Leaving no-one behind

If those of us who support a well-being approach to the economy were looking for some favourite buzz words in the budget, we were to be sorely disappointed – no mentions of inequality, social enterprise, equality, and only two specific mentions of poverty.

Yet, this was a budget bigger than was to be expected and marked a different approach from past Parliaments. It is far too soon to make judgements on its success, with the first steps taken, and more major announcements to come in the Spring. But one thing is clear this is a Government that is intent on change.  The questions are – how fast, how effective and crucially what impact will this make on the everyday lives of people in the country.

There are plenty of ways to get involved and engaged in fixing the direction of government policy and understanding the impact of the budget announcements on matters of concern is important. So here we provide a brief synopsis of issues of interest to us and a copy of our favourite tables, all of these taken from the Government’s Red Book.*

Fixing the foundations

The Government said the purpose of the budget was to fix the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain.  

Growth is its central mission. There is no mention of inclusive growth, but a fleeting reference to sustainable growth in the Red Book (paragraph 1.17) suggests that the Government is on track:

“Looking ahead, several trends will fundamentally reshape the UK and global economy. Technological advancements, shifts in global trade, the transition to a low-carbon economy, and demographic change all present opportunities and risks. Adapting to these trends is key to securing sustainable growth and improving living standards.”

The Government stated that it is putting finances on a sustainable path strengthening and adding two new fiscal rules, growing day to day departmental spending and boosting capital investment. Government spending is increasing by around 2% of GDP a year, on average, over the next five years. Half of the increase in spending is funded through an increase in taxes, mainly through higher employer National Insurance contributions. One-third of the additional spending will go on government’s investment spending on things such as transport, housing, and research and development. The rest goes toward government’s day-to-day spending. Public Sector Net Investment (PSNI) will average 2.6% over the lifetime of the Parliament compared to 1.7%.  

*red book refers to the Financial Statement and Budget Report

Value for money

As part of fixing the foundations,  a new Office for Value for Money has been established under David Goldstone on a fixed term appointment of a year – working one day a week to advise Ministers on value for money.  It is unclear, at the moment, how far his work will incorporate the context of public value but it is crucial that such an approach is adopted in measuring Value for Money.

The Government says that it will use the new Procurement Act to create “a simpler and more transparent regime that will deliver better value for money and reduce costs for business.” It will implement the Act in February 2025 with further reforms including a new National Procurement Policy Statement.  

The Government’s consultation on the National Procurement Policy Statement ends on November 4 2024. For the first time, the Act provides that procurement should be focused on maximising public benefit. It is to be hoped that the Government can put flesh on how this should be delivered within the context of the National Statement.

Again, public value should be a core part of the measuring value for money in procurement. All too often value is reduced to cost-efficiency particularly when budgets are stretched with contracting authorities focusing on awarding contracts to the cheapest provider rather than achieving broader outcomes. Such an approach involves a race to the bottom which leads to the deterioration of services and negative public value.

Other ways in which the Budget said that it was providing value for money include:

• A Covid Corruption Commissioner is also to be appointed on a one year fixed term for three days a week to lead the work to recover funds from companies that took unfair advantage of the Government’s schemes during the pandemic.
• The Government proposes to tackle fraud in the benefit system leading to projected savings of £4.3 billion in 2029-30. It is increasing the number of fraud and error staff by 3180. A new Fraud, Error and Debt Bill will be introduced shortly.
• To close the tax gap the Government is recruiting an additional 5,000 compliance staff. It also proposes to increase the interest rate on overdue taxes which is unlikely to please those small businesses or charitable bodies concerned about the increase in National Insurance Contributions.
• Reforms to health and disability will be announced in 2025. The UK is the only country in the G7 not to have returned to pre-pandemic levels of employment with inactivity rates increasing steadily from 20.8% to 22% in 2024, largely accounted for by a rise in activity due to ill health (and we would argue, a rise in bad jobs and poor working conditions). Government has set itself an ambition of an 80% employment rate. A Get Britian Working White Paper will be published with £240 million trialling new ways of getting people back into work. A new supported employment programme will deliver Connect to Work matching people with disabilities or health conditions into vacancies and supporting them. 

Cost of living

To support people with the cost of living, the Government has announced increases in the National Living Wage (NLW) (having required the Low Pay Commission to take account of the cost of living for the first time). Over time the Government seeks to establish one adult rate for the NLW. National Living Wage rates fall well below the Real Living Wage Rates. We consider that government should take a lead in supporting people through the cost of living crises by ensuring that all public sector contracts have a default position of the Real Living Wage. This will demonstrate that Government lives by its talk.

Other ways in which the Government said that it was providing support include:

• an additional £1billion to the Household Support Fund and Discretionary Hardship Payments
• retaining the State Pension Triple Lock for the duration of the Parliament
• creating a Fair Repayment rate capping debt repayments of a standard Universal Credit allowance to 15%
• raising the Carer’s Allowance weekly earnings limit enabling 60,000 more carers to access the benefit – an independent review is reviewing the issue of overpayments
• extending  the Help to Save scheme until April 2027 and making it available to all Universal Credit claimants.

The Government has not increased taxes, has frozen fuel duty and is not extending the freeze to income tax and National Insurance which it says shows its support for working people. Benefits will be uprated in line with the September Consumer Prices Index (CPI) and the Pension triple lock will be retained for the duration of the Parliament.  From April 2028 personal tax thresholds will be uprated in line with inflation.

Funding public services

To raise revenue to fund public services the Government has increased the rate of employer National Insurance Contributions (NICs) by 1.2% to 15% and lowered the threshold from which tax will be paid from £9100 to £5,000 per year from April 2025. Employment allowance will be increased from £5000 to £10,500 and the £100,000 threshold will be removed enabling larger companies to claim the allowance.

This has caused some consternation among some organisations already stretched but many smaller companies and micro companies will benefit through not having to pay contributions at all. Economic experts such as the IFS have suggested that 75% of employers will lower wages as a result without providing evidence that this will be the case. It has been argued that business of all sizes rely on public services.

But the debate also shows the lack of transparency around NICs.

National Insurance Contributions were originally linked to entitlements to benefits such as the State Pension in which both employers and employees made a contribution. It was envisaged that contributory benefits would reduce the need for means-tested benefits when they were first designed in the 1940’s. In fact means-tested benefits have expanded, the link between NICs and entitlements weakened and contributory benefits have become largely flat rate benefits, failing to keep up with household incomes. All money from National Insurance goes into a different pot of money called the National Insurance Fund but when there is a surplus then it lends money to other parts of government effectively paying off the Government Debt, while nobody suffers in terms of their benefits it is clear that the original intention of employers’ contributions has shifted, leaving the Government vulnerable to claims that this a tax on employers.

The original rationale behind employers’ contributions were that employers’ contributions should be considered as part of the cost of production, that they were intended to support the maintenance of employees when they were actually working or standing by, that employers should feel concern for those who work under their control and because they needed a definite status to make representations on social security. It is unlikely that many employers would feel that this rationale was relevant now, whether or not they agree or disagree with the Government’s policy. As a Real Living Wage employer we will not be lowering wages, but may find ourselves undercut on government contracts by those who do. Putting minimum standards in government contracts would prevent this from happening.  Some businesses are also unlikely to support an increase in the interest rate of 1.5% on unpaid tax from April 2025.

Phases of the Spending Review

The budget contained Phase 1 of a new Spending Review. This sets departmental budgets for 2024-6, with budgets up to 2028 expected to follow in Phase 2 which will take place in Spring 2025.

Phase 2 will take: “a mission-led, reform-driven, technology-enabled approach to funding public services while investing in long-term growth.”

In Phase 2 Government will publish a 10 year infrastructure strategy alongside its spending review in Spring, set 5 year capital budgets and establish the National Infrastructure and Service Transformation Authority to drive efficiency in infrastructure.

Reform driven public services

The Government says that it will take a more preventative approach to public service delivery alongside devolving  more power to communities to deliver more efficiently and effectively  for citizens. Key deliverables include a 10 year NHS Plan and devolution of local government. A new Public Sector Reform and Innovation fund has been set up to support the development of a new approach to improving public services.

Devolving more power to local communities to design and deliver public services is critical to building up support for strengthened public services and trust in Government. There are hints here that the Government is open to innovation and that new ideas will be welcomed in the delivery of its missions.  These need to incorporate local people in the design and delivery of public services.

The growth mission

The growth  mission is the central mission of Government. A new Growth Delivery Unit in HM Treasury will support the work of Government in developing these priorities with business (no mention is made of civil society).

Source:  HM Treasury, Autumn Budget, October 2024

As part of its investment strategy, the Government will mobilise private investment to deliver positive social impact through the development of a new social impact investment vehicle with more information to be available in the spring. This will be led by the Chief Secretary to the Treasury, working with DCMS, to support the government to deliver its missions bringing socially motivated investors, the voluntary sector and government to tackle complex social problems. Again, an important sign that the Government is willing to work in new ways to develop new solutions in changing times.

The Government says that its growth mission is based on creating good jobs and that thriving small business are essential for growth. As part of its Growth Mission and the creation of Good Jobs we are calling on Government to make Real Living Wages and Good Work conditions a default condition of all public sector contracts. 

From October 2025, companies bidding for government contracts over £5million will be excluded from the procurement process if they do not pay their suppliers within an average of 45 days. This is a useful example of how conditions can be attached to Government contracts in the context of broader economic and social goals.

Further details of how the Government will increase its procurement spend with small business will be published in the forthcoming National Procurement Policy Statement. It will also publish a Small Business Strategy command paper next year to complement the Industrial and Trade Strategy.  But the quality of spend is crucial. The desire to share more of the public services market with small businesses should not be at the cost of good jobs.  Without minimum standards in government contracts in relation to Real Wages and Good Work conditions, this could result in race to the bottom contrary to the Government’s objectives of creating and maintaining good jobs.

Summing up

There is much in the Red Book to absorb but one of the most critical issues is how Government will approach public value in the forthcoming months. Public Value is an integral part of Value for Money. An approach that focuses on cost alone could well implode on Government  and run counter to its objectives of creating  sustainable growth and improved living standards.

Goal 8 of the seventeen of the UN Sustainable Development Goals is to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. This aligns with much of what is in the Red Book, is familiar to private investment and links into international policy. By explicitly make this link clear the Government could drop the reference to “working people”, engage more people from diverse backgrounds and organisations to work together to create a Better Britain #betterforus.

Some useful tables

OBR

The Office for Budget Responsibility has produced the following economic forecast:

Benefit Cap

The Government inherited a welfare cap that was introduced in 2014 to limit the amount spent on social security and tax credits. It has reformed the cap and “is committed to ensuring that welfare spending is sustainable in the medium term”. The DWP will produce a new annual report  which sets out the path that spending is on a sustainable path as well as progress against the cap.

The Departmental expenditure levels are shown in the following table. Some departments including the Cabinet Office and the Home Office will not see their departmental expenditure grow.

The following tables highlight the receipts for Government and where it is spent.