As the Chancellor set out his vision for the economy today at his third Budget and the first multi-annual Spending Review since the heady pre-referendum days of 2015, he was attempting to ride multiple horses at once. How to keep his low-tax loving backbenchers happy while simultaneously giving public services a boost post-pandemic? How to bring optimism to the public while the country muddles through crises in supply chains and the cost of living?

PBE’s post-Budget analysis takes you through how the Chancellor managed. 

Let’s do the Time Warp again

The OBR gifted the Chancellor a much more positive set of forecasts for the UK’s growth, unemployment and public finances than anticipated – providing him with an additional £140bn of headroom to play with.

That has meant that, instead of taking the country back to the austerity years as some anticipated pre-budget, we found ourselves going even further back in time: in both health and education, some elements of spending have been restored to pre-2010 levels. The Budget announced that the health capital budget will be the highest since 2010 (though the IFS have poured cold water over the idea that is quite enough, given the ever-ageing population and chronic health conditions becoming more common). And the Chancellor promised to bring per pupil core funding in England back up to 2009/10 levels too, with an additional £1.8bn on top for the extra school catch up needed post-pandemic – though this is still far below the £13.5bn the EPI estimates is needed.

Even the Charity Commission benefited from the swing back to coalicious levels of spend, with their budget set to rise to £29.3m by 2024-25. The Commission has had a bumpy ride over the past decade, as their budget fell from £31m in 2010 to £21m in 2017.

Turn the spending taps up, buy another round

Education received another significant allocation today too, through the allotment of a major chunk of the Shared Prosperity Fund. PBE’s recent report for National Numeracy showed that 16m workers in the UK with low numeracy skills earn an average of nearly £1,600 less per year than they could if they had a basic level of numeracy. Quoting PBE’s research, the Chancellor announced a hefty £560m of the Shared Prosperity Fund would go towards the ‘Multiply’ programme, a new scheme to boost adult numeracy.

£500m was also announced for early intervention children’s services including family hubs and parenting programmes. This follows a campaign by the Children’s Services Funding Alliance which PBE has supported thorough research into the significant decline in funding for early intervention children’s services over the last decade.

Early intervention spending in England declined from £3.6bn in 2010-11 to £1.8bn in 2019-20

Source: DfE (2021): LA and school expenditure

Department for Confusing Monetary Spend

However, not all parts of government have been able to share in this spending splurge equally. DCMS's departmental budget will increase in real terms by 2.9% between 2019/20 and 2024/25. But this overall figure masks some confusing shifts.

DCMS's capital spending budget is expected to grow in real terms over that period by a sizeable 11.6%. Yet day-to-day DCMS departmental spending is set to decline by 1.5%, making DCMS one of only three departments facing day-to-day budget cuts. Some of that decline can be explained by the fact money is being shifted from departmental spending into its capital budget, but numbers published by the Treasury don't make it clear how much. As a result, it’s not currently possible to say how much of the planned day-to-day spending squeeze is going to translate into real impacts for the department (expect to hear more from us as that becomes clear!)

Overall, DCMS's departmental budget will grow by 2.9% in real terms by 2024/25

Average real terms growth in total departmental budgets (including day-to-day and capital spending) 2019-20 to 2024-25

Source: Autumn Budget and Spending Review 2021, Table E.2: Total DEL (excluding depreciation), average real terms growth 2019-20 to 2024-25.

But it's one of only three departments facing a decline in day-to-day spending (though that is partly explained by money shifting into capital spending plans)

Average real terms growth in day-to-day departmental budgets, 2019-20 to 2024-25

Source: Autumn Budget and Spending Review 2021, Table E.3: Resource DEL (excluding depreciation), average real terms growth 2019-20 to 2024-25

Accounting for a sizeable chunk of the 11.6% rise in capital spend are many impressive boons for DCMS’s sectors – with big announcements on broadband, digital technology, culture and heritage, youth services and sports. This includes a tax cut worth £265m for theatres, museums and galleries, and £850m of new funding for culture and heritage organisations. This follows the £2bn Culture Recovery Fund which operated throughout the pandemic – meaning the culture and heritage sector has now received more than four times as much support from government to survive the pandemic than the charity sector has.

And with the new Secretary of State for DCMS priding herself on her love of football, the Budget allocated £205m for the sport at grassroots level, a quadrupling of what was promised for grassroots football in the Prime Minister’s Levelling Up speech in July. £560m of funding was also provided for youth services in England over the next three years, though much of that is suspected to be the long-promised £500m Youth Investment Fund.

On the Midnight Train to Gateshead

Beyond these three pools of money and £9m for new parks, investment in communities and social infrastructure was thin on the ground, particularly when compared with the £5bn provided to fill potholes or the £5.7bn invested in the transport infrastructure of eight English city regions. The first allocations of the Levelling Up Fund announced in the Spring confirmed the government’s somewhat stubborn preference for grey infrastructure over social infrastructure, with railways and other transport infrastructure emerging as the big winners.

The government’s narrative on levelling up has shifted to recognise the importance of social infrastructure, with even the main Budget document claiming that “good quality civic infrastructure strengthens local communities and local economies, contributing to higher civic engagement”. However, the Treasury has yet to put its money where its mouth is.

But with only two fifths of Priority 1 Levelling Up Areas having been designated funds so far and the Levelling Up White Paper expected a few months from now, there’s still time to secure meaningful investment in social infrastructure, to ensure levelling up succeeds.

Meanwhile, local government will be given £4.8bn in new grant funding over the next three years. This is good news for charities and the people they serve, but needs to be considered in the context of a decade of austerity that saw significant declines in local government funding. Between 2010 and 2019, IFS analysis shows that cuts to funding from central government led to a 23% fall in English Councils’ per person spending on local public services. The additional money announced today won't be enough to undo that damage.

Reality check

Hidden among much of the good news the government will wish to focus on are sobering estimates that around half a million more people will be unemployed by the end of the year than directly ahead of the pandemic, and national output is projected to remain around £380 per person lower than pre-pandemic expectations. And while inflation picks up to 4.4% in early 2022, average income is projected to be £1,200 down on pre-pandemic projections by the start of 2025.

The OBR has predicted inflation will increase to 4.4% in 2022, far above their expectations back in March 2021

CPI annual rate, outturn and selected OBR projections

Source: PBE analysis of OBR, Economic and Fiscal Outlook, various

The Chancellor’s announcements today included steps to support workers with the cost of living, as he accepted recommendations to increase the National Minimum Wage and to alter Universal Credit to increase take-home pay for the lowest earners. But this doesn’t offer much help to those out of or unable to work, who will be bearing the cost of living rises without much more support beyond a freeze in fuel and alcohol duties, funds for refugees and rough sleepers, and the continuation of existing funding for schemes which help people back into employment.

Not only are these individuals ill-supported by today’s Budget, but the charities which help them were too. Beyond National Numeracy, the charity sector itself was missing in action from today’s event with charities receiving just one mention in the budget for every 40 mentions for the public sector and 70 mentions for the private sector. There was no new investment in the sector itself despite the additional demand many charities currently face. PBE analysis of the OBR’s new figures indicates that charities will be left with a permanent income scar as a result of the pandemic. If public giving moves in line with projected consumption – as it often does – the sector will see out this spending review period with a hole of around £6.6bn.

If charity income keeps tracking consumption, a big dip in consumption between 2020 and 2023 could translate into a £6.6bn funding hole for charities

Indices of real-terms consumption (four-quarter total), outturn and selected OBR projections, and index of charity income: Q4 2019 = 100

Source: PBE analysis of OBR, Economic and Fiscal Outlook and NCVO UK Civil Society Almanac, various

 

Hungry Eyes (for more Budget and Spending Review Analysis)

Between the Chancellor’s 7816 word speech, 651 pages of documentation from the OBR and HM Treasury, and dozens of tables and figures, there’s plenty more detail on these announcements to be discovered over the coming days.

Book your place now to join speakers from PBE, Charity Finance Group and Toynbee Hall for what we discover overnight here, and stay tuned to our social media feeds in the days ahead to learn more.