This week the Chancellor presented the 2023 Autumn Statement, setting out spending and tax decisions, alongside economic forecasts. Much of the Autumn Statement will be of interest and acutely relevant to Third Sector organisations. Whilst the 2% cut in National Insurance Contributions will grab most headlines, the main story is to be found in the details of future spending calculations that will result in potential cuts of £19.1Bn to public services by 2027-28. The increase in the Living Wage without uplifts to local authority contracts will also place pressure on many Third Sector organisations. See headlines below from NAVCA*:
Class 1 employee National Insurance Contributions reduced from 12% to 10% from 6 January 2024.
From 1 April 2024 national living wage will increase by 9.8% to £11.44, with the age threshold reduced to 21 years old.
Working age benefits for 2024-25 will be increased by the September CPI inflation figure of 6.7%.
Pension triple lock remains, so that pensions will rise in line with average earnings growth of 8.5%.
Local housing allowance will be increased to the 30th percentile of local market rates. It is expected to give 1.6 million households an average of £800 extra support in 2024-25.
An effective cut of £19.1Bn to public services by 2027-28.
Beyond the headlines...
There have been no changes to the budgets of government departments or increased funding for the delivery of public services [with a few exceptions].
To create space for the reduction in national insurance contributions, Departmental Expenditure Limits have been increased by only £5Bn per year beyond 2024-25. This will result in an overall £19.1Bn reduction in the real value of departmental spending by 2027-28. This limited increase is unrealistic and sets a significant fiscal trap for the next Parliament. The implications of this, particularly if defence spending increases to 2.5% of GDP, is that there would be real terms cuts of 2.3% across the board, with spending of unprotected departments [i.e. not health and education] needing to fall by 4.1%, which is simply unworkable.
There is no increase for local government and no reform of the local government funding formula.
Inflation will remain higher for longer than predicted in March 2023, reducing to 4.8% by end of 2023, and not reaching the 2% target until second quarter of 2025.
Tax allowances, the point at which people start paying tax, will remain frozen, meaning almost another 4 million people will be paying tax in 2028-29, raising an extra £44.6Bn.
The potential growth rate of the economy has been revised down by the Office of Budget Responsibility to 1.6% [from 1.8% in March 2023].
The Office of Budget Responsibility estimates that real household disposable income per person is forecast to be 3.5% lower in 2024-25 than its pre-pandemic level.
Further reading:
Policy papers on the Autumn Statement 2023 can be viewed here.
The economic and fiscal outlook from the Office for Budget Responsibility can be viewed here.
Pro Bono Economics have published a comprehensive analysis of the Autumn Statement focusing on the outlook for charities: Click here to read.
Civil Society have collected responses from leading charity sector infrastructure bodies in their latest article: Click here to read charity responses to the Statement.
Read sector responses to the statement from charities such as Christian Aid, Homeless Link, Action for Children and Oxfam.
NCVO have also considered the impact of the Statement on charities here.
The Director of Policy and Research at the Directory of Social Change has summarised 'the good, the bad and the ugly' of 2023's Autumn Statement: Click here to read.
Headlines from NAVCA (The National Association for Voluntary and Community Action)