Much of the talk ahead of the Autumn Statement was of the extra fiscal ‘headroom’ the Chancellor was likely to be handed – and what he might choose to do with it. That headroom was the result of inflation remaining higher for longer, which fed through into pay growth and subsequently into tax revenues.

In the event, the headroom came in at £26.8 billion in 2027-28 – the last year of the OBR’s forecast horizon. The Chancellor chose not to use any of this headroom to compensate public services for the rising costs they’re experiencing as a result of inflation, nor did he bank very much of it for future use. Instead, he chose to consume almost all of it delivering large tax cuts for workers and for businesses, and some more modest expenditure on welfare reform.

The result of the Chancellor’s choices is a boost to projected levels of growth, participation, employment and income relative to what might otherwise have been the case. But these will serve to only partially soften the living standards challenge continuing to face the country. Despite upward revisions relative to the OBR’s March forecast, household incomes are projected to fall still further in 2024-25, concluding what the OBR describes as “the largest reduction in real living standards since ONS records began”. Even when recovery comes, it’s expected to be slow, with incomes not reaching pre-pandemic levels until 2027-28.

Meanwhile, the OBR now expects an additional 85,000 people to fall into unemployment relative to its March projections. And the share of household income being used to make debt repayments is expected to double over the coming years, reaching 8.3% by 2027-28 – back to levels last seen in the immediate aftermath of the financial crisis.

These miserable expectations for living standards would nevertheless have been a lot worse had the Chancellor not made some choices that support people on the lowest incomes. Alongside confirmation that Universal Credit will be uprated in the usual way in April 2024 - meaning an inflation-matching increase of 6.7% - one of the most significant of these choices was the restoration of housing benefit to the 30th percentile of local market rents. This ends the squeeze on local housing allowance which played out against a backdrop of rising rental costs and that had led to more than 6 in 10 renters struggling or failing to meet housing costs. A looming homelessness crisis may also lessen – as without today’s intervention, the number of households in temporary accommodation was due to double in just 20 years. However, this increase to local housing allowance is only a one-off bump, as the government has set out to freeze housing benefit beyond 2025-26. This means that real-term cuts are set to repeat themselves.

Additionally, there is considerable concern about the impact that changes to Work Capability Assessments will have on people managing long-term health conditions and disabilities. The government plans to move around 340,000 people from a ‘severe’ classification to a ‘less severe' rating, which affords fewer protections and means many people with disabilities and ill health will lose £390 a month. Though this change has been presented as an attempt to encourage people with long-term health conditions and disabilities into work, the OBR expects that only an additional 10,000 people will move into employment by 2028-29 as a result. This means that most people affected by this change will not replace the loss of the health payment by earned income and will therefore be worse off.

Despite understandable concerns around stricter sanctions, the Back to Work Plan could be an opportunity

The government’s changes to Work Capability Assessments are one part of a wider Back to Work Plan to support people with ill health to access employment. This is critical, as rising health issues have acted as a serious drag on both life satisfaction and the economy, with a record 2.5 million people out of work due to ill health. This has had an estimated cost of £43bn-a-year to the UK economy, equivalent to around 2% of GDP in 2021.

There is plenty of merit in many of the Back to Work Plan’s proposals. For example, the government has stated that it intends to increase the number of people accessing NHS Talking Therapies services by 384,000 over the next five years. This is in response to the rapid increase in demand for NHS mental health services, which, in August 2023, were accessed by 1.8mn people – a 8.8% year-on-year increase, and a figure 32.8% higher than pre-pandemic. Additionally, the government also provided more detail around the previously trailed WorkWell programme, announcing £64mn to fund 15 pilot schemes in local areas. These are intended to integrate local employment and health support for disabled people and people with health conditions, to support them in finding employment. The pilots will be locally-led by Integrated Care Boards and aim to develop whole-systems approaches.

In addition to having the potential to make a difference to both people’s health and their ability to work, the proposals in the Back to Work Plan are also likely to create plenty of opportunity for the UK’s employment and training charities, those specialising in mental health, and disabled people’s organisations. This comes after more than a decade of declining government investment in the very charities that will play a vital role in helping those that are furthest from the labour market. Government funding of employment and training charities has fallen by more than £900mn between 2009-10 and 2020-21 – a decrease of 71%.

Austerity 2.0? Inflation will mean real-terms cuts in public services

Though the Chancellor is eager to move people with long-term health conditions into work, beyond the Back to Work Plan, the Autumn Statement did little to tackle the growing NHS crisis which is so key to achieving this goal. Nor did the Chancellor use the Autumn Statement to increase government departmental spending envelopes to respond to inflation. As such, he effectively delivered a £19.1bn real-terms cut in annual spending on public services by 2027-28, relative to previous plans. This is roughly equivalent to the total day-to-day spending of the Home Office and HMRC combined and implies a renewed period of austerity.

The Chancellor’s choice means there is no sign of short-term relief to systems that are already significantly overstretched – from the courts which are struggling with a 65,000 case-long backlog, to the housing services which are having to contend with the almost-doubling of households in temporary accommodation over the last 13 years; and from the police which are managing an 8.9% year-on-year increase in charges and summonses, to the children’s social care services which have experienced a similar 8.8% increase in referrals over the past year. The lack of additional support for local government – which provides many of these pressured services – will fail to calm nerves over a shaky system, in which 11 local authorities have gone bankrupt since 2018. The charities which work in these unprotected areas and those which receive local government funding are likely to find themselves trapped in a familiar battle of rising demand and falling incomes. 

In practice, it’s hard to imagine any government delivering the austerity 2.0 implied by today’s statement. The Chancellor may have swept the perilous state of public services under the carpet for the moment, but whoever is in power when the next multi-year Spending Review comes around will be forced to face some difficult decisions about public sector spending, and confront the need to either borrow more or increase taxation.

Squeezed public services will mean yet more pressure on overworked charities, but charity income is rebounding

Similarly swept under the carpet in this Autumn Statement was the impact that the economic, health and social challenges of the past three years have had on the UK’s charity sector. The resulting increase in demand for support, alongside falling volunteer numbers and an increasingly challenging financial landscape, has created huge pressures on an already stretched sector. In 2020-21, charity sector income fell by around £2.4bn in real terms, as income from fundraising events, venue attendance and charity shops was hit by the lockdown restrictions. And data from September 2023  shows that demand for charity services remains very high.

Yet more recently, charities have expressed increased confidence in their ability to meet those demands, compared to this time last year. New PBE modelling based on the OBR’s projections for the wider economy suggests that charity sector income is likely to have bounced back from its fall last year, to around £66.3bn in 2022-23. It is likely to rise further to between £67bn and £68bn by 2024-25. This is a sluggish rate of growth - of around 1% per year, compared to an average growth rate of around 3% per year over the 10 years prior to the pandemic. And this leaves the sector's income well below long-term trends, with charity sector income in 2023/24 likely to be around £9bn lower than the pre-Covid trend.

This has important implications for the millions of people who rely on charities’ support. With today’s Autumn Statement setting out a future of lower living standards, new challenges for people with disabilities and growing pressures on already strained public services, charities are likely to continue picking up the slack. A strong and resilient charity sector will be more important than ever.



Attribution: HM Treasury, The Chancellor of the Exchequer delivers his Autumn Statement, Flikr, 17 November 2022.