Austerity, welfare reform and local growth - what to look out for in the 2018 Autumn Budget

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25 Oct 2018

Tony Wilson

Tony Wilson, Institute Director

Budgets are a juggling act at the best of times. With weak growth forecasts, Brexit risks, a commitment to £20 billion more for the NHS and government debt at a fifty year high, the Chancellor was already going to be juggling a lot of balls. So he won’t have thanked the Prime Minister for lobbing in one more with her conference speech this month, promising an ‘end to austerity’. 

While the Chancellor’s instinct may be to tread carefully on tax and spending next week, there will be big decisions to make, as the Budget will also set the funding envelope for the next ‘Spending Review’ period, covering all public spending from April 2020 (usually for the following three years).

So, what do we need to look out for next week, and, at IES, what would we like to see?

First, and most importantly, can the Chancellor end austerity in the next Spending Review? 

Excellent analysis last week by the Institute for Fiscal Studies suggests that even on the narrowest possible definition – meeting existing commitments on health, defence and overseas aid while just holding constant in real terms on all other budgets – ending austerity would cost an additional £19 billion in 2022-23. Actually increasing public spending in real terms would cost more still. What’s more, while the deficit is now below two per cent of national income, the Chancellor’s self-imposed rule that public debt should be falling by 2021 means that increases in spending of this scale could not be met through borrowing alone; taxes would need to rise.

It seems unlikely, then, that the Chancellor will be able to stop austerity completely – let alone begin to reverse it. Yet there are three areas in particular where we would like to see movement.

Social security

As the IFS has pointed out, £7 billion of further cuts in social security are still to come; while the Resolution Foundation estimates that cancelling the final year of the benefits freeze and reversing cuts to allowances for working claimants of Universal Credit would cost £5.1 billion. These are eye-watering sums to find, but addressing these two issues would do more to support low-income families and to make work pay than any similar-sized changes in income tax. As the Resolution Foundation says, the government should take action on both.

Employment support

As I outlined earlier this month, high employment is not full employment. Half of disabled people are out of work, more than one million older people want to work, and one in four of those in work is low paid. However, funding for employment programmes has fallen by around three quarters since 2015, while the Department for Work and Pensions has seen its budget reduced by nearly 40 per cent since 2010. The government has made welcome commitments in recent years to testing new approaches to supporting those with health conditions and the lowest paid, and next week will be an opportunity to build on this by committing to extend and improve support over the following three years. 

Further education

While schools budgets have been sheltered from significant cuts since 2010, further education has not been so fortunate – with separate IFS analysis showing that budgets have fallen by 12 per cent since 2011. Improving and extending access to good-quality vocational education, workforce retraining and adult learning will be central to meeting the employment and labour market challenges that we’ll face over the coming decade.

Secondly, will the Chancellor ease the pain on Universal Credit? 

It is easy to forget that the government announced a £1.5 billion rescue package for Universal Credit (UC) at last year’s Budget. But in reality (as I wrote then) this bought the government more time, rather than fixing its flaws. As set out above, the Chancellor needs to address the significant reductions in support for working claimants that are baked in to UC. But more than this, the litany of problems raised by claimants also reflect the way that the benefit works and is administered – with a five-week wait before the first payment is made, often far longer delays for housing support, monthly rather than fortnightly payment of benefits, and the payment of all benefits in a single lump sum. Many of these issues are particularly pronounced for those in non-traditional employment, as our own work and that of Citizens Advice has shown.

Leaks last week suggest that the Chancellor is being pressed to fund another rescue package – which would fund further run-ons of existing benefits for those that move over to UC; longer repayments of cash advances; more support for the self-employed; and a longer timetable for the migration of existing claimants. Again these measures would be welcome – but there is a stronger than ever case to fundamentally reform the way that UC works (as the Scottish Government is doing).

Third, will the government go further and faster on local growth, productivity and employment? 

These have been recurring themes in Budgets, and Philip Hammond has used his two previous ones to announce the first two National Retraining Scheme programmes (one of which IES will be evaluating), funding of technical education reforms, the Industrial Strategy Challenge Fund and new devolution deals. All of these were welcome, and there is scope to go further next week – for example, by:

  • refocusing the National Retraining Scheme on supporting workers to find and secure better jobs with more flexible training;

  • bringing more coherence to the design and funding of higher technical education (as the Assocation of Colleges has called for);

  • signalling that the next round of devolution deals will allow areas to develop coherent and integrated approaches across employment and skills (as the Local Government Association has set out); and

  • implementing the Taylor Review proposals for those in non-traditional employment (and, ideally, going beyond them, as we argued). 

Finally, this Autumn Budget is an opportunity for the government to set out its plans on future structural funding. The government has committed to consulting on a new Shared Prosperity Fund to replace the £2.4 billion a year in European structural funding that we will lose access to after 2020. While we wait for the consultation, the Budget will likely need to set the envelope for this fund. The predecessor programmes were not perfect, but, as the Joseph Rowntree Foundation has set out, we’ve now got an opportunity to get this right.

Addressing all of these issues, the many other spending and political trade-offs, and making the Budget arithmetic add up will be a tall order. Austerity won’t be ended next week. But the Chancellor can set a path for the Spending Review that includes action on employment, skills and local growth. We hope that he does.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.