Live Blog: Autumn Statement 2016

November 22, 2016 at 13:15

Welcome to CFG’s 2016 Autumn Statement live blog!

For those of you that have followed CFG’s Budget and Autumn Statement analysis previously, welcome back. To anybody new to this, welcome. This blog will keep you abreast of the all the developments in the lead up to the Autumn Statement and will provide live updates and early analysis during the Chancellor’s speech which begins at 12.30pm on Wednesday 23rd November.

Follow  #VolSecAS On Twitter, as well as the CFG policy team – @CFG_obrien, @anjelicaseason @CFG_McLoughlin @CFGtweets – for all the latest analysis.

Members of the Policy team Anjelica (AF), Andrew (AOB) and Heather (HML) will be posting updates. The most recent updates will be posted at the top of this page.

In this blog you will find:

Live updates

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AOB – 13:52

It’s always a bit of a rush, but my first thoughts can be summed up in three words: debt, debt, debt.

Hammond is not going to be as much of a fiscal hawk as people thought, and although Brexit can be blamed for some of the borrowing, he has used it as an excuse to make some big spending pledges and make the economy match fit.

The charity sector needs to wake up and smell the coffee. Deficit reduction is a good way of saying “No” to those things the government wants to say “no” to, but it isn’t a barrier to those things it wants to say “yes” to.

We need to get the government to think that charities are a key way for them to improve the economy and society.

AF – 13:37

So that’s it. I’m off to write up an early analysis of the spending commitments and the impact on charities.

My main reflection: the Chancellor has shows that where there is the political will to, for example, make changes to business rate reliefs and give grants to infrastructure there is a way. Funding to LEPs to support regional productivity again restates the assumption that businesses are the sole drivers of economic growth and productivity.

We as a sector know that this isn’t true and we need to be less timid about stating its social and economic value.

AF – 13:30 

So the Autumn Statement full document is up on the website. Using my cntrl f skills there is only one mention of charities and this was telling us what we already know: that gift aid reforms will give £20m to charities by 2020.

AF – 13:24

Oh so what he’s doing is removing the number of times that people have to hold him to account. We want to get the chancellor up to the dispatch box as much as possible, not less.

Wait, maybe he knows that?

AF – 13:24

THEY’RE ABOLISHING THE AUTUMN STATEMENT?

AF – 13:21

So, there are some measures to help people’s disposable income.

Fuel duty will be cancelled – this will save an average car driver £130/year.

We will be analyzing what this Autumn Statement and the OBR projections will mean for disposable income and what this will mean for charities trying to raise income from individuals through donations and selling services.

AF – 13:19

CONFIRMED: NLW is going up to £7.50. NLW will cost the sector at least £500m by 2020. There has been no package of support similar to that received by business since 2010, and those outlined today, for charities to adapt to this increase pressure on their wage bill.

AF – 13:18 

Insurance premium tax will go up to 12% from 2017. This will be a cost for the charity sector, particularly for those charities that principally fundraisers through events.

AF – 13:13

So there will be restrictions on salary sacrifice but this will not apply to things like childcare vouchers. I have discussed the impact on charities a bit further down in this blog if you want to scroll down.

AF – 13:09

Corporation tax will fall to 17% in 2020.

He will implement business rates reduction package £6.7bn.

Small businesses in rural areas with give a tax break of nearly £3,000.

The chancellor has repeatedly used businesses and employers interchangeably in his statement. This again shows that there is a lack of understanding/knowledge in the government on the vital contributions that the charity sector makes to the economy.

AF – 13:03

Ah get your #VolSecAS bingo cards out. Here comes funding for individual charities through LIBOR fines.

It seems that the Chancellor could not resist the ‘rabbit out of the hat’ moment.

So we have funding for armed forces charities, including £20m for the defense and national rehabilitation centre.

£3m from the tampon tax will be delivered through comic relief for women’s charities. So violence against women continues to be a women’s only issue.

AF – 13:01

On to Devolution now:

Swansea, Edinburgh and North Wales will recieve city deals. The government has also started negotiations for city deal with Sterling so that every city in Scotland will have a cit deal.

Elected mayors will have new borrowing powers to reflect their new responsibilities.

Will be interesting to see what this looks like and how this will effect income for local authorities.

AF – 13:00

LEPs will receive grant funding. I’ve copied the relevant section from the Treasury doc for ease. You’re welcome.

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It seems that the government does see that businesses are the sole drivers of innovation and growth.

AF- 12:57

100% business rate relief on fibre infrastructure. So where there is a political will, there is a way?

AF – 12:52

We are onto investment in housing, RnD and infrastructure:

£23bn to be spent on innovation and infrastructure over the next 5 years. His tag line for this is: “investing today for the economy of the future”

Here are some of the projects this will fund:

£2.3bn to fund 100,000 new homes for areas in high demand

£1.4bn to fund 40,000 additional affordable homes

Right to Buy for housing associations are back again. I’ve written about the problems with this policy before.

AF – 12:50

Just in case you missed the OBR growth forecasts, here you go:

2.1% in 2016 – down from 2% it forecast before the EU referendum

1.4% in 2017 – down from 2.2%

1.7% in 2018 – down from 2.1%

2.1% in 2019 – down from 2.1%

2.0% in 2020 – down from 2.1%

AF – 12:48

Chancellor is telling us now how he is going to fund his spending commitments:

  • He will prioritize high value investment through additional borrowing.
  • All other announcements are going to be through additional tax.

AF -12:44

So that’s confirmed: no budget surplus by 2020.

But they will try and achieve it as soon as is practicable within the next Parliament.

He has said that his new charter for budget responsibility will mandate that:

  • borrowing will be down to 2% of GDP before the end of this Parliament,
  • public sector net debt must be falling by the end of the government
  • benefit cap will continue to be maintained, but not further welfare savings.

AF – 12:41

Every UK nation and region saw a record number of people in work. This is evidence, the chancellor says, of the economy working for everyone.

AF – 12:40

So the OBR has revised down potential growth over the forecast period by 2.4%.

The chancellor is drawing comfort from the fact that our growth will be the same as that forecast for Germany and the same for France and Italy.

AF – 12:38

I’m trying to wade through the jokes and fluff.

So he’s named three challenges that he wants to address:

  1. The productivity gap
  2. Housing
  3. Gap between the rich and the poor.

 

The chancellor wants “every corner of this United Kingdom is part of our national success.”

Let’s see what that means.

AF – 12:36

And he’s up. The Chancellor is starting back emphasising the resilience of the economy.

He is focusing on employment figures which shows that unemployment is at a record low and more people in work.

AF – 12:22

PMQs are entering their last 10 minutes. Not long now until the Chancellor steps up to the dispatch box. Make sure you are following #VolSecAS and this blog for updates on the announcements as they are made, and their impact on the charity sector.

Updates

23/11/2016 – 11:36 – AOB 

Another piece of interesting information that has come out today is the business rate relief statistics from the Department for Communities and Local Government.

The overall figure is around £1.6bn for charities with £1.558bn coming from mandatory rate relief and £44m from discretionary rate relief.

It is important to note that between 2013/14 and 2015/16 the total level of mandatory business rate relief has gone up by 12% – yet the discretionary figure has remained flat only increasing by £1m over the same period.

We know that many local authorities are becoming much harsher in grant discretionary rate relief – and this is adding costs for charities, particularly small ones.

CFG has put forward a plan for 100% mandatory business rate relief which would not only reduce costs for charities, but would also reduce red tape and bureaucracy for local government. Not likely to get announced today, but one to watch out for Autumn Statement 2017.

23/11/2016 – 10:26 – AF

We’ve not yet mentioned the issue of salary sacrifice.

What is it?

This is the mechanism through which employees forgo a part of their salary in order to receive a non-cash benefit. This might be childcare vouchers, or increased pension contributions. If an employee accepts a salary sacrifice her overall pay is lower and so she pays less income tax and National Insurance. Her employer will also not have to pay the Employers’ National Insurance contributions on the part of the employee’s sacrifice.

What does government want to do?

HMT have argued that the increase in employers using salary sacrifice schemes mean that the public purse is receiving less from income tax and national insurance.

The Sunday Telegraph has reported that the chancellor will tighten rules around salary sacrifice to try and recoup some of this lost income. This was something that was mooted ahead of the Budget earlier this year.

What is the impact on charities?

If this is scrapped charities that have paid staff and use salary sacrifice will see an increase in their NIC bill.

However, there has been rumors that pension saving, childcare and health-related benefits (such as Cycle to Work), will be excluded. Good news for charities as these are the type of employee benefits that they tend to provide.

I will be keeping an ear out for any mention of this in this afternoon’s announcements.

23/11/2016 – 09:03 – AF

There’s been little mention of devolution in the run up to today’s Autumn Statement. May’s government has stated its commitment to continuing devolution but has not outlined what changes to plans outlined by Cameron and Osborne will look like.

I will be keeping an ear out for any announcements around devolution – specifically around what funding local authorities will receive. In terms of replacing any lost EU funding, Secretary of State for Communities and Local Government, Sajid Javid has clarified that Government will match all EU funding agreements signed off until the point at which the UK leaves the union, but councils will want to have some clarification around what will happens after that point.

23/11/2016 – 08:45 – AOB

Something that I forgot to pick up yesterday, but was covered by Civil Society, was the news that David Davis lobbied the previous Chancellor on behalf of a charity for LIBOR fines.

We are delighted that the Chancellor sees the importance of charities, but we have lobbied with others for the government to make the use of LIBOR fines more strategic – there are big challenges that face the whole sector, and fines should be used to tackle those issues that face all charities.

Will the Chancellor use the fine again as a personal donations pot? Will he listen to the sector’s concerns and take note of criticism about the process? We’ll see…

23/11/2016 – 08:41 – AOB

Oh by the way, you can play along at work by using the CFG Autumn Statement 2016 Bingo (c) !

as2016bingo

 

Let us know if you are doing your own and we’ll retweet the best ones… don’t forget to use the hashtag #volsecAS

23/11/2016 – 08:30 – AOB 

Some of the Live Blog have been here since the crack of dawn…just sayin’…

My train-travelling colleague is right to say that the JAMs are going to be the focus on this Autumn Statement – and one of the ways that the government is going to help is likely to have a big impact on charities. The National Living Wage (according to the BBC) is going to rise to £7.50 an hour from April 2017. This may not sound like much of an increase, but for a full-time employee working 37.5 hours a week, the increase for a charity employer will be around £666 including both salary costs and NICs.

This is quite a big jump, particularly given that grants and contracts are unlikely to increase to compensate – this means that charities are going to have to find other sources of funding or make savings elsewhere.

The target by 2020 is for the National Living Wage to be £9 an hour, and this is going to cost charities an estimated £500m.

Will the Chancellor follow CFG’s recommendation to increase National Insurance Allowance so that charities (and other businesses) are able to offset the cost? Unlikely, but you never know…

23/11/2016 – 07:15 – AF

It’s budget day and the live blog is currently winging its way from Southampton to CFG HQ to get ready to hear what the Chancellor has in store for everyone.

More announcements have been leaked over night which give us further insight into what kind of budget this will be.

Steps to ease pressure on working families

It seems that the Treasury and the Chancellor aren’t fans of the acronym JAM (referring to those people that are just about managing) – further indicating that on issues of the economy it’s important for charities to appeal to the Chancellor and not solely refer to the rhetoric coming from Number 10.

However, measures have been announced to help alleviate the pressure on people in work. This includes:

  • Increasing the amount of Universal Credit that people can keep as they move into work (they’ll be allowed to keep 37% of their pay rise instead of 35%) shows that this government is looking to try and alleviate pressure.
  • Banning of letting fees
  • Building of 40,000 new affordable homes, just 10% of the 400,000 affordable new homes announced in the last Autumn Statement.

The question is, will it go far enough, to alleviate the pressures that increased inflation will put on people’s disposable income?

People’s concerns will not have been alleviated this morning as Sainsbury’s CEO, Mike Coupe, again warning that the fall in the value of the Sterling will see supermarket prices rocket over the next few years.

My colleagues Andrew and Heather have pointed to the challenges that rising living costs will have on the charity sector:

  1. Charities delivering services such as advice and food banks will see an increase in demand.
  2. The sector has been reliant on income from individuals (both through donations and selling services) as government funding has fallen. If people have less disposable income, this is likely to have a detrimental effect on charities’ income.

What is expected of employers?

Hammond has not broken with his predecessor’s move to make up for cuts in the welfare state by increasing the burden on employers.

The National Living Wage will be increased to £7.50. This will be a concern to those charities that have a little recourse to increasing their income in the current tough economic environment.

In the submissions made by CFG and other charity sector leaders ahead of the previous Autumn Statement we called for central and local government contracts to be up rated. This would ensure that charities were not asked to cover the increased wage costs of delivering a public service through an increase in wages through donations.

Recognising that any increase in the NLW has previously been accompanied by a package of support for business, and that it’s not only service delivery charities that will be impacted by an increase, CFG has also previously called for an increase in National Insurance Contributions for charities, tapered in line with NLW increases. This would maintain a level playing field between charities and the private sector.

22/11/2016 – 17:45 – AF

Following on from Andrew’s point on Corporation Tax cuts, it’s also important to consider that this indicates that the government does have room in the public purse – as well as the political will – to make changes to the tax system.

Whilst it would be naive of me to say that the Chancellor would be easily convinced to introduce measures that support charities – for example, increasing business rate relief to 100% – we should remember that businesses are not the sole producers of innovation or economic growth and feel confident in making that case to government.

Perhaps it easy to forget how to boldly state your value to government after 6 years of the charity sector effectively being ignored in the Budgets and Autumn Statements – excluding Osborne’s trick of giving targeted giveaways. But it is important that we do not and that we confidently put forward a positive agenda for the sector.

If we look at the proposals that CFG put forward in its tax plan, and those that we submitted jointly with other leading charity sector bodies, we really are not asking for very much in return for the £44 billion that the sector generated in income to support people and communities across the UK. For example, introducing measures such as introducing a VAT rebate scheme which would enable charities to direct more resources to improving or delivering more services, would be but a drop in the ocean compared to the billions that businesses have saved through corporation tax cuts.

22/11/2016 – 17:27 – AOB 

An issue which has picked up is the debate about whether the Corporation Tax rate is going to be cut further (from 17% to 15%) by the Chancellor in the wake of Trump’s pledge to cut the US federal corporation tax to 15% and Theresa May’s commitment that we have the lowest corporation tax in the G20. The Treasury appeared to be backing out of it this morning but claiming that they would be taking the combined of the state and federal corporation tax rates, so the UK wouldn’t need to cut further.

This is interesting for two main reasons.

1) It demonstrates how the Treasury is still the main driver of the Autumn Statement. The idea that May had total control over the economic policy agenda after getting rid of the influential Osborne as Chancellor is not true. The PM’s slip (or attempt to force a pledge ahead of the Autumn Statement) has been firmly pushed back by the Treasury and means that charities still need to keep a focus on it as a policy maker, rather than pushing everything through No.10. HM Treasury will remain a hurdle for any new policy ideas.

2) Tax is going to be a controversial issue. Given the deterioration in the public finances (or at least predicted deterioration) since Brexit, the Chancellor is going to find tax cuts very difficult to make. This is in stark contrast to George Osborne’s approach over the last few years where the ‘rabbit’ in the hat was often in form of surprised cuts in taxes. Hammond appears to need the revenue, if he wants to keep on track to reduce the deficit substantially over this Parliament.

22/11/2016 – 14:15 – HML

Like the rest of the policy team here at CFG, I am excited for the Autumn Statement tomorrow (who ever said politics isn’t fun!). It’ll be interesting to see what the Remain voting Chancellor in a Brexit world will decide on.

The areas that I’ll be looking out for are:

The Jam’s.

No, I’m not interested in any potential tax relief for Jam (which we all know is going to be key trading stock in post-Brexit UK). This is an acronym for one of May’s new favourite part of the electorate, the ‘Just about managing’. This new buzz word is part of May’s ideals that the Conservatives will help not just their traditional support base, but will make “Britain a country that works for everyone“.

So what does being a Jam actually mean?

The Jam’s are, as defined by the Resolution Foundation as a loose group of about 6 million low-income working families. These families will have an income somewhere between £12,000 – £34,000 a year and are often switch regularly from employment (often in insecure jobs) to unemployment. For the last decade with the financial crisis the majority of these families have seen no rise in income.

What about the non-Jam’s?

So what if you’re someone who not under the acronym of a popular condiment? There has been some talk of changes to Universal Credit to help ease in people who are negatively effected by the changes. This has included lobbying by some MPs to restore the work allowance and reconsider the cuts in employment and support allowance benefits due in 2017. Unfortunately, there seems to be little provision for single people who are also working on a low-income.

What does this mean for charities?

Despite Hammond’s willingness to end austerity (Osborne’s unceremonious booting out of No. 11 over the summer, has been taken as a clear indication that his insistent on austerity policies were not wildly shared by all of the front bench) it does not mean that he will be able to provide a sudden economic boost for low-incomers. This is where charities should pay particular attention. It will not be new knowledge to learn that in the last Parliament charities saw a rise in demand (increasingly from the Jams demographic described above) and often had to provide services and support in increasing financially strained times.

This is, unfortunately, expected to continue for the foreseeable future as many charities continue to work in environments of strained income due to economic uncertain with Brexit and with expected cuts to government departments reducing funding.

22/11/2016 – 13:58 – AOB

I now christen this live blog open! May God bless it and all who sail on the bumpy waters of trying to navigate the Autumn Statement!

Now the formalities are over, let’s get onto the interesting stuff. What to look out for tomorrow. As I have said in Third Sector, I am going to be concentrating on the direction of travel rather than the substance, as Mr Hammond is a tricky man to pin down. If George Osborne was a ‘submarine’ chancellor, then Philip Hammond is Captain Nemo, hiding 10,000 leagues under the sea (apologies for the terrible nautical joke).

Here are my three things that I will be paying very close attention to:

1. Predictions of the “public sector borrowing requirement” aka the deficit – How big is it? Is the OBR as pessimistic as the Bank of England or does it think that growth won’t be as badly hit by Brexit in subsequent years? Moreover, does it take a punt on whether Brexit will lead to significant permanent long term damage to the economy or not? This will frame spending decisions for the next few years.

2. What happens with wages?– I’ve written before about the interaction between wages and fundraising, but this is important information for charities from two perspectives. Firstly, if wages are squeezed due to increasing costs (inflation) and businesses holding down pay awards, this is going to create a tough fundraising environment. Secondly, if wages are being squeezed, charities (which are already holding down wages or cutting back hours) may find themselves under renewed pressure from staff – this could create difficult times for HR and finance teams.

3.  VAT – There is a swirl of rumours around a VAT cut in the spring (see below). What does Hammond say? If he is too positive, then that could actually hurt the economy as people defer spending on big ticket items. If he is too vague, then that probably indicates that he isn’t favourable to this expensive policy change. Either way, it will be something that we should watch carefully.

What can we expect?

The Autumn Statement is always an important event, but tomorrow’s announcements by the chancellor will be particularly interesting for the sector to keep an eye on. The reason for this is twofold. First, it is the first since Philip Hammond became chancellor and therefore it will indicate this government’s direction of travel for the remainder of Parliament. Second, it is the first since the UK’s vote to the leave the EU and we will see what impact this is forecast to have.

Where next for Austerity?

Economic growth in the aftermath of the referendum was better than expected as consumer spending continued to apply upward pressure on GDP. However, when we look at the forecasts the predictions are more pessimistic.

If you click on the graph below – taken from CFG’s Brexit special edition of the Economic Outlook Briefing – you will see that growth forecasts have been revised down sharply.

Source: EOB Q3

Source: EOB Q3

Whilst the Chancellor indicated that there may be a slow down in austerity in the aftermath of the EU referendum we have to take notice of the worsening economic outlook and the forecast increase in government borrowing. The graph below shows that the IFS believe that public sector net borrowing will be far greater than that predicted by the OBR back in March 2016 which suggested that debt-to-GDP ration would fall each year.

Source: http://bit.ly/2gug9OQ

Source: http://bit.ly/2gug9OQ

As my colleague Andrew said in his article for Third Sector, perhaps the most important thing charities should look out for in the Autumn Statement is the chancellor’s direction of travel. Mr Hammond can use the context of Brexit to justify significant further borrowing and investment in infrastructure, public services and tax cuts in order to boost demand. But early reports indicate that this is unlikely and the aim will be to keep the deficit as small as possible.

If Hammond wants to to keep borrowing down, that will mean further cuts. Public services, particularly at education, and Local Government will be targets. It also means that reform in key areas impacting charities such as public services and tax are likely to be ignored.

We also need to look at is how pessimistic the OBR is. The more pessimistic the harder the cuts. Keep an eye on this blog and our briefing which will be published on the CFG website on Wednesday afternoon!

Looking at some specifics

Saving the NHS

There has been a big push in the days running up to the Autumn Statement for the Chancellor to use it to stabilise the NHS and social care system, with alarming financial stories appearing about both in recent months. NHS hospitals had a record deficit last year of £1.85bn and this is likely to increase this year – with NHS England and the Department for Health now in open disagreement about whether the NHS has the resources it needs to do its job effectively. There is a similar financial crisis in adult social care. Will the Chancellor pump more into the NHS? If so, where will this come from – borrowing or spending cuts elsewhere?

A potential VAT cut?

There is a lot of rumour at the moment that the Chancellor will use this Autumn Statement to pave the way for a cut in VAT in the Budget in the spring. This would be a bold political gamble, and expensive one (likely to cost around £12bn a year). For charities, it would be a dual benefit both in supporting household spending and reducing the rate of irrecoverable VAT. We’ll need to look carefully at the wording of his statement on VAT, as this may simply be a false alarm.

Infrastructure

Physical infrastructure is going to be the focus with roads and rail likely to focus heavily. Hammond is keen to be seen as someone focused on the long term. But what about local infrastructure and support for communities – will the Chancellor look at the social infrastructure as well as the physical infrastructure that supports growth? We’ll find out.

Science and innovation

As you may have seen CFG called for policies designed to harness and drive innovations in technology in the charity sector, this was as part of our submission to the chancellor ahead of the Autumn Statement. As such, it was good to see reports today that the chancellor will announce funding to improve access to fibre optic broadband to both homes and business premises (which will include charities).

This should be a positive step in the right direction for those charities operating in and supporting rural communities. However, this does not offset the significant challenges that small charities in particular face in accessing the necessary hardware and software that could help increase their reach and efficiency.

 

Useful Links

  • Head of Policy and Engagement, Andrew O’Brien, argues in Third Sector that charities should ignore the Autumn Statement headlines and focus on the direction of travel.
  • Download the proposals that CFG and other leading charity sector bodies submitted to the chancellor ahead of the Autumn Statement. You can also read a summary.