London Plus: Budget 2018 response

Is austerity ending?

In the lead up to Monday’s budget, there seemed to be one question that everyone wanted to know the answer to: will the Chancellor confirm what the Prime Minister signalled earlier in the month, that austerity was coming to an end? In short, the answer is yes and no. In light of higher tax receipts and improved growth since the March update, there will be real terms increases in overall day to day departmental spending per person between this year and 2022/23.

But most of that extra spending will go to the NHS. In fact, Chancellor Philip Hammond confirmed the following day, there will be “flat real spending available for all other departments [1]”. And as Resolution Foundation (RF) budget analysis shows, when you take into account the big spending commitment to the NHS and protected areas (aid and defence), spending on local government and further education is likely to still see reductions [2]. So for many, it will feel like nothing has changed.

A fuller assessment of the government’s pledge to end austerity won’t be known until next year’s Spending Review. In any case, the issue of austerity is a rather abstract one, when all the economic and social problems London’s voluntary organisations encounter and attempt to tackle, are anything but. So perhaps the best way to really judge this year’s budget, is to ask – what difference will it make in the fight against poverty in London?

Ending in work poverty and low pay

Firstly, let’s look at pay for the lowest earners. Positively, the government has listened to charities supporting people on Universal Credit (UC) and reinstated some of the cuts to the Work Allowance (the amount you can earn before your UC starts to be withdrawn). The budget announced that in April 2019, the Work Allowance will increase by £1,000, which will see 2.4 million households benefit nationally and keep an extra £630 each year [3].

However, three-quarters of the benefit cuts announced in 2015 still remain in place and the cash freeze in working-age benefits is to set continue next year, which the RF said will cost “a couple with children in the bottom half of the income distribution £200 on average [4]”.

Encouragingly, the budget document says the “government’s aspiration is to end low pay”, and that they soon plan to consult on the remit of the Low Pay Commission beyond 2020 [3]. With this newly declared goal, perhaps one initial step could be to rename the pay advisory body to the ‘Ending Low Pay Commission’. Just a thought.

The government also confirmed that the National Living Wage (NLW) will be increasing next April to £8.21, which is a welcome step. But that is still 22% below the Real London Living Wage (set to increase further next Monday) which is based on the actual cost of living that Londoners face. The increase in the NLW will also only benefit those aged 25 and over, and the apprentice rate next year will rise but only to £3.90. If the government genuinely wants to end low pay for all and create a vocational system on par with the academic pathway for young people, then surely it’s now time to end these hugely unequal wage differentials?

Skills development and progression

There were though some helpful changes to apprenticeships funding. Levy paying employers will be able to transfer up to 25% of their funds to pay for apprenticeship training in their supply chains and SMEs will see their required co-investment for apprenticeship training halved to 5% (the government will pay the other 95%). It was initially thought this change would take place next April, but the government now appears less sure [5].

Pay progression and moving into better jobs relies on people being able to develop their skills, so it’s positive that the government is continuing to develop the National Retraining Scheme (NRS), which will first focus on offering a “new careers guidance service with expert advice to help people identify work opportunities in their area, and state-of-the-art courses combining online learning with traditional classroom teaching to develop key transferable skills [3].” Job specific retraining will be developed in phase two.

But with in-work poverty in the capital soaring and a record number of people stuck on temporary contracts, it is difficult to see how a small national commitment of £100 million, will make a tangible difference to these Londoners’ working lives and aspirations [6]. And despite the NRS, the Chancellor gave no indication in his budget that further education and skills will be protected from more cuts (let alone see any increases!) in the years ahead, so the sector will have to come out fighting hard as the Spending Review inches ever closer.

Conclusion

To sum up, this budget offers some of the poorest earners a lifeline by increasing the Work Allowance for UC claimants and the NLW next April. But the majority of benefit cuts remain in place (which overwhelmingly impact women) and despite the laudable goal of the government wanting to end low pay, there is little to suggest they have the plan or resources in place to achieve it.

Rayhan Haque
Employment and Skills Policy Lead, London Plus


  1. https://www.bbc.co.uk/news/uk-politics-46024014
  2. https://www.resolutionfoundation.org/app/uploads/2018/10/How-to-spend-it-RF-Report.pdf
  3. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752202/Budget_2018_red_web.pdf
  4. https://www.resolutionfoundation.org/app/uploads/2018/10/How-to-spend-it-RF-Report.pdf
  5. https://feweek.co.uk/2018/10/30/treasury-backtrack-on-april-apprenticeship-fee-cut-start-date/
  6. https://www.trustforlondon.org.uk/publications/londons-poverty-profile-2017/

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