law and with conditions in the housing market’.
This was not the only area that came in for criticism. Indeed, the Budget met mainly with disappointment from charity leaders. Sir Stephen Bubb, head of the charity chief executives body Acevo, said it contained ‘booby traps and sugared pills’ and was ‘not so much jam tomorrow as problems down the line’.
Caron Bradshaw, chief executive of the Charity Finance Group, said: ‘Like the wider economy, charities are facing a dangerous cocktail of cost pressures such as the national living wage and the apprenticeships levy as well as disappearing grants and more challenging contracting. Yet cuts for private businesses were not met with a similar package of support for charities.’
Mr Osborne said that whilst the British economy has grown faster than that of any other developed nation, multinational market turmoil, persistently low productivity across Western nations and a ‘dangerous cocktail of risks’ meant that the Government had to ‘choose to put stability first’. Budget 2016 placed a heavy emphasis on continuing the Government’s long-term aim of making the UK the best place in the world to do business.
Specifically, George Osborne announced he was presenting ‘a Budget that gets rid of loopholes for multinationals and lowers taxes for small ones’, creating a low tax regime to attract companies whilst ensuring they pay their way, as guided by the best practice set out by the Organisation for Economic Co-operation and Development (OECD). The Budget therefore contained a series of progressive tax measures that are collectively designed to see an additional £9 billion raised from the largest companies, with the gains largely offset against a £7 billion tax break for smaller firms.
Some of the main ways in which this was achieved in Budget 2016, along with other key measures affecting business, included the following:
- Corporation Tax rate will be lowered from the previously announced rate of 18% in 2018 to 17% in 2020, ensuring Britain has the lowest tax rate in the G20
- Small Business Rate Relief (SBRR) will be doubled from 50% to 100%, while thresholds will be raised to help a greater number of businesses
- The threshold for the standard business rates multiplier will rise to £51,000, taking 250,000 smaller properties out of the higher rate. It is estimated that this and related measures will see the business rates burden fall by £6.7 billion over the next five years
The Chancellor announced a series of actions to tackle tax avoidance and evasion totalling £12 billion, including moves to end the use of ‘personal service companies’ by public sector employees to minimise their tax liabilities. Plans were also unveiled to simplify the tax rules for online micro entrepreneurs by introducing two tax free allowances, each worth £1,000 for property and trading income. Individuals with property income or trading income below the level of allowance will no longer need to declare or pay tax on that income.
The oil and gas industry will be supported by a move to permanently zero-rate Petroleum Revenue Tax, while the Supplementary Charge will be reduced from 20% to 10%, backdated from 1 January 2016. Targeted measures to encourage investment in exploration, infrastructure and late-life assets will also be established.
Reaction from the business community was largely positive, with many welcoming measures to lower the Corporation Tax rate and revise the Business rates. The overall move to simplify taxes for businesses and ensure stability helped to garner many positive comments from key figures in the community. The general mood was summed up by Director-General of the Confederation of British Industry (CBI), Carolyn Fairbairn, who said: ‘After a year of surprises, this was a stable Budget for business facing global stormy waters. The Chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit. Businesses will welcome the Chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for.’
Ultimately, this Budget sounds a far less optimistic note than the 2015 Autumn Statement. With public spending in 2020/21 set to be £10 billion less than planned, it has been widely characterised as implementing an additional year of austerity in order to meet the Chancellor’s self-imposed targets. But the scale of economic uncertainty is considerable, with the Institute for Fiscal Studies (IFS) warning that there is only a 50% chance that the Chancellor’s target for achieving a budget surplus will be realised, while the potential impact of an ‘out’ vote in the forthcoming EU referendum makes any attempt to make concrete predictions almost impossible.
Amid such an uncertain economic outlook, the Chancellor’s increasingly fragile economic targets are under more scrutiny and pressure than ever. Both anticipated and unforeseeable political and economic events over the coming months and years will all play their part in dictating whether or not the Chancellor’s gamble will pay off. 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 Budget as the financial year unfolds.
By the Idox Policy Team