Budget 2021 reaction: relief, and concerns about long-term public spending plans

The Director of the Institute for Fiscal Studies has criticised the Chancellor’s public spending plans, saying they don’t look deliverable, “at least not without considerable pain”.

Speaking after the Chancellor revealed his Budget, Paul Johnson also said the Chancellor had been silent on post pandemic priorities, in particular the lack of policies to deal with the social inequalities that the pandemic has exacerbated. He said: “This is a big hole in the Chancellor’s and the Government’s policies, a hole which needs to be filled and soon if we are not to suffer a much worse hangover from this crisis than need be the case.”

He said the extra money to tide the economy over in the short term had rightly ‘erred on the side of generosity’, but was only one side of “a tale of two budgets”. He doubted corporation tax plans would deliver the money the Chancellor expected, said the changes in income tax would hit middle England hard and criticised the sudden end to the Universal Credit uplift of £20 per week in late October. He said: “It is remarkable that while the Chancellor felt the need for a gradual phase out of furlough, business rates support, stamp duty reductions and VAT reductions he is still set on a cliff edge reduction in UC such that incomes of some of the poorest families will fall by over £80 between one month and the next. Whatever the case for cutting generosity into the longer term, if you’re going to do so the case for doing it gradually rather than all at once looks unanswerable.”

Johnson also doubted the Chancellor’s public service spending plans would be delivered. He said the Autumn spending review took £12bn a year out of pre-pandemic plans in real terms and that yesterday’s announcement anticipated an additional cut of around £4 billion per year from his cash plans for public service spending after next year. While these plans are not firm, Johnson said they seemed “very shaky”.

He stated: “Are we really going to spend £16 billion less on public services than we were planning pre-pandemic? Is the NHS really going to revert to its pre-Covid spending plans after April 2022? In reality, there will be pressures from all sorts of directions. The NHS is perhaps the most obvious. Further top-ups seem near-inevitable. Catching up on lost learning in schools, dealing with the backlog in our courts system, supporting public transport providers, and fixing our system for social care funding would all require additional spending. The Chancellor’s medium-term spending plans simply look implausibly low.”

His comments came as it emerged that the Department of Health and Social Care has submitted a proposal for a 1% pay rise for NHS workers, including junior doctors, GPs and dentists, to the NHS pay review body. The Office for Budget Responsibility also issued an analysis, which estimated that an extra 1.3m people in the UK will have to start paying income tax over the next five years and a further one million will be pushed into higher rate taxation as a result of the Budget changes.

Other reaction to the Budget ranged from relief about the extension of Covid-related schemes to concern about the Universal Credit plans and about the lack of any extra funding for childcare.

Neil Leitch, Early Years Alliance Chief Executive, said: “Given the vital role early education and childcare providers will play in the UK’s short and long-term economy recovery, it is both disappointing and hugely frustrating that today’s Budget did not include any specific financial support packages for the early years.

“Limited financial support throughout this crisis, combined with years of sector underfunding, has already led to the unnecessary closure of nurseries, pre-schools and childminders across the country. Without urgent action, this trend will undoubtedly continue.

“That is why, on top of emergency support during the pandemic, government must undertake a full review of early entitlement funding to ensure that the sector is able to remain sustainable in the long term.

“Countless reports show that if the Treasury really wants to reduce long-term spending, investment in the early years sector is an investment that is proven to last a lifetime. I cannot understand why this government is so unwilling to accept that.”

Helen Barnard, Director of the Joseph Rowntree Foundation, said the decision to limit the £20 increase to six months would “pull hundreds of thousands more people into poverty as we head into winter”. Calling on the Government to rethink, she said: “Ministers know this short extension offers little relief or reassurance to the millions of families, both in and out-of-work, for whom this £20-a-week is helping to stay afloat. This cut to Universal Credit will increase hardship when the economic crisis is far from over and undermine our national road to recovery.

The CBI welcomed the furlough extension. Rain Newton-Smith, CBI Chief Economist, said: “Quite simply, extending the scheme will keep millions more in work and give businesses the chance to catch their breath as we carefully exit lockdown. The furlough scheme has been a stand-out success throughout the crisis. It’s common-sense to keep the scheme going while business resilience remains so fragile for some months yet.

“As we make progress into the summer, it’s right that businesses start contributing to be part of the scheme. Meanwhile it’s great to see more support for the newly self-employed, who have missed out over the last year.”

IPSE (the Association of Independent Professionals and the Self-Employed) has also said it is “delighted” the Chancellor has heeded its calls to include freelancers who filed their first tax return in 2019/20 in the fourth round of the Self-Employment Income Support Scheme (SEISS).

Derek Cribb, CEO of IPSE, said: “After the severe and disproportionate financial impact of the pandemic on the self-employed sector, this Budget contains much that will be welcome to struggling UK freelancers. We thank the Chancellor for listening to our calls for more support for new self-employed people and extending SEISS in-line with employee support. We are also grateful the Chancellor listened to our calls for a small profits rate of Corporation Tax, although we believe the threshold is too low.

“Overall, this Budget presents a hopeful vision for many freelancers – in the midst of dark times. We urge the Chancellor and government, however, not to forget still excluded groups such as limited company directors and look at new ways to support all parts of the self-employed sector.”

Meanwhile, the Institute for Employment Studies also welcomed the furlough and SEISS extensions, but said that “not for the first time, the Chancellor is banking on a strong bounce back as we reopen”.  It said this didn’t happen last summer and it may not happen this summer, given the huge spare capacity in firms and continued uncertainty from the pandemic and Brexit.

It added: “The biggest risks that we face now are weak hiring, job insecurity and long-term unemployment.  We needed to see more today on measures to support jobs growth, reskilling and new job creation in areas like social care, the green economy and local services.”

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