Budget 2024: ‘fixing the foundations’

More than three months since the General Election, Britain’s first female Chancellor Rachel Reeves delivered the first Labour Budget in nearly 15 years under the theme: ‘Fixing the foundations to deliver change.’

In a lengthy and detailed speech, the Chancellor announced tax rises to cover spending decisions in the region of £40bn. Many of the announcements were heavily trailed in advance, but as ever the devil is often in the detail of the footnotes, tables and annexes, which will take some time to decipher.

On first reading, what did the Chancellor announce, and what will be the impact on charities?

Forecasts and fiscal rules

There was much speculation in the run-up about whether the Chancellor would alter the government’s self-imposed ‘fiscal rules’. These have committed previous governments to reducing public sector net debt as a share of GDP over the period of the financial forecasts provided by the independent Office for Budget Responsibility in advance of the Budget.

She outlined a new ‘Charter of Budget Responsibility with revised rules, which among other things will change how the level of debt is calculated by including the value of government financial assets. The value of these assets will offset the debts to a degree, which will release the potential for more borrowing within the rules.

Reeves said that this meant the government would be able to provide £100bn in capital investment spending over the next five years, which will be spent on everything from schools and hospitals, roads and trainlines, to green infrastructure. This signals that the new government is taking a much more interventionist role in the economy – ‘fixing the foundations’ – compared to recent administrations.

Spending Review(s)

A Spending Review sets the overall spending for government departments over a multi-year period. The Chancellor said the new government’s Spending Review will take place in two phases. This first phase re-sets departmental budgets for 2024/25 and sets them for 2025/26, whilst providing the broader spending ‘envelope’ for successive years of the parliament.

In ‘late Spring’ 2025, the government will announce the more detailed results of the second phase of the spending review. After many years of short-term spending settlements, often lasting no longer than a year, the move to longer-term continuity should help departments to plan better and spend more efficiently.

Tax changes

During the general election campaign, Labour committed not to increase the three big taxes of VAT, income tax and National Insurance, so all eyes were on any further tax announcements. The Chancellor argued these were necessary to fund billions in unfunded commitments made by the previous government, and she said she would publish a breakdown as proof. For example, Reeves announced £11.8bn to compensate victims of the infected blood scandal, as well as £1.8bn for victims of the Post Office Horizon scandal.

Many of the tax rises she announced won’t likely affect many charities significantly or at all, such as increases to capital gains tax, the energy profits levy, or stamp duty land tax. However, other changes could impact charity employers, particularly the decision to raise the employer National Insurance Contribution (NIC) rate by 1.2 points from 13.8% to 15%. This was a sort of fudge on the pre-election commitment; protecting ‘working people’ from NIC increases by raising them on their employers only. [See Red Book 5.48 – 5.55 especially, pp 127-128].

Increased costs for charity employers?

The full impact on the charity sector of the Employer NIC rise is not immediately clear, because the Chancellor simultaneously announced changes to the thresholds for the ‘Employment Allowance’, which reduces NIC liabilities for the smallest employers. The charity sector employs around one million people, but the vast majority of charities are small and have few or no staff. The costs of this measure may therefore fall most heavily on those larger charities with more employees. [See Red Book Table 5.1, p118]

Still, with public sector contracts often failing to meet the actual costs of delivery, any increases in charity employee costs which can’t be renegotiated with public sector commissioners could make these contracts even more unsustainable.

The Chancellor also announced a 6% increase in the National Living wage to £12.21 per hour. While this is great for lower-income workers struggling with recent inflation (including many employed by charities), it could put pressure on already stretched charity finances, especially for those delivering services under contract to the state.

NHS and schools

Fixing the NHS is one of the government’s top ‘missions’ and the Budget delivered an additional £22.6bn in day-to-day spending for the first phase of the Spending Review, plus £3.1bn in capital investment. The Chancellor said this would help deliver the Labour party’s manifesto commitments to provide 40,000 additional elective appointments per year and to reduce hospital waiting lists.

The capital spending will provide £1bn to address repairs and upgrades in NHS buildings, £1.5bn to increase capacity for new beds and diagnostic tests, and to fix seven hospitals affected by reinforced autoclaved aerated concrete (RAAC). [Red Book p5]

The Chancellor also announced £6.7bn in capital investment for the Department for Education to rebuild 500 schools [Red Book 4.13 p84] and an ‘acceleration’ of £1bn in capital spending to remove dangerous cladding in social housing, which caused the Grenfell disaster.

She also announced a “£1 billion increase to Special Educational Needs and Disabilities (SEND) and Alternative Provision funding, equivalent to 6% real growth.” [Red Book 4.8 p83].

Although the various capital investments are not directly related to the charity sector, many charities work with (and even within) the NHS, schools, or social housing and will likely welcome this news, even if it doesn’t fully meet the scale of the challenges.

Local government and the Charity Commission

An increasing number of local governments have been experiencing the equivalent of bankruptcy, with disastrous consequences for local voluntary sector organisations and the people and communities they serve. For its own resilience the charity sector urgently needs local government to be set on a much more stable financial footing than it has been.

The Budget annexes indicate some very good news here, showing a real terms increase in central government funding for local government of 10.2% between April 2024 and April 2026 [Red Book p155]. The document also states that “The government will support local authority services through a real terms increase in core local government spending power of around 3.2%, including at least £600 million of new grant funding to support social care.”

However, a footnote says that the figure of 3.2% is “an estimate and subject to data changes. Final figures will be published as part of the 2025-26 Local Government Finance Settlement”. We will have to wait until next year to see the full picture, but this signals a welcome reversal of years of deep funding cuts to local government. This was something that DSC and the Civil Society Group has consistently called for, including in its joint submission to the Treasury in advance of the Budget.

The annexes also appear to show a broadly stable budget for the Charity Commission up to 2026. However, unlike for some of the other ‘small independent bodies’ listed in the section, there is no detail or footnotes explaining the minor variations in expenditure [Red Book table 4.22, p111].

Benefits and cost-of-living

There were positive signs for those charities working on welfare and poverty, despite the fact that there was no u-turn on the withdrawal of universal winter fuel allowance for pensioners, or the two-child limit for Universal Credit.

The Chancellor announced a reformed ‘welfare cap’ to come in during 2029/30, to ‘support spending control’. She also said that “The government will set out reforms to health and disability benefits early in 2025 to ensure the system supports people who can work to remain in or start employment, in a way that is fair and fiscally sustainable.” [Red Book p2].

We will have to see further details of the new government’s policies next year, but organisations working in this area clearly need to keep engaging now to ensure the needs of their beneficiaries are understood and that any reforms support people in poverty rather than punishing them.

The Chancellor specifically mentioned the efforts of the Trussell Trust and Joseph Rowntree Foundation in her speech, with reference to “creating a new Fair Repayment Rate which caps debt repayments made through Universal Credit at 15% of the standard allowance.” [Red Book 5.134]. This change will ease the burden of debt repayments for Universal Credit recipients, when they have to pay back loans and debts, for example when they receive benefit advances or owe council tax arrears.

There was further good news as the Chancellor announced £1bn “to extend the Household Support Fund and Discretionary Housing Payments in 2025-26, which will be used by local authorities to address immediate hardship and crisis.” The Household Support Fund provides funding to local governments to help people in hardship with basic essentials. While these measures offer temporary relief and are not long-term solutions, the impact of ending them would increase poverty and hardship for the poorest during the ongoing cost-of-living crisis [Red Book p3].

Finally, there was positive movement on Carers’ Allowance, with the Chancellor announcing that the government will be “raising Carer’s Allowance Weekly Earnings Limit to the equivalent of 16 hours at the NLW [national living wage]… this is an increase of £45 per week and will allow over 60,000 more carers to access Carer’s Allowance.” There will also be an independent review into the problem with overpayments of Carer’s Allowance which have exacerbated financial hardship for some carers. [Red Book 2.26 pp42-43]

Some other bits and pieces

There weren’t many direct references to charities or civil society in the speech or the documents, but some other initiatives will be of interest to certain organisations and causes. For example:

• Social Impact Investment Vehicle: “This will bring together socially motivated investors, the voluntary sector and government to tackle complex social problems.” [Red Book 5.172 p143]
• UK Shared Prosperity Fund – this will continue “at a reduced level for a further year, providing £900 million; this transitional arrangement will allow local authorities to invest in local growth, in advance of wider funding reforms.” [Red Book 2.81 p55]
• Homelessness – “£233 million of additional spending in 2025-26 to prevent homelessness, taking total spending to £1 billion in 2025-26. This will help to prevent rises in the number of families in temporary accommodation and help to prevent rough sleeping.” [Red Book 2.81 p55]
• VAT on private school fees – as promised in the Labour manifesto, this will commence from January 2025. However, the Chancellor also confirmed that the government will introduce legislation to change business rates relief for these schools from April 2025. The charity sector will need to scrutinise this carefully for the wider (and potentially negative) consequences. [Red Book p5]

Conclusion

More will be revealed in the coming days as various analysts pore over the documents and digest the implications. But on the face of it, despite all the talk of ‘tough decisions’ and things being ‘broken’, this Budget probably comes across in many ways as better than anticipated. Maybe that was the plan all along?

Government departments received budget increases across the piece, and most importantly for the charity sector there will be meaningful increases in central funding for local government. The Charity Commission budget has remained intact too, which is critical for our sector.

Some of the policy decisions on welfare in particular show that charities and campaigners can influence decision-making at the highest levels. We also shouldn’t gloss over the significance of huge settlements for the victims of long-standing injustices, which show that campaigning and people-power can work even if it takes decades.

In summary: we haven’t won everything in the first round, but the game is far from over and there’s clear opportunity to make further progress in the years ahead.