Will the Spending Review end 2020 with a bang?

Amidst the vast sums of money being thrown at the economy to avoid economic armageddon, whilst at the same time trying to tackle the health crisis, the Spending Review on 25 November may seem like small beer. This is even more true when you consider that this review has been pared back from being the government’s three-year settlement, which usually outlines its priorities and sets the course on spending for many years to come. Instead, on Wednesday, the government will share a one-year settlement, so that government departments and bodies will at least have a budget to work with for the next financial year.

Alongside the Spending Review, the Office for Budget Responsibility (OBR) will publish new forecasts for the economy and for the public finances. They will not be cheerful reading—even if the OBR has managed to work out how to account for our possible rescue from this crisis via the promising looking vaccines currently still in development.

This Spending Review is unlikely to be the moment that the government reveals any plans to tackle the deficit and the debt that the Covid-19 crisis has racked up. So, it is unlikely that we will hear about proposed tax rises or future spending cuts—even though there is currently a lot of thinking about this going on in the in the Treasury.

What to watch

For any organisation that receives money from government, works with government, or needs public services to be decently funded in order to achieve its mission, how much money is being allocated, to what, and when, really does matter.

Some announcements have already been made. For instance, there is already a settlement on day-to-day funding for NHS England, running up to 2023−24, and the same has been announced for schools in England up to 2022−23 although on both education and health, we can expect to see yet more money being allocated, not least due to extra costs incurred because of the pandemic (and consequential increases in Scotland, Wales and Northern Ireland too, via the Barnett formula).

The government pre-empted this Spending Review by recently announcing a very generous, multi-year settlement for defence spending (even if some experts claim that this just makes up for cuts over the course of the last decade). Plus, we have heard about lots of infrastructure spending—that will go over many years—although we may still get some more announcements on this, or see some other announcements brought forward. No doubt this spending will be spun as doing something for the ‘levelling up’ agenda.

Of interest to the sector

For charities, the amount that local government is allocated matters a great deal. And make no mistake, local government is in dire straits. It was hit hard in the austerity years, with more deprived councils seeing more cutbacks. Plus, it has been badly affected by Covid-19—just like the charity sector, local government has experienced reduced income, this is usually from things like car parking charges and leisure centre fees, alongside increased demand. And some councils have added to their problems by taking risks in the austerity years, to try and create new revenue streams, and many of these decisions are now proving to be very unwise. Croydon is the big example here, but by no means is it the only council currently in major trouble. No matter how generous (and hopes are not high), a one-year settlement will make it impossible for local government to plan ahead, and this will have a knock-on effect on charities too.

Another issue that will rightly concern many charities and funders is overseas aid. The government, controversially, already has plans to cut £2.9bn from the overseas aid budget this year (following the recent drop in the UK’s GDP, which the 0.7% overseas aid spending commitment is linked to) and is strongly rumoured to be looking at cutting the 0.7% figure itself—even if only for a year or two.

The Spending Review may also have something to say about public sector pay. According to the Institute for Fiscal Studies, despite better pay awards in recent years, average earnings in the public sector are in real terms 1.5% lower than they were 10 years ago, and are seriously lagging behind the private sector. Pay in the public sector not only influences the charity sector labour market, but if the public sector can’t recruit, then many of the services that charities rely on and signpost people to will begin to suffer.

Poverty charities, homelessness charities and other organisations may be hoping to see some action on welfare, particularly a decision on whether to make permanent the temporary £1,000 a year increase to the standard allowance for Universal Credit. Many charities will also want to see if more flesh is added to the government’s recently announced ten-point plan for zero carbon, and whether there will be some much-awaited movement on social care reform and how to pay for it.

There are rumours too that the rules and scale of the Shared Prosperity Fund, the replacement for the EU funding that supports more deprived areas, will be announced at, or just after, the Spending Review. NPC has argued strongly for the focus to be on social infrastructure, not just physical, and for charity representation on the Local Enterprise Partnerships (if they are to be the main, sub-national decision-making and delivery mechanism for this new fund).

Finally, there might of course be some announcements aimed directly at the charity sector—the Prime Minister gave warm words in the House of Commons recently. But it is unlikely to be a general splash-out, more likely it will be targeted, for example at medical research charities, or for hospices and other front-line organisations. Maybe there will be a change to Gift Aid or to the furlough scheme, as the sector has argued for. I doubt it though, as it would raise too many issues that spread well beyond the sector.

So, Wednesday is an important day for the country and for our sector. Over to you Mr Sunak.