Academics from City, University of London have been reacting to the Chancellor’s Autumn Budget and Spending Review
Rishi Sunak MP, Chancellor of the Exchequer unveiled his 2021 Autumn Budget and Spending Review on Wednesday 27th October.
Experts from across the University's diverse range of specialisms gave the following reactions to the Chancellor's statement.
Impact on households
Professor Steve Schifferes, Honorary Research Fellow in City’s Department of International Politics, noted that the Chancellor’s budget has delivered some increases in public spending paid for by higher taxes. He commented:
“It remains to be seen, in the face of higher inflation and higher taxes, whether ordinary people will feel better off, or that severe cuts in public services due to austerity will be fully reversed.
Despite higher growth this year, the official (OBR) projections projects much slower growth in the future, only 1.3% by the end of the forecast period. Professor Schifferes [pictured] suggests that the Chancellor’s aspirations for a high wage, high productivity economy will not be met.
“Indeed,” he said, “average household incomes are projected to barely increase over the next five years, having failed to grow for most of the last decade.
“The slower economic growth could also derail the Chancellor’s hope to return to his Tory roots by cutting taxes just before the General Election."
Professor Schifferes has also done a Q&A with The Conversation in response to the Budget.
Increase to minimum wage
The Government announced an increase to the National Living Wage from £8.91 to £9.50 an hour from April 2022. John Forth, Senior Lecturer in Human Resource Management at Bayes Business School, said any change must be closely monitored after a difficult year for many firms in low-wage sectors:
“The increase in the National Living Wage to £9.50 per hour for those aged 23 and above will be a welcome boost to many low-paid workers, but it will necessarily increase the wage bill for many employers.
John’s co-authored research for the Low Pay Commission on the Impact of the National Living Wage on Businesses and the impact of the NLW on automation on businesses has shown that employers have tended to absorb previous increases in the National Living Wage through lower profits or by raising prices.
“There is little evidence of past increases in the NLW leading to job losses,” he said.
“However, the recent increase does come on the back of a difficult trading year for many firms in low-wage sectors such as hospitality and retail. So, it will be important to monitor the impact of the latest increase closely.”
However, a note of positivity came from Dr Orkun Saka [pictured], Lecturer in the Department of Economics in City’s School of Arts & Social Sciences. He said:
“I believe any potential increase in the minimum wage is very much welcome in the current circumstances, given the labour shortages in lower-paid jobs and the accumulated burden of the epidemic on the front-line workers.
“Moreover, given this year’s Nobel Prize in Economics was awarded to David Card, who challenged the conventional wisdom by showing in his research that minimum wage increases do not necessarily lead to fewer jobs, such news is more meaningful and welcome than ever.”
Meanwhile, Professor Chris Rowley, Professor Emeritus of Human Resource Management at Bayes, said the government’s increased rhetoric around creating a high wage economy risks frustrating taxpayers who may have to subsidise those firms which cannot afford the increase:
“The increase per se is not so significant itself – as increases occur regularly – compared to the greater significance of the government’s increasingly strident and vocal rationale behind it: to forge a high wage economy. Of course, this needs to be seen in light of universal credit cuts as it only applies to those in work.
“The debate around increases here are an old chestnut. One the one hand, there will always be those who use the same old stance and simply say it will increase unemployment as firms simply cannot afford to pay. Research overall does not substantiate this. On the other side will be those arguing that it makes little difference for non-tradeable jobs as all firms will be paying it.
Professor Rowley stressed that for other businesses it will encourage innovation and investment in technology to increase the productivity of more expensive labour, as has been seen in Germany.
He also questioned why taxpayers should cross-subsidise “such ‘scrooge’-like firms” as their pay is “so low it then has to be topped up with a variety of benefits”.
“Interestingly,” he said, “the government has jumped on this bandwagon in the context of a cure for current labour shortages and ‘building back better’ with a high wage, high productivity, global Britain.”
Dr Francesc Rodriguez Tous, Lecturer in Banking, commented on the concerns about inflation potentially leading to the Bank of England introducing higher interest rates. There have been reports that much of the Chancellor’s policy moves are being influenced by concerns this may come to pass:
“The increasing inflation—and increasing risks that this is not just a temporary shock—means that the Bank of England (BoE) might increase interest rates sooner rather than later.
Dr Rodriquez Tous said that this will mean the government will find it more expensive to issue debt. Any budget plans that require substantial debt issuance, then, will be affected by this.
“It is interesting on a broader topic of monetary and fiscal policy co-ordination,” he said. “When the pandemic hit, both policies went in the same direction: reducing rates (and expanding the BoE balance sheet) and spending more. Now that is changing.
“To keep the same level of fiscal soundness, the government would prefer lower rates and higher inflation, as most of the debt is nominal. However, this goes against the mandate of the BoE to a certain extent as they also have to support government policy.”
Professor Joseph Pearlman, Professor of Macroeconomics in City’s Department of Economics, said:
“One comment that needs to be made is about Sunak’s misrepresentation of the data. The Office of Budget Responsibility conceded to Sunak’s request (would that have happened under Robert Chote?) to prepare budget forecasts using out-of-date data from 5 weeks ago."
It has been determined since then that the economy in July was not 2.4% below peak, but only 1.5%. “This means that Sunak’s predictions for growth are in fact likely to be about 1% higher than they really should be,” said Professor Pearlman.
“But more significantly, the lower figures empower the Treasury to refuse spending requests.”
“Underlying the misrepresentation, one can be cautiously hopeful about the economy. According to the recently revised data, recovery in the UK is as good as that of the US, Germany and France and the ‘scarring’ of the economy, due to Covid, is 2% rather than the previously touted figure of 3%."
Government debt is now at 85% of annual income, which is well above its desired level, but debt servicing charges (aka interest payments) are at their second-lowest since 1950.
"So there is really no excuse for the little support for ‘green’ and social and childcare investment. The whole point of investment is that one gets a rate of return, and it’s not difficult to better the near-zero current interest rate,” said Professor Pearlman.
Street crime and women’s safety
Responding to the £435m package of measures (including better CCTV, improved street lighting and an additional £80 million of funding to the Crown Prosecution Service) aimed at preventing crime with a focus on violent offences against women – Dr Cassandra Wiener, a Senior Lecturer in The City Law School, said:
“Unease following the recent killings of Sarah Everard and Sabina Nessa is running high and any funding to improve women’s confidence in the streets is welcome.
“CCTV and better lighting, however, will not in themselves resolve the issue of male violence against women and I would like to see a corresponding investment in preventative education measures and perpetrator treatment programmes.”
Dr Wiener [pictured] said that it is unclear how ‘part’ of £80 million given to the CPS with no further scrutiny will address the damning conclusions of the Government’s own June 2021 Rape Review which highlighted that the CPS problems are in this regard both structural and entrenched.
“Much more needs to be done – and urgently – to address the fact that only 3% of adult rape offences that are recorded by police result in a CPS charge,” she said.
Professor Michael Ben-Gad, Professor of Economics in City’s Department of Economics, feels that the best news coming from the budget is that – thanks solely to more robust economic growth – tax revenue will rise by £50bn.
“Nearly all of that will be allocated to reducing borrowing rather than dedicated to yet more public spending. Why does this matter? The UK government has borrowed £265bn since the start of the pandemic, but if the forecasts from the Office for Budget Responsibility are to be believed, the debt will reach 98.2% and then begin to gradually decline, hopefully reassuring financial markets that it is safe to carry on lending to the UK at low rates of interest.
“In the contest between a profligate PM and a rather more sober Chancellor, it seems the latter has prevailed.”
Professor Ben-Gad [pictured] also notes that, while a lot of media attention is paid to the costs to the Exchequer associated with inflation, this only applies to the quarter of the debt that is index linked.
“Overall, inflation lowers the debt burden. Higher prices in the shops are best thought of as a type of stealth tax that helps the government balance its books.”
Health and education spending
Professor Joseph Pearlman said: “To Sunak’s credit, capital health spending this year will increase by £4.2bn to £11.2bn, but the question remains as to whether there are sufficient health personnel to man the new machines.
“In addition, there is an extra half billion for the Supporting Families and Start for Life programmes, but this is a very much watered down version of the Blair/Brown Sure Start programme that David Cameron got rid of in 2010.”
The total education recovery support needed because of Covid has been upped to £5 billion, and Professor Pearlman said that it is to the Chancellor’s major credit that there will now be 30,000 more school places for children with needs and disabilities.
Professor Les Mayhew, Professor in Statistics at Bayes, says the £11.5bn promised by the Chancellor towards the Affordable Homes Programme is not new and much needs to change if the government is to hit the target of 300,000 new homes a year by the mid-2020s. He said:
“We have not seen the details and definitions are important. For example, what is affordable housing? Most of the money promised is not new and appears to consist of rolled-over plans from previous years.
“The Government target is to build 300,000 homes a year but housing completions in England were badly hit by the pandemic in 2020. Otherwise, the number of completions has been slowly improving since the trough in 2011 but it is still less than 200,000 and so well short of the Government's target of 300,000 a year by the ‘mid-2020s’.
“Other policies may be needed to improve housing supply to release existing under-occupied homes as the building target as it stands appears to be out of reach.”
Professor Joseph Pearlman added: “Really, this means extra money for 30,000 affordable homes. Could the government have done more? Well, even some of the rich are saying that they are happy to pay more tax in order to level up, so why not a one-off wealth tax, to be paid over 10 years?
“If it’s a one-off, there will be no incentive for entrepreneurs to head off to Singapore to avoid future taxes, and the money could be put to useful green investment.
"The big problem for Labour is that it cannot announce such a planned policy in advance, otherwise those entrepreneurs actually will go.”
Travel and taxes
Professor Joseph Pearlman said: “Consumers and businesses will be reassured by the postponement of the planned rise in fuel taxes because of the recent price increases, and domestic flights will charge lower passenger duty.
“This will hardly succeed in shifting travel to rail, but like most of us Sunak has little confidence in many of the privatised rail companies’ ability to deliver.
“Long-haul passenger duty will increase, which is likely to be a popular measure given most people’s increasingly green credentials. Cuts in alcohol duty will make the government more popular too."
In response to the Chancellor’s Budgetary proposal to address the low level of numeracy among millions of adults in the UK through a new Multiply scheme, Dr Anton Cox [pictured], a Reader in Mathematics in the School of Mathematics, Computer Science & Engineering, commented:
“Basic numeracy skills are essential, and any initiative which provides support to improve these is to be commended.
“The modern world relies on mathematics to an ever increasing extent, and supporting people in improving their basic skills is just as important as developing more advanced training where it is needed.”
Business rate reforms
The Chancellor said that changes to business rates will be reformed to support companies and announced a 50% business rates discount for companies in the retail, hospitality and leisure sectors, up to a maximum of £110,000. This one-year cut is worth £1.7bn and the Chancellor said it was the “biggest single-year tax cut to business rates in over 30 years”. Professor Ajay Bhalla, Professor of Family Business and Innovation at Bayes, commented:
"The hospitality sector across the country is facing incredible pressure. Beyond the inflationary pressures due to rising food, wage and energy costs, labour bottlenecks have dented the business model of both independent and chain operators.
“The 50% rates discount offers a breather for businesses and will help keep them afloat while they drip feed the rising costs to the customers and jostle for skilled workforce to bring some normality in their business system."
Universal Credit taper rate
Professor Joseph Pearlman said: “Levelling up is what Boris Johnson has been promising us. The drop of £20 a week in Universal Credit is not exactly a way of achieving it, so Sunak has changed the taper rate: instead of keeping just 37p for every pound that is earned, those on Universal Credit will now get to keep 45p.
“So, if you are on minimum wage, you will break even once you are working 26 hours per week. Not much of a shot in the arm if you are a single parent unable to work eight hours a day!”
Investment in technology to help with NHS backlogs
Commenting on the £6 billion package of funding to help tackle NHS backlogs and invest in technology and data in a bid to improve efficiency and security within the health service, Professor Muttukrishnan Rajarajan, Director of City’s Institute for Cyber Security, said:
“The NHS needs better privacy-preserving technologies which need to be in place before data collected from distributed diagnostic centres across the UK can be used efficiently to make clinical decisions.”
Professor Rajarajan [pictured] said that protecting the privacy of diagnostic images and clinical records is a “major challenge” and most recent data science technologies, such as Federated Learning with searchable encryption, provided the necessary tools and an environment to overcome current limitations.
“This helps data to be secure at rest, during transmission and while being processed – providing complete anonymity and privacy,” he said. “It’s encouraging to see the government taking this issue seriously.”
Safer tall buildings
£5 billion will be raised from large construction firms to deal with unsafe cladding on tall buildings. Professor Joseph Pearlman said this money will be raised from "distortionary profits" earned by those firms when house prices rose after the government dropped stamp duty for first-time buyers.
Professor Pearlman said: “In other words, the government dropped money into the pockets of builders only to take it away later. A true waste of taxpayers money, and supposedly we have reduced bureaucracy and administration costs by Brexit!
“But in truth it’s a bold move by a party that receives such a large chunk of donations from the construction trade."
Mixed messages on spending
The Chancellor’s speech started out with much talk about significant spending to boost the economy, but later mentioned the desire to reduce Government spending, leaving some unsure about the Chancellor’s long-term plans. None more so than Dr David Blunt, a Senior Lecturer in City’s Department of International Politics, who said:
“Rishi Sunak delivered today’s budget with what approaches a psychedelic detachment from reality and laden with so many contradictions that Hegel’s head would spin off his neck, but all cracks were papered over with the manic optimism that is the trademark of the Johnson administration.
“It was a repudiation of a decade of Tory government presented as a great triumph for the governing Tories.”
Dr Blunt [pictured] said that this was a Budget for a post-Covid era delivered at a time when cases are rising and there is open speculation that the government will be forced to bring in measures like mask mandates and vaccine passports.
“Indeed,” he noted, “the Chancellor and Prime Minister appeared in the Commons wearing face masks in a belated attempt to show the moral leadership noticeably absent since ‘freedom day’.
“The Chancellor claimed that the Conservative Party can be trusted with the public purse and that public investment will produce a strong return in coming years, even though the government’s wild profligacy was just underlined in the Commons Committee of Public Accounts report on the ‘eye watering’ £37bn allocated to the NHS Test and Trace programme with little to nothing to show for it.
“Sunak continued this panegyric to incoherence as he evangelised the government’s omnipresent ‘levelling up agenda’ and restoring some public spending to pre-2010 levels, while simultaneously announced tax relief for banks, reduced business rates, and reduced duties on alcohol.
Dr Blunt wondered if this was perhaps in the hope that cheaper beer will distract the public from "the largesse being delivered to Sunak’s old colleagues in the City".
“The Chancellor can appear a reluctant member of Boris Johnson’s popular pantomime government, one who is waiting for his chance to roll his boss and put on a more serious show," he said.
“But in the meantime he has to put on his make-up, grin broadly, and deliver increasingly befuddled messages to a public enduring growing inflation, an ongoing pandemic, and a Brexit-induced supply chain crisis that is producing empty shelves in the supermarket and human waste in Britain’s rivers.
“But at least champagne will be cheaper.”