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LGC briefing: Hammond saves the jam for sticky days ahead

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Commentary on IFS analysis of the autumn statement

The Institute for Fiscal Studies’ formal presentation of its analysis into the autumn statement is not expected to provoke the unrestrained laughter associated with stand-up comedy.

But so it came to pass on Thursday when IFS research economist Thomas Pope said the Office for Budget Responsibility had estimated government borrowing would be £15.2bn a year higher by 2020-21 than predicted at the time of the Budget in March.

When Mr Pope pointed out this equated to £295m a week, the amusing irony was as subtle as if the Leave campaign bus (promising just slightly more than this a week to the NHS) had just crashed into the room  –  and the audience reacted accordingly.

The IFS has said uncertainty following the Brexit vote prompted the OBR to forecast that borrowing would be £32bn higher in both 2019-20 and 2020-21 than previously predicted.

The list of drivers included £10bn caused by policy decisions and £18bn due to OBR economic forecasts of the new landscape. Of that £18bn, £15bn was directly attributed to the vote to leave the economic union.

As a consequence the IFS is forecasting further austerity, which they said might necessitate a two-year freeze on public spending in order to reach a balanced budget early in the next parliament.

In a piece today for LGC, IFS senior research economist David Phillips points out that while councils may feel they are “out of the woods” by 2020 as full business rate retention is introduced, ongoing austerity could still bite.

He warns the government could still devolve additional spending responsibilities without full funding, leading to councils being forced to plug the gap with their own revenues.

Mr Phillips adds: “Second, because the government could impose a net business rates income ‘tariff’ on the local government sector as a whole, withdrawing some money from the business rates retention scheme.”

As IFS director Paul Johnson has said, faced with deteriorating forecasts, the chancellor in the autumn statement “neither tightened fiscal policy nor followed his predecessor’s example of sticking to previous plans”.

However, Mr Hammond’s loosening of fiscal policy, by about £10bn a year, was firmly focused on increased capital spending.

Mr Johnson said the chancellor had opted for “jam tomorrow” in the form of potential economic returns for greater investment, rather than “jam today” in the form of more money in people’s pockets (or councils’ adult social care budgets) now.

Mr Hammond’s decision to ignore strong calls for urgent investment in social care and opt for long-term investment in infrastructure and research suggests nothing was going to deter him from acting to try to bolster a weakening wider economy both pre- and post-Brexit.

Mr Johnson said the chancellor had “strikingly” not responded to demands for more money for either the NHS or social care.

“I’m going to stick my neck out and suggest he won’t be able to do that for much longer,” he added.

And this week there was a glimmer of light in the adult social care gloom when the chancellor, and then later Theresa May, said the Department for Communities & Local Government and the Department of Health were discussing an approach to tackling pressures in the system.

However, Mr Hammond reminded that councils must manage the “envelope of resource” they are given. 

This appears to suggest a government focus on moves to speed up integration, rather than simply conceding to calls for more cash. Labour’s Greater Manchester mayoral candidate Andy Burnham is not alone in supporting the NHS taking on some responsibilities from councils for aspects of social care.

However, even should the government recognise that radical action is required to ease the social care crisis, it will undoubtedly be wary about facilitating what could be perceived as another Health & Social Care Act which results in eyes being taken off the ball of service delivery in pursuit of organisational upheaval.

With growing demand in a system already stretched to breaking point and further austerity on the way, councils will be hoping the government shows itself willing to address social care’s crisis soon.

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