Budget 2018: The only certainty is continued uncertainty

October 2018

Joel Charles, Director of Government Relations and Impact, Future Care Capital

The Chancellor has a difficult tightrope to walk next week as he attempts to navigate spending pressures on several fronts. His Budget will need to take account of the ongoing Brexit negotiations which are going right down to the wire, calls from MPs to pump more funding into the Universal Credit roll-out and confirm more detail on health spending. His colleagues will also be hoping that he pulls a few rabbits out of the hat, although I doubt there will be any tax cuts.

Philip Hammond does seem to have some potential wriggle room. We learnt this week that the Treasury will benefit from better than expected tax receipts, which has contributed to a £13 billion cut in the Government’s budget deficit. This follows on from news that public borrowing was lower than expected in September – down on the original Office for Budget Responsibility (OBR) forecast.

Despite the expected tax windfall, the Chancellor will be hesitant about committing to additional public spending given the current political climate. As the Brexit negotiations rumble on, Philip Hammond’s calculation might be that it is more prudent to restrict the flow of new spending and continue to build a war chest to stimulate the economy in case extraordinary circumstances arise.

Universal Credit is another area that has been under increasing scrutiny. MPs are urging the Chancellor to plough additional funds into the roll-out to support people transitioning on to the new benefit payment scheme. Rumours suggest that the Government is considering putting an additional £2 billion into supporting the roll-out.

The Chancellor is also expected to explain how he will find £20 billion for the NHS, but there are some administrative hurdles to overcome first. NHS England has yet to produce a final plan that takes account of the funding, so it is unlikely that we will get all the details next week. Commentators took the view that it would take six months to deliver a plan when the Prime Minister made her announcement in June. The pressure to raise taxes imminently in order to fund the pledge has, nonetheless, eased because of the growth in tax receipts.

There are other financial challenges the NHS needs to tackle, hospital trust deficits have reached £12 billion[1] collectively, and Trusts are reported to face repair backlogs totalling a record £6bn.[2] The Government is being pushed by NHS insiders to write-off the deficits so that new funding is not spent on servicing debt repayments and is, instead, directed primarily to improve health and care provision.

Local authorities are also demanding additional funds. The National Audit Office has warned that one in ten larger local authorities in England with responsibility for social care could entirely deplete their reserves in three years’ time.[3]  The sector hopes that the Chancellor will recognise these challenges and offer greater support in this year’s Budget because the three year £2 billion grant funding announced by the Chancellor in 2017 is said to have been insufficient to meet growing demand and curb unmet need.

What the Government should take seriously is the OBR’s cautious assessment of the state of public finances. It has previously told the Government that without tax rises to cope with an ageing population and higher health spending, the deficit could increase to £176 billion a year by 2068.[4] The OBR will adjust its forecasts now that borrowing is lower and tax receipts are up, but the costs associated with our ageing population continue to grow.

In future years, Chancellors will need to think carefully about the long-term impact of our ageing population. Deciding when to deploy the Treasury’s spending power is always a difficult balancing act for Governments. The timing for an announcement on adult social care is made more difficult this year because the Government hasn’t published their Green Paper yet, which is likely to set out potential funding options for consultation. This means the Government will not make any substantive changes to adult social care funding until the Green Paper consultation is concluded. It is far more likely that the Chancellor will say more about adult social care in his 2019 Budget.

Next year the Government will be conducting a full departmental spending review, the country is set to leave the European Union and the Chancellor will be expected to deliver a Budget that sets out a vision for life after austerity. This year’s Budget is more about anticipating uncertainties that are on the horizon. The only certainty is, it seems, continued uncertainty for both commissioners and providers of health and care provision for another year.

References

[1] Dennis Campbell, The Guardian, NHS £20bn boost risks being spent to pay off debts, experts warn, October 2018 [online], available from:
https://www.theguardian.com/society/2018/oct/21/nhs-20bn-cash-risks-paying-off-debts

[2] The Times, NHS trusts face a record £6bn backlog of repairs, October 2010 [online], available from (paywall): https://www.thetimes.co.uk/edition/news/nhs-trusts-face-a-record-6bn-backlog-of-repairs-2nthx3g5c

[3] Ben Chu, Economics Editor, The Independent, Local councils at financial breaking point due to austerity, warns National Audit Office, March 2018 [online], available from: https://www.independent.co.uk/news/business/news/local-councils-finances-budget-cuts-austerity-services-national-audit-office-a8242556.html

[4] Russell Lynch, Evening Standard, Tax bonanza and austerity hands Philip Hammond £7 billion extra to spend, July 2018 [online], available from: https://www.standard.co.uk/business/tax-bonanza-and-austerity-hands-philip-hammond-7-billion-extra-to-spend-a3892296.html