Charities and funders will be wondering which Rishi Sunak will be writing the forthcoming Budget, a Budget that is so important to so many of them. Will it be that Chancellor that is happy to spend enormous sums of money? Keen to ‘do whatever it takes’ to help the economy and society through the Covid-19 crisis. The one that then celebrates this via his personal brand on social media and basks in the good ratings he gets from the public for being so generous. Or is it the more traditional Conservative Chancellor? The one that plays to the more frugal disposition of the Conservative back benches, who appears now and then with speculative kite flying, suggesting that the real Sunak is itching to start the fiscal cutbacks as soon as he can.
Certainly, the terrain is difficult. The estimates from the Office for Budget Responsibility (OBR) back in November were pretty tricky, with forecasts of borrowing reaching almost £400bn and debt over 100% of GDP. Growth would be subdued, meaning the economy would not return to its pre-pandemic peak until late 2022 and unemployment might go up to 7.5%.
Since then, we have had actual numbers showing that the economy was around a tenth smaller by the end of 2020 than in the previous year, in what some are calling the sharpest contraction since the Great Frost of 1709. Plus, as deaths from Covid-19 have remained devastatingly high into the new year, the national lockdown has continued and so the near-term economic outlook is not great either. The process of vaccinating the public is however now in full swing.
A support package for the long term
So, what does this all mean? In truth, nobody knows but the most recent Bank of England report reduced its estimate for economic growth for 2021 down from 7.25% to 5%. But in contrast, some of the bank’s staff have clearly taken the optimist’s magic potion, with the bank’s Chief Economist, Andy Haldane, recently claiming the economy is ‘like a coiled spring’ just waiting to spring back—mainly due to the richest in society having amassed unwanted savings over this period as they have been unable to spend in the ways they normally would.
The charity sector had hoped that the Budget might herald another package of financial support, though that now seems to be off the table, or other specific support measures like more generous tax breaks around Gift Aid. More likely is that the existing measures that are in place for the whole economy will be extended—furlough, business loans, business rate holidays and the like.
But just as important for many charities is what happens to public spending, since so many of the beneficiaries that charities seek to help are affected by changes to this and because many charities get funding from parts of the public sector, via grants or contracts. Sunak may leave all of this alone and come back to it in an Autumn Spending Review. That would be unfortunate, as what is needed is an uplift in planned public spending, above and beyond the emergency funding used to get us through the pandemic. This would bring an end to the uncertainty for local councils and for many government departments which, unlike departments covering the NHS and schools, have not had their budgets protected.
Is he going to do it? The signs are not great. We have already seen a cutting back of overseas aid—despite the commitment to keep this at 0.7% of GDP being a clear Conservative manifesto promise. Plus, the Spending Review in November gave very little to local government and tried to hide a cut of some £10bn to some government departments, again not including departments such as the Department of Health and Social Care.
Helping the economy
The sector has a general interest in the economy doing well, both for its own survival but more importantly for the welfare of those it seeks to help. So firstly, it would be good news if Sunak continues to support the economy with fiscal measures. At the very least, he should commit to keeping many of the crisis related economic measures going for at least another five or six months, both to support those whose jobs and businesses are in a precarious situation, and to boost confidence and allow everyone (including businesses and charities) to plan ahead. This should include making the £20 a week uplift to Universal Credit permanent, something the Treasury is very against (at least until Marcus Rashford gets on the case). Sunak should also make clear that public services will be properly and sustainably funded in the 2021 Spending Review, so that they too can plan for the future.
Secondly, while it is fine to say that at some point, when we are all through this, we will need to look at ways to get the debt under control, Sunak should be wary of doing anything at all at this point. He should make clear that nothing will happen until a recovery is well and truly underway. And further to this, he should avoid saying too much on what measures he may take, for fear of affecting behaviour now. At this point, we want nothing dampening any emerging confidence as we start to see the vaccine take effect.
Thirdly, he should make clear that any plans for fiscal consolidation will not be like the post-2010 austerity years, where spending took the biggest hit. He should make clear that tax will play its full part, and that those taxes will be fair—affecting the better off the most. He should also support efforts to get the UK to net carbon zero.
Exactly what these taxes should be is matter of debate. There is an expectation that he will go for the low hanging fruit, the ‘stealth tax’ of not raising the thresholds at which basic rate and higher rate tax is paid. He may raise corporation tax a little too. There is also clearly a case for at least a one-off wealth tax to mop up some of the unexpected savings that the better off have built up during the crisis—or indeed the case for encouraging those savings into some kind of ‘rebuilding’ bonds. And the public mood is possibly there for some political bravery. Sunak may want to finally grasp the nettle on certain areas: reforming council tax to make it fairer; ending the absurd situation where the richer you are the more pension tax relief you get; and ending the ability of the better off to reduce their tax liability by switching their income into capital gains.
These are strange and unusual times. Charities will be hoping for signs that the economy will recover and that those on the lowest incomes and most vulnerable will be supported by the government. We hope they are on the top of his mind and not an afterthought for show.