Chancellor Jeremy Hunt MP delivered the 2023 Autumn Statement on 22 November. This update on the UK’s public finances from its top finance minister was one of the last big set-piece events before a likely General Election next year. It provided an opportunity for the Conservative Party to wrest back some momentum in the polls, after trailing by large margins since the disastrous ‘mini-Budget’ of Hunt’s predecessor last year.
With the election frame in mind, the Chancellor used much of the Statement to burnish his party’s tax-cutting and pro-business credentials. He talked of boosting productivity, ‘backing British business’ and a programme of measures that would ‘reduce debt, cut taxes, and reward work’.
There were some good, some bad and some downright ugly measures in the statement that charity staff, volunteers and trustees will want to take note of.
The Good: National Insurance cut
The Chancellor saved his best announcement for last: he will drop Class 1 National Insurance contributions (paid by employees) two percentage points from the current level of 12% to 10%, effective from 6 January. This will be very welcome for staff working in the charity sector, especially at a time when wages are likely being outpaced by other sectors. However, given that income tax thresholds have not risen with inflation for several years, it’s not really a tax cut so much as a reduction in the level of an increasing tax burden for those in employment.
The Chancellor also announced some important measures that some charities had campaigned for. The documents state that “To further support low-income households with increasing rent costs, the government will raise Local Housing Allowance rates to the 30th percentile of local market rents in April 2024. This will benefit 1.6 million low-income households, who will be around £800 a year better off on average in 2024-25”. The Chancellor acknowledged input from the Joseph Rowntree Foundation and Citizens Advice on this, and Shelter called it a ‘campaign win’ that will help stop rising homelessness.
Hunt also announced “an additional £10 million to support the Veterans’ Places, People and Pathways Programme to increase support to a significant community of vulnerable veterans throughout the UK and enable it to become self-sustaining”. This programme, run by the Armed Forces Covenant Fund Trust, provides grants to ‘develop better, more joined up lasting support for local veterans with mental health needs.’
The Bad: more real terms cuts to many public services
Most of the Chancellor’s vaunted ‘110 measures to boost productivity’ will likely have little relevance for most charities which are still paying hundreds of millions in irrecoverable VAT, despite persistent calls to do something about this now that the UK has left the EU. However, there was a bit of tax-related good news in the reinstatement of VAT relief on energy-saving materials for charity buildings, which the sector has been campaigning for.
But more worryingly, there was no sign of relief for public sector budgets that have also been hit by the impact of inflation and wage pressures. In its analysis, The Office for Budget Responsibility says that for the forecast period ‘higher inflation means the real value of departmental spending is £19.1 billion lower by 2027-28 than our March forecast’.
However, looking at the tables in the Autumn Statement documents [Table 2.1, pp 33], it appears that the forecasted impact won’t be evenly spread. Some departments are showing nominal (i.e. non-inflation adjusted) increases over the next few years whilst others are showing decreases (meaning even bigger cuts once inflation is adjusted for). We’ll need to see the full analysis from economic experts for a clearer picture, but ultimately any figures which forecast beyond the next election may be little better than writing on the chalkboard that gets washed away after the vote.
Local authority and health service budgets have been under huge pressure for years with enormous knock-on effects on the charity sector. New evidence from NCVO shows that inflation and increased demand is making public service contracts untenable for many charities. In the round this Autumn Statement looks set to make this situation even worse, and it’s likely that more and more charities will have to hand back loss-making contracts in the foreseeable future or risk their own financial sustainability.
The Ugly: Putting even more pressure on disabled and chronically ill people
There was speculation in the run-up that the Chancellor might have uprated benefits with the lower inflation figure from October rather than the higher figure from September, but thankfully that didn’t happen. Instead he confirmed that ‘Universal Credit and other benefits will be increased by 6.7% from next April’. However, as a campaigning coalition of charities have been pointing out, even with these adjustments, the real purchasing power of benefits has not kept up with high inflation overall. The cost of food and other essentials has increased even further than the headline rate of inflation and we need an ‘Essentials Guarantee’ to cover the basic costs of food and bills.
In response, Hunt delivered yet another salvo in his party’s long-term agenda to ‘reform welfare’ by putting further pressure on unemployed people in receipt of benefits. Disability charities have argued that disabled people face extra living costs and that the cost-of-living crisis has a disproportionately negative effect on disabled people.
The Chancellor argued that it was ‘wrong economically and wrong morally’ to have seven million people of working age not working (even though many millions of those are simply choosing not to work and not claiming Universal Credit). He announced further funding to help disabled people and those with long-term illness into work with ‘18 months of intensive support and mandatory work placement to increase skills and employability’. However, he also said that if people didn’t engage with this programme for six months, their ‘case will be closed and benefits stopped’.
It’s hard to see how this policy won’t exacerbate stress and destitution even further for substantial numbers of people who are unable to work through no fault of their own. We know from past announcements of this nature that the bureaucracy can respond to pressure from the top by being increasingly punitive on people who are already vulnerable, making flawed decisions that are later overturned on appeal following exhausting work from advice and legal aid organisations.
These ‘fiscal events’ always involve a good dose of financial fiction, and this was no exception. The National Insurance cut offers some tangible benefits in the near-term, but other measures indicate that various charity campaigns to advocate for those suffering in the cost-of-living crisis will be even more important in the election year.
Ultimately, this statement was mostly about setting the scene for a General Election campaign in spring or autumn of 2024, with some dividing lines staked out on tax cuts, benefits and business support. But many of the policy details will likely wither on the vine or disappear completely afterwards, even if the macro-economic impact of the decisions taken or not taken remains.