As George Osborne sets out his second statement as Chancellor of the Conservative Government, University of Birmingham experts examine the options from an academic perspective…
The impact on local government and public services:
Professor Vivien Lowndes, Professor of Public Policy, University of Birmingham, said:
“Local government expects heavy cuts to budgets, coming on top of savings of £20 billion since 2010. Councils have shown remarkable resilience to date and sought to protect frontline services, but further efficiency savings will be difficult, and new cuts will have most impact on disadvantaged areas. The Chancellor may act to address those services under most strain, like adult social care. He will also support devolution to stimulate regional economic growth, with the Midlands Engine joining the Northern Powerhouse.”
Proposed tax changes:
Professor Andy Lymer, Professor of Accounting and Taxation, Birmingham Business School, University of Birmingham, said:
“George Osborne has been backed into a corner, with the plans for £4.4 billion tax credit reductions in disarray. It therefore seems very likely that such measures will be heavily watered down. The chancellor has two choices to fill the holes this would create: further cuts or tax rises. This suggests that tax avoidance will also be firmly in the picture again this time around.
The Chancellor has to be seen to be ever vigilant of anyone (individual or corporate) who has even a whiff of tax avoider about them. Of course, this is difficult when tax avoiding isn’t illegal and is done by everyone to a greater or lesser degree – that is a feature of every tax system. We all do things that reduce our tax bill – even if for most of us it is more about putting savings in ISAs than shifting corporate profits offshore. I think it very likely therefore that more announcements on tax avoidance management will be made to re-affirm the perception that this is something that can be reduced incrementally. One area in which this might fall is in further restrictions on the use of personal service companies - a way of avoiding employee/ employer taxes. I also would not be surprised to see a rise in National Insurance contribution thresholds to ease the burden on low-paid employees. We can also expect further measures to address corporate profit shifting resulting from the international talks on this that have been ongoing for the past two years.”
Professor John Bryson, Professor of Enterprise and Competitiveness, Birmingham Business School, University of Birmingham, said:
“The West Midlands devolution deal that was announced this week has a number of important implications for the Comprehensive Spending Review (CSR). The CSR must acknowledge the importance of the devolution deals that have been announced thus far. The CSR must demonstrate that this Government is taking devolution seriously by following through on some of the promises that have been made in the devolution deals that have been agreed. This is all about the management of expectations.
The West Midlands deal should be considered to be an important historic moment for this region, but it is still only a modest shift of control of some limited budgets from Whitehall to local decision-makers. For the West Midlands it is important that additional funding and responsibility is transferred to the region. The devolution deal allocates limited direct funding to the new West Midlands Combined Authority and promises discussions and negotiations over other budget headings. The deal is only the start of a long process of negotiation that will be founded upon an evidence base of successful local decision-making. The key measures are job creation and an increase in Gross Value Added (GVA). For the Midlands there is an important discussion to have about skills and local infrastructure, but also the impact HS2 will have on the economy of the West Midlands. HS2 has implications for local infrastructure investment that is only partly funded. The CSR needs to support the 'Midlands Engine' by, first, acknowledging the contribution the West Midlands economy makes to the UK.
There are also some decisions that will have tangible consequences for the region. Here, the key issues are decisions regarding an additional Enterprise Zone at Brierley Hill, Dudley, and extensions to the Black Country Enterprise Zones – i54 and Darlaston.”
Measures for small businesses and diversity
Professor Kiran Trehan, Professor of leadership and development, University of Birmingham, said:
“No-one likes spending cuts, least of small and medium-sized businesses (SMEs). SMEs continue to play a vital role in the country’s economic recovery. The Chancellor’s spending review needs to ensure that the government continues to address the concerns of SMEs in relation to;
- Keeping taxation and interest rates down.
- Supporting regional growth
- Providing investment to boost export and international trade
Fears remain that the predicted cuts in public sector spending will put economic growth at risk and make it more difficult for SMEs to access new markets, particularly when a lot of SME are still reliant on public sector work, including through local authorities. Small businesses will be looking for reassurance that the spending review will provide economic stability, confidence, and resources for businesses to succeed.”
Deficit and debt
Professor John Fender, Professor of Macroeconomics, University of Birmingham, said:
“It will be interesting to see how the Chancellor envisages the time path of public borrowing to develop over the next few years and in particular whether he still expects to achieve a balanced budget by the end of the decade. It will also be interesting to see whether he does, as suggested in the press, increase spending on both the health service and defence and how he intends to finance this. And finally, George Osborne can be almost guaranteed to spring a surprise in his budgets and statements – in the summer it was the living wage – it will be very interesting to see what the surprise is this time.”
Professor Judith Smith, Director of Health Services Management Centre, said:
"On the face of it, Simon Stevens, Chief Executive of NHS England, has persuaded the Chancellor to deliver the goods for the NHS in this Spending Review. The £8 billion promised by the Government for the NHS by 2020 is to be 'front loaded' so that £3.8bn will come through in 2016-17.
However, this still requires the NHS to find £22bn of productivity savings by 2020, whilst also ensuring a 'seven day a week NHS and fully integrated health and social care services by 2020'.. And all of this has to be done when the service is currently struggling to meet waiting time and other targets, cope with the consequences of a crisis in social care, and is projecting a deficit of over £2bn in this financial year.
The key question left unanswered by the Spending Review is whether this settlement will do more than plug the current hole in NHS finances and mop up rising demand? We need to know more about what the 25% cut in Department of Health funding will entail, how far social care can be boosted, and if and how local public health budgets will be cut. For the NHS, there is a risk that what appears to be a real Spending Review gain, could turn out to entail further long term pain."
Energy and climate change
Professor Martin Freer, Director of the Birmingham Energy Institute, University of Birmingham, said:
“Today’s announcement in the Chancellor’s spending review to fund the Energy Research Accelerator is a landmark move in the development of the Midlands engine for growth. With funding directed towards heating and cooling through the Thermal Energy Research Accelerator (T-ERA), the government is beginning to take seriously the need to rethink this important strand of energy. Furthermore, the investment is important recognition both for the region and for UK energy research and business.” Read more on Professor Martin’s perspective on the CSR.
Professor Julie Allan, Head of the School of Education, said:
"Inequalities in education are likely to be be deepened. School education is ostensibly protected. However £600 million will be taken from other educational support services, for example physiotherapy and occupational therapy, and music tuition. This will also reduce funding to Academies. There is a commitment to work with the Director of Fair Access to increase universities’ responsibility for widening access and participation. But, as a result of cuts to the Business, Innovation and Skills Fund, the student opportunity fund, used to recruit and retain poor students and disabled students, is to be halved. There is an intention to ‘retarget’ this funding towards institutions with the most effective outcomes. How these institutions will be judged is not clear."
Impact on household incomes
Professor Karen Rowlingson, Professor of social policy, said:
“George Osborne made a high profile U-turn in the 2015 Spending Review to avoid cuts to tax credits that would have cost low-income families an average of £1,000 a year. However, the Chancellor is still going ahead with other changes that will reduce family budgets. For example, he is still cutting the ‘income rise disregard’ – the amount of extra money someone on tax credits can earn within a year before seeing a drop in their tax credit payments for that year. This is being cut from £5,000 to £2,500, raising £170 million.
Working families will also face cuts when they are moved on to Universal Credit although it looks as though there will be yet another delay on this being rolled out. And child tax credit entitlements will still be limited to a family’s first two children from 2017.
The government has also decided to raid students’ pockets, by not raising the threshold for repaying their loans. Those students who took out loans from 2012 (the first cohort paying up to £9,000 per year in fees) will no longer see the threshold for repayments rising in line with earnings as had previously been the policy. This could cost them as much as £3,000. As a retrospective change, George Osborne could, perhaps, be accused of misselling to students who took out their loans under one set of conditions but have now had those conditions changed. As students are now considered to be individual consumers under consumer protection legislation, this could be open to challenge.”