The Autumn Statement: cuts, debt, deficits and growth?

The Chancellor’s Autumn Statement, known as the ‘Pre Budget report’ in the New Labour era, took place against a fairly grim economic backdrop with stalling growth and relatively high and rising levels of unemployment and inflation.  The Chancellor outlined the scale of the “debt challenge” facing the Government and confirmed that it will take longer than expected, with deeper than expected cuts in some areas, to eliminate the structural deficit.   The overall figures set out in the 2010 Spending Review in terms of borrowing and saving still apply, but there will be further sharp reductions in short term spending.  Cuts to public spending, including to the VCS, look set to continue throughout this five year period and beyond.

The Budget earlier this year contained a number of provisions for the voluntary and community sector (VCS) and we reported on that at the time.  Given that, and the general state of the UK economy, it was always unlikely that there would be too much in the statement for the sector.  There were some relatively minor announcements around the Enterprise Investment Scheme (EIS) which we have been looking at as part of our wider work on social investment and the tax system and we are hoping for some more news on social investment and how the Government proposes to help the market to grow through tax incentives in the full Budget in spring 2012. 

Government has also repeated its renewed focus on youth unemployment with plans for a “Youth contract” to allow young people to gain experience of the workplace to enhance their employability.  NCVO has already raised concerns about the current operation of the Work Programme and is also seeking clarification on what role there will be for the VCS in the new Youth contract, given several references which appear to relate specifically to private sector employers. 

There has been one notable success though in the Autumn Statement, on the issue of shared services VAT.  NCVO has been lobbying government for several years to tackle the issue with charities having to charge VAT to share services with each other, which acts as a clear disincentive to working collaboratively at the very time that many organisations are doing just that as a response to the challenging climate.  NCVO jointly submitted evidence to government in the autumn with our colleagues at the Charity Finance Directors' Group (CFDG) which highlighted how serious this issue is for the sector.  NCVO and CFDG have therefore welcomed government’s announcement that it will start to tackle the problem as this marks real progress, and we are expecting more detailed announcements from early December 2011.  We will make more information on this important issue available to members once we have it. 

The VCS is of course impacted not only by sector specific policy announcements, i.e. the ‘industrial policy’ for the sector, but very significantly by the wider economic climate and wider economic policy decisions.  With that in mind, there is no doubt that the years ahead are going to be tough for the sector, with growth figures revised downward and government planning to pay for an injection of £5bn for infrastructure projects through spending reductions elsewhere.  A considerable amount of this saving will be found by further freezes to and capping of public sector pay and the freezing of some elements of tax credits for families.  Inflation should fall next year, but remains high, investment income is likely to take a long time to return to pre-recession levels and creating a 'step change' in charitable giving will of course be a huge challenge in such a difficult and uncertain climate.