Wednesday’s autumn Budget is set against a backdrop of economic uncertainty, thanks to the lasting impact of the coronavirus pandemic.
The Treasury has sought to build days of positive coverage of giveaways in the days before the chancellor, Rishi Sunak, gets to his feet in the House of Commons.
Here’s the headline pledges so far with a sense of what they may mean in practice.
Public sector pay
What’s new? On Monday the Treasury confirmed, as widely trailed, that it would be thawing the public sector pay freeze.
The justification used for the freeze had been that private sector wages were fragile, dampened by employer’s nervousness due to Covid-19 restrictions. Now, the economy has opened up and the cost of living is climbing sharply. With even private sector pay growth struggling to keep pace with inflation, the argument to hold firm on public sector pay has become too hard to defend.
Still, it’s not clear exactly what the settlement will look like and how it will measure up against rising inflation.
This price growth, as measured by the Consumer Price Index could reach as high as 5 per cent early next year, the Bank of England’s chief economist has said.
The small print: However, business minister Paul Scully avoided saying in interviews on Tuesday whether or not the pay rise would match the increased cost of living.
He said on Sky News that it “could be anything”, and that the exact figure would be determined after reports from pay review bodies, next April. So, the government has not ruled out a real terms cut in pay: if pay doesn’t rise by more than the growth in prices.
The bottom line: A real terms cut could increase the risk of industrial action among public sector workers.
Minimum wage
What’s new? The Chancellor will accept a recommendation from the Low Pay Commission to increase the National Living wage to £9.50 an hour from £8.91 from next April for workers aged 23 and over.
The small print: However, it is important to compare what’s happening to the lowest earners in the UK in pre- and post-tax terms and what the impact will be for those people on Universal Credit.
Before tax, a full-time worker on the minimum wage will now earn £1,074 more a year from next April. But there’s a ‘taper’ for those people on Universal Credit, so for every £1 earned above a threshold for the benefit, a worker loses 63p.
If that effect is combined with the increase in taxes, particularly national insurance contributions planned from April next year, the £1,074 increase then drops to around £260 per year after tax. (This assumes the increase is above the earnings allowance for someone in receipt of Universal Credit).
That’s compared to being around £1,000 per year worse off if you receive Universal Credit after the government scrapped a £20 per week uplift introduced amid the pandemic.
There are also lots of Universal Credit recipients, around one in five according to government figures, who cannot work. They will therefore not see their lot improved by an increase in the minimum wage.
The bottom line: This increase in the minimum wages means there are fewer low paid workers in the UK, part of a long-term trend if you compare hourly rates of pay over time. However, this does not address the concern that benefits are too low for those who are out of work, unable to work enough hours or who are unable to work at all. The basic rates of benefits are at their lowest level since 1990, according to Torsten Bell, chief executive of the Resolution Foundation think tank.
NHS funding
What’s new? There will an additional £5.9 billion allocated to the NHS in the Budget. This is on top of the £12 billion expected to be raised from what will become the Health and Social Care Levy.
This money is for physical infrastructure and other long-term spending such as new equipment. That means it is technically investment, rather than so-called day-to-day spending.
The small print: It’s not going to be spent on costs such as near-term staff recruitment. That means it will not fix the huge backlog of delayed care due to the pandemic, which has been linked to chronic staff shortages across the health services, as NHS trusts across the country report challenges in hiring specialist workers.
The bottom line: Along with the need to have MRI and Ultrasound machines is the need to have staff to operate them. That, and when scans and tests are completed, many surgeries will require intensive care treatment afterwards, a challenge if there are not enough specialist ICU nurses or too little space due to Covid-19 patients.
Transport
What’s new? The government has topped up a pledge on transport to increase funding for trams, trains, buses and cycleways.
The small print: Only a small share of this cash is, in fact, new money. The Chancellor’s £7bn pre-Budget pledge for new transport projects contains only £1.5bn of additional funding.
The bottom line: It does not look like HS2 is set to deliver what was promised. The Independent revealed earlier this week that the eastern leg of the project is set to be scaled back. The high-speed trains will therefore have to slow down to run on old tracks between Yorkshire and the Midlands.
Other announcements:
- Health research: £5 billion for research into healthcare including into genomic testing, cancer and obesity.
- Housing: £1.8 billion to build new homes on brownfield sites
- Education: £2.6 billion over three years for education for children with special needs and disabilities
- Childcare: £500m for childcare projects including family hubs, which Labour have criticised as similar but less ambitious than Sure Start centers, which were closed as a result Conservative spending cuts closed.
