The Week 23 August 2024
Policy Director
Welcome to deepest darkest August, where GCSE results are taking centre stage (and again revealing the attainment gap of children in different parts of the UK).
This week has also seen further landslips in the economic terrain which will set the terms for what is expected to be a rather painful first budget from new Chancellor Rachel Reeves.
You’d be forgiven for losing track of this. After all, the latest GDP growth figures put ours as the fastest-growing economy in the G7 in the second quarter of the year, which led some to ask whether the Government should still be pressing ahead with a raft of tax rises.
But now the pendulum has swung – pretty decisively – back the other way. The Office for Budget Responsibility has published its monthly analysis and it doesn’t make for comfortable reading. The headline is that real borrowing continues to exceed forecasts, primarily because government departments are spending more than originally predicted – and this is being driven by growth in public sector pay, as well as inflation and a slight shortfall in expected tax revenues.
This means less headroom for Reeves, who is now feeling the consequences of her decision to move on public sector pay settlements. She is still facing calls to make expensive new commitments in the Budget – reversing the two-child benefit cap introduced in the coalition years, for example – while simultaneously contemplating deep additional real-terms cuts to the budgets of ‘unprotected’ Government departments (health and defence budgets are guaranteed to be insulated from such retrenchment).
The word may not be used, but this has all the makings of an austerity budget. In the coalition years, significant spending cuts were softened by the slow extension of income tax allowances, and it will be interesting to see if the Chancellor now searches for her own way to mitigate the pain.
More fundamentally, this is clearly the right time to think about deep changes to our public services and system of government that promote efficiency and help to prevent complex demand in the long term. We have lots of ideas about that, of course… and (spoilers!) we’re preparing reports in the coming weeks on primary care that helps to create health, new pathways toward Whitehall modernisation using Artificial Intelligence, and how to tackle the foundational problems that lead to unsustainable local government finances.
Onto the read of the week...
Our read of the week this week is a report from Pro Bono Economics highlighting the ongoing challenge faced by UK charities. The role played by charities increases in times of public sector retrenchment, and the particular importance of charities and community groups to supporting and enabling people in disadvantaged places was a significant feature of our recent partnership with Local Trust and the APPG for ‘Left Behind’ Neighbourhoods. This new report explains that two thirds of charities are expecting their finances to stagnate or deteriorate, while 40% are facing workforce issues. Half of the charities surveyed are increasing the price of their services, and a quarter are cutting services altogether: not an “existential crisis”, but an “unhealthy status quo”.