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Share on LinkedInWe’ve got a bit of a tradition going of responding to the Budget the day after. Not because we don’t like huddling around the office TV to discuss the immediate impacts (we do), but because sometimes the first reaction isn’t the whole picture. So here is our considered take on what some of the announcements made mean for areas we work in together.
First things first, though. Our Chief Economist, Rob Fontana-Reval, shares a few thoughts on what is going on at macro level:
“Given recent high inflation, and with price growth currently standing at 4%, the latest OBR forecast for inflation to dip below the 2% target within a few months feels surprisingly near. Worth noting that even these short term forecasts are highly uncertain – for example, in their Autumn forecast the OBR thought inflation would be around 0.6-0.8 percentage points higher than it is currently. However, if their latest forecast proves accurate, the swift reduction will certainly help to ease cost of living pressures.
“Falling inflation is a key factor behind Bank of England decisions on interest rates, and the OBR is now forecasting rates to fall back to 4.2% by the end of this year – which would provide some relief to mortgage-holders. Against this backdrop, it is encouraging to see that the OBR’s near-term growth forecasts have been revised up since the Autumn Statement, particularly in light of the recent data suggesting the economy is currently in a shallow recession. Growth is now forecast at 0.8% this year, before rising to around 2% in the years that follow.
“However, despite these higher growth forecasts, headroom against the Government’s debt target is now reduced to a historically slender £8.9 billion, reflecting that the Chancellor continues to face tight public finances, and – perhaps unsurprisingly in an election year – the various Budget giveaways he has announced.”
So, turning to some of those giveaways, let’s spend a moment on the latest NICs cuts, which were saved for last in the Budget yesterday. As a recap, we produced this note with the CSPS after the Autumn Statement on what the first cut of 2p might mean for those in poverty. We are currently crunching the numbers of what a further 2p reduction to 8% could deliver in practice – and who will / will not benefit.
More widely, the Chancellor removed the £90 cost of accessing a Debt Relief Order, in a win for Citizen’s Advice, dropping a barrier for people struggling with debts. The Trussell Trust and Joseph Rowntree Foundation, who we work closely with on the Poverty Strategy Commission, got a mention in the context of the decision to extend the Household Support Fund for another six months – positive, but a long way short of the two years called for.
On getting more people into work, the Chancellor focused this Budget on childcare, guaranteeing the rates paid to providers to support delivery of the pledge to extend ‘free’ provision to children over nine months old. He added a commitment to consulton shifting the child benefit cap to household income rather than individual income by 2026. For now, the threshold for the High Income Child Benefit Charge will go up from £50,000 to £60,000.
Next, onto cleaner energy. The Chancellor announced £120m more for the Green Industries Growth Accelerator, designed to support the expansion of low carbon manufacturing supply chains across the UK. The Chancellor also announced £270m of combined Government and industry investment to support innovation in advanced manufacturing, including clean aviation technology.
Finally – and disappointingly – the Chancellor missed the opportunity to act on sick pay, something we’ve done considerable work on, including this report for the Centre for Progressive Change. He may come to regret that decision, as the OBR’s report states: “The number of inactive working-age adults is no longer declining from its post-pandemic peak, as previous data suggested, and has instead rebounded to 9.3 million. […] Around one third of the working-age inactive population cite long-term illness as their principal reason for not being in the labour force.” Our recent work with the ABI looks at the other side of this coin, outlining the benefits of taking a holistic approach to workplace health to support people to stay in work. Our recent work for Unum also underlines the connection between health, happiness and productivity.