Andrew O'Brien: Ignore the Autumn Statement headlines and focus on the direction of travel

There are a number of trends that charities should be aware of before the Autumn Statement, writes the Charity Finance Group's head of policy

Andrew O'Brien
Andrew O'Brien

Every Chancellor, whether knowingly or unknowingly, tends to be a reaction to their predecessor. Philip Hammond, the new Chancellor, is telling everyone who will listen that he isn’t going to be a "political" Chancellor like George Osborne. He is going to focus on quietly balancing the books and making sure that the British economy is "match fit" for its post-Brexit future. This is either a means of expectations management or a general shift away from the Autumn Statement being a big event in the political calendar.

The overall theme of the Autumn Statement is already clear. Industry is the focus. We’ve had big announcements on roads, lots of reports that fuel duty is going to be frozen again – something that will help many charities – and investment in scientific research.

But more important than the headlines for charities will be the overall direction of travel.

The biggest political announcement of the summer was not the enlightening "Brexit means Brexit". Rather it was the Chancellor’s decision that he was going to drop the previous government’s target of running a budget surplus by the end of the parliament. In theory, this means that the Chancellor has a lot of wiggle room in this statement.

However, according to the Institute of Fiscal Studies, this wiggle room has already been eliminated by slowing growth forecasts. An £11bn surplus in 2019/20 is now forecast to be a £15bn deficit.

The big question that the Chancellor has to answer in his statement is not whether he wants to run a surplus or a deficit, but how a big a deficit he wants to achieve. If he wants to, Mr Hammond can use the context of Brexit to justify significant further borrowing and investment in infrastructure, public services and tax cuts in order to boost demand. But early reports indicate that this is unlikely and the aim will be to keep the deficit as small as possible.

This will be of critical importance for charities. A doubling down on austerity in order to keep the finances as close to balance as possible will mean further cuts. Public services and local government are likely to be the focus for these cuts, given that the Chancellor appears to be focused on boosting capital investment in infrastructure.

Tax reliefs are also likely to come under renewed pressure. Reports ahead of the statement have already put on notice tax breaks on so-called employee perks such as gym membership, health checks and phone contracts.

Charities rely on a number of critical tax reliefs – although cuts to business rate relief appear to be off the table after last year’s consultation – so this could be a cause for concern. But the most likely outcome is that the government will continue to reject calls for reform on charitable tax reliefs with the aim of increasing the amount of funding that goes to the front line, rather than cutting these reliefs.

Although the statement will be important, most analysts will be focused on the independent Office of Budget Responsibility. The OBR will be producing the forecasts on which the government will base its spending decisions.

The OBR might be less pessimistic than the IFS or other analysts, and this could give the Chancellor the opportunity to make further tax cuts or increase subsidies for popular measures such as childcare. If it is more pessimistic, then the cuts will need to be even larger.

The other key piece of economic data that will affect this Autumn Statement is inflation. Charities have already seen their costs increase substantially over previous years, but the collapse in sterling is likely to drive up bills still further.
Inflation is actually the Chancellor’s friend – from a spending perspective – because it makes policies cheaper, boosts the nominal level of tax receipts and makes paying down the deficit easier.

But, more importantly, a higher rate of inflation will put households under pressure and might force the government to act. The Chancellor is apparently considering a temporary cut to VAT in the spring in order to support spending. This would be good news for charities because it would reduce the level of irrecoverable VAT in the sector. Moreover, anything that can limit the erosion of household spending power is helpful for fundraising. A lower rate of inflation will ease the pressure on the Chancellor to make big decisions for tax and benefits.

As with all speculation, there is always the room for surprises. Although Hammond appears to want to reject his predecessor’s penchant for pulling rabbits out of the hat, the temptation to steal headlines might just be too tempting. Charities will need to be vigilant. After all, he is only a politician.

Andrew O’Brien is head of policy and engagement at the Charity Finance Group. The CFG will be producing a free briefing on the Autumn Statement for charities, which will be available on the CFG website

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