Budget analysis: Caution and austerity continues

Yesterday's Budget appeared to be one focussing on caution in an uncertain pre-Brexit economy. The overall context for charities remaining one of austerity well into the next parliament, with a further £3.5bn of government departmental cuts due to be announced later in the year.

We still have serious long term challenges around health and social care, local authority funding, pensions and wage growth with a raft of consultations on many of these issues announced yesterday. We also heard of a long awaited review of social care funding in the form of a green paper later this year – it will be important that the sector has a strong voice in the consultation process.

In response to increasing pressure to fund social care, the chancellor announced a further £2bn for social care over three years and whilst this fall is significantly short of the estimated £1.5bn the cross-party Communities and Local Government Committee recently found was needed this year alone, with the annual funding gap expected to reach £2.6bn by 2020 according to the LGA, it will provide short term respite from current pressures on local authority budgets.

He also announced additional capital funding would be made available in the autumn budget for the NHS Sustainability and Transformation Plans currently in development. Let’s hope that we can ensure that there is evidence of real engagement of stakeholders including the VCSE in these plans going forward as there is little evidence of this to date.

Mr Hammond announced a rise in national insurance contributions for the self-employed closer to the level of those in employment, rising to 11% by 2019. While the chancellor stated that those earning under £16,000 would still see a fall in their NIC contributions, the tax rise forms part of a wider context of higher costs for households over the coming year. The unexpected strong performance of the economy since the referendum has largely been driven by consumer spending, which is now set to trail off as the effects of the weak pound kick in and make inflation jump to 2.5% this year, according to the OBR.

As well as leading to lower wage growth, high inflation is expected to impact particularly heavily on those receiving benefits, which were frozen in 2015, meaning low income households will find their benefits worth progressively less over the coming years. Inflation will not rise as high as previously forecast, but is now expected to stay high well into 2019.

This has implications for the sector in that many of our beneficiaries are in receipt of benefits. Therefore the sector is likely to experience yet more demand, whilst absorbing the impact of higher inflation on their organisation and staff.