Budget and Spending Review 2021: An Analysis
28 October 2021
Overall, the Budget and spending review are more generous than expected, with increases for all departmental budgets. This is partly because economic forecasts are better than expected (compared to the forecasts last year and in the spring).
However, Brexit is impacting on the economy, with trade with the EU impacted. The OBR estimate this will reduce long-run GDP by 4%. This has reduced revenue for government, adding to the need to raise taxes (UK tax receipts as share of GDP are currently highest since WW2, partly as result of paying for furlough, test and trace etc).
Whilst all departments are seeing an increase in spending, almost half of the overall extra government spending is going on the NHS. There has also been the continued shift to increase capital budgets more than everyday (“resource”) spending.
Departments are also seeing a re-prioritisation within budgets towards the Government’s overall priorities. As part of the spending review, all departments had to put forward proposals for 5% cuts in their day-to-day spending (ie non capital spending) and these will now have to be implemented, alongside the increases in funding for priorities.
The Government’s priorities are set out for each Government department in outcome delivery plans – DCMS’s is largely unchanged. In addition, the Government has set out its overall key priorities:
- Levelling Up: To fulfil the government’s ambition to level up the UK
- Net Zero: To get our country well on the way to net zero carbon, supporting green jobs and a better environment for the next generation
- Education, Jobs and Skills: Reduce the lost learning from COVID-19, raise productivity through skills reform, and get people into jobs, particularly higher-paid and higher-skilled ones
- Health: Recover the health system following COVID-19, and level up outcomes
- Crime and Justice: Reduce the volume and harm of crime, including drugs misuse; improve how the criminal justice system deals with the highest harm cases
Some of the additional spending will go on staffing costs in the public sector, as the pay freeze has ended (though increases may still be below inflation). There isn’t additional funding for departments to pay for this.
Inflation is also forecast to rise, and labour costs generally are likely to go up in some sectors with rises in minimum wage or where there are labour shortages as a result of Brexit. These could eat into the costs of programmes and services, whether funded by government or our members
Despite some short-term rises in wages, overall wages in real terms are still set to be pretty stagnant for the next five years. Wages in real terms have been stagnant since 2008 – based on Office for Budget Responsibility (OBR) forecasts, the Institute for Fiscal studies say average wages by 2026 will be £11.70 lower per hour than if the pre-2008 trend in wage growth had continued. The OBR are now predicting much lower unemployment than previously – peaking at 4.9% this year and then falling.
In the submission from charity umbrella bodies to the spending review, we also called for the £20 cut to Universal Credit to be reversed. This hasn’t happened but there is a change in the Universal Credit taper and thresholds so those in work and claiming Universal Credit can keep more of the money from it (but there is a balance between a sharp taper which catches fewer people but who lose out a lot, and a gentler taper than means people lose less benefits as they take up work but which catches more people). The Joseph Rowntree Foundation estimate that the benefits of the taper changes for those in work will be wiped out by rises in the cost of living.
Local government funding has increased for the first time since 2010 (this was an ask from us and the other charity umbrella bodies). But the increase won’t yet make up for severe cuts in recent years, and some of this is needed to offset higher labour or other increased costs in sectors like social care, and some of it is also reimbursing councils for business rates being frozen (which was also announced today). But it’s still good news for local charities and community groups – though how much this will lead to more grants or contracts to them is unclear at the moment given that internal local authority services are still underfunded.
The Government say they want to move back to spending 0.7% of GDP on international development by 2024/25 but this will be kept under review depending on the state of the economy. Restoring the 0.7% commitment was also an ask from the charity umbrella bodies.
Charity umbrella bodies also called for levelling up funds to go on “social infrastructure” rather than just on physical infrastructure like transport or new or refurbished buildings/public realm. There are updates on three funds relevant to levelling up in the Budget/SR:
- Levelling Up Fund – all of this fund is going on capital spending. Ministers and Number 10 have chosen to prioritise culture and transport projects over regeneration ones
- Shared Prosperity Fund – this is the replacement for EU funding. It will be below EU level of funding for the next couple of years (but existing projects are still getting EU funds). It will be purely resource funding rather than capital (but Treasury rules allow for resource funding to be used on capital too).
- Community Ownership Fund – this supports community groups who want to take over assets like a building or land. It needs match funding (some foundations may be match funding these). 21 projects have been approved costing just over £5m, with £145m left in the pot for the four-year programme
Charity umbrella bodies also called for more participation for communities over levelling up decisions on funding, with more devolution of the funds directly to communities. This isn’t mentioned in the spending review – the funds outlined above all involved final decisions by ministers and Number 10 Policy Unit. However, there may be more detail on how levelling up fits with more devolved decision making in the levelling up white paper. The white paper is due by the end of the year
In our submission to the spending review, we also called on the government to make decisions in line with the need to stick to climate change budgets and net zero. On this it’s a mixed picture. On the plus side, there is additional funding for climate change programmes, the National Infrastructure Commission is given a new net zero remit and climate change is clearly part of the new outcomes departments are supposed to work to. On the other hand, there are billions for road schemes, fuel duty is frozen for the 12th year in a row and Air Passenger Duty is halved on domestic flights (the rationale given is that this will lead to more flights on existing routes plus new routes to improve connectivity).
Other announcements in the spending review
- The Cabinet Office grants application portal gets £8m for its development (funded from Shared Outcomes Fund)
- The Ministry of Justice took some of the biggest hits from cuts since 2010 but now has its budget increased – but much more funding is going on new prison places rather than prevention schemes with voluntary sector
- The Charity Commission gets an increase in funding
- Youth services get £560m but looks like National Citizen Service get the resource funding and the Youth Investment Fund is purely capital. The Youth Investment Fund will go on funding 300 youth facilities but with no guarantee of how services at the facilities will be funded given the lack of resource funding
- Tax reliefs and additional funding for the culture sector – they are listed alongside aviation as sector particularly badly hit by Covid and needing further support.
- Business rate reliefs for charities are unchanged
- Plans to publish a consultation on options to simplify the VAT treatment of fund management fees
If you have spotted anything else we have missed, do let us know at [email protected].