Press Story

A report published by IPPR today shows how the Chancellor could make the forthcoming spending review as progressive as possible – while keeping his promises to reach a surplus by 2019/20 and to avoid rises in national insurance, income tax or VAT.

The Chancellor made clear in the July Budget that he wanted to make progressive choices in the 2015 spending review. In this report IPPR shows, through detailed analysis of the figures, that he could choose to protect social care, expand free childcare, protect education for 16-19 year olds, support young people into work, and invest in housing, science, energy efficiency and the northern powerhouse – while still reaching a surplus in 2019/20.

The report shows that the Chancellor could choose to avoid destructive 40% cuts to other public services, such as the police and courts, by doing two things.

First, he could target a slightly lower surplus than the £10bn he is currently aiming for in 2019/20. Second, he could make modest extensions to three of the tax changes he announced at the Budget: slightly reducing tax relief for the pensions of the richest, aligning capital gains tax for high earners with the new dividend tax rate, and bringing the insurance premium tax closer to the rate of VAT.

The Chancellor’s flagship progressive policy in the July Budget was the new “Living Wage” – increasing the minimum wage for over-25s to £9 per hour by 2020. This will significantly increase costs for providers of social care, because much of their workforce is on the minimum wage.

The Chancellor will not want his Living Wage to be seen as leading to failures in delivery of social care system – so he is likely to want to ensure that social care, in particular, is better funded in the forthcoming spending review.

Some of the key recommendations in the report include:

· Securing the future of social care
The government should protect its £13.4bn worth of grants to local government in cash terms to ensure local authorities can meet the rising demands of social care.

· Extending childcare for poorest 40% of households

The government has already committed to 30 hours of childcare for three and four year olds in working families for 38 weeks of the year. The report recommends that

Cost: £300 million per year from 2017/18

· Protecting 16–19 education

The government should protect 16–19 education on a flat cash-per-student basis over the spending review period, to avoid an unjustified drop in funding per student between 5-16 schooling and higher education.

· Tripling the budget of the Homes and Communities Agency
From 2018/19, the government should triple the budget of the Homes and Communities Agency, with the aim of grant-funding the building of approximately 50,000 social rent homes per year to help tackle the housing crisis.

Cost: £2.2 billion per year from 2018/19

· Investing in the ‘One North’ package of transport investment
Within the Department for Transport’s capital budget, resource should be found to finance the ‘One North’ package of integrated investment in road and rail capacity in the north of England, and to put it on course for completion in 2030.

Cost: £1.1 billion per year (from 2018/19 at the latest), reallocated within the Department for Transport capital budget

· Accelerating energy efficiency measures for low-income households:
‘Help to Heat’: the government should accelerate investment in energy efficiency measures for low-income households, upgrading a third-of-a-million homes per year with the objective of upgrading all low-income households by 2030.

Cost: £1 billion per year from 2018/19

· Protecting the science budget

Nick Pearce, IPPR Director, said:

“This is an incredibly tough spending review, but the Chancellor has options available to him if he wants both to protect and reform key public services.

"By making a few minor extensions to the tax rises announced in the recent Budget, he could avoid 40% cuts to vital public services – not least by protecting care of the elderly and early years spending.

"He could also choose to invest in housebuilding, infrastructure, science and youth employment services. This would start to prepare the country for the demographic and economic challenges of the 2020s.”

Link to full report

Summary of recommendations

Contact:

Danny Wright – d.wright@ippr.org 07887 422789

Sofie Jenkinson – s.jenkinson@ippr.org 07981 023031