Halloween Budget 2018 - social sector ‘ghosted’ by ‘Fiscal Phil’?

There were bold claims of ‘the end of austerity’ before Chancellor Philip Hammond’s Budget announcement. While there were some giveaways, the voluntary sector came out with a mixed bag. Strategic policy asks and submissions by the sector received only scattered and minor responses in terms of funding and policy reform. The general feel of this Budget was that it was written in pencil because everything depends on Brexit.

‘Fiscal Phil’ handed out treats to some lucky charities

£10m will go to forces charities to support veterans with mental health issues (see DSC’s research in this area). Air Ambulances get £10m, and food waste will be addressed with another £15m. In total £45m was made available for different causes. All well and good for them, but yet again these measures lack a strategic approach. It feels very much like a reminiscence of the Tampon Tax fund or the Libor funding – which have been criticised as examples of poor practice.

But on some big sector issues, he missed a trick

Umbrella bodies and charity leaders have made plenty of asks – including calling for £2bn of dormant assets to be used as strategic long-term investment into the sector. But no news from the Chancellor on this front. Charities were also awaiting more clarity around the UK Shared Prosperity Fund (UKSPF), which government wants to use for replacing EU funding schemes. Design principles for the fund were put forward by Joseph Rowntree Foundation and Locality. A consultation had been promised for November, but the Budget shed no further light. With Brexit approaching fast, successor planning cannot be called ‘timely’ in any sense.

Some good reforms on tax – but no transformative changes

In terms of charity tax, there were some bright spots. The upper limits for tax on charity trading were increased and brought almost in line with VAT thresholds for charities with a turnover over £200k (their upper limit was increased to £80k while the VAT threshold will remain at £85k until 2022). Some smaller reforms of Retail Gift Aid and the Gift Aid Small Donation Scheme were welcomed by many. You can find more detail here.

There was also a reduction of the co-investment rate for the apprenticeship levy, which will be halved from 10% to 5% for small businesses. It will be beneficial for small charities that have apprentices. But it represents an investment of another £695m into the scheme in the light of increasing signs that this national flagship programme is not delivering. Charity Finance Group has laid out how Brexit offers an opportunity for reform of the VAT tax regime, which costs charities over £1.5bn a year. But this area of tax reform which has transformative potential for the sector was left untouched.

Reduced pressure on welfare and public services?

There was some movement on Universal Credit, social care and health. The Chancellor reiterated the announcement from the summer of an additional £20bn per year in real terms until 2023/24 for the NHS. But the Health Foundation said that a minimum increase of 4% a year above inflation is needed to allow for NHS modernisation and improvement. The new funding boost translates into 3%. Mental health crisis services received a massive boost of £250m a year by 2023/24. There seems to be a refreshed policy focus and charities working in this area will hopefully benefit from this new focus, and related funding streams.

Sadly, social care got more or less another sticking plaster. Still no sign of a long-mooted Green Paper, but the ‘winter fix’ of £240m funding for adult social care, which had been already pledged before the Budget announcement, will be repeated in 2019/20. And Hammond announced another £410 million in 2019-20 for adults and children’s social care – in total £650m. However, the Association of Directors of Social Services estimated that ‘adult social care services require access to additional funding of at least £2.385bn for 2019/20.’ And Solace – the Society of Local Authority Chief Executives and Senior Managers – said that the ‘additional funding for children’s services makes up about 10% of the overspend in this area last year’. Meanwhile pressures on the NHS and social care workforce are looming due to Brexit – in particular in the charity sector.

Universal Credit implementation received another £1bn over five years to support ‘additional protections’ as people move on to the scheme. Another £1.7bn went into increasing work allowances. More detail is expected to be forthcoming from the Department for Work and Pensions. This is significant as it could benefit 2.4m working families and people with disabilities. The Resolution Foundation says it represents a £630 boost  a year for lower-income families offsetting past work allowances cuts for renters with disabilities or children. It translates roughly to £50 per month. But the Institute for Fiscal Studies pointed out  that four years of benefits freezes and changes to family premiums still far outweigh these new adjustment in work allowances.

No end of austerity for local councils…

There were some b significant announcements focussed on local economic growth and productivity, but no news about the long-term funding of local authorities. £770m went into the Transforming Cities Fund, and £675m into a new Future High Streets Fund. More money was made available for business improvement, R&D, and road improvement projects. The lift of the house borrowing cap means that local authorities can finally invest more into building social housing, which is a significant change.

These announcements show some willingness to boost local economies, but will we see a wider consideration of local commissioning, complementing the new mood music around Grants 2.0 in the new Civil Society Strategy?

Councils simply cannot pull themselves up by the bootstraps – at least in all areas. Business rates are cut by a third for high street retailers, benefitting loads of small SMEs (including charities potentially). But revenue from business rate retention is one of the major sources for the funding of local services. And the cuts were made unilaterally by central government. The Local Government Association said earlier that rising pressures on services will leave councils in England short of £3.9bn in the next year. The big picture for local councils hasn’t changed significantly, because there is no new funding settlement and fundamental reform of local taxation has been kicked into the post-Brexit long grass Not good news for charities and those they serve.

.…or even in general

Contrary to the government’s claims, austerity is certainly not over and in particular lower-income families are unlikely to feel much change from this Budget. While the Chancellor announced a rise in the National Living Wage, the top half of households benefit from 84% of income tax cuts delivered by this budget. In work-poverty is still persistent, many people will still be worse of as a result of moving to Universal Credit, and 14 million people are still living in poverty.

Further, we also know now that deprived areas were hit most by austerity. That translates into more demand on charity services by those most in need, less prevention and more crisis spending. Not to mention the looming Brexit process which could demolish any economic forecast. There are already visible impacts economic growth and investment.

In March 2019, it might not be Labour’s shadow chancellor John McDonnell, but Fiscal Phil’s Budget that falls flat on its face.