ResPonses to the Budget

22^nd March 2013

The best of the rest: Reactions to the economic announcements and subsequent measures proposed by the Chancellor

The Chancellor of the Exchequer delivered the Budget to Parliament on 20th March, proposing a new set of economic measures meant to combat the economic malaise. Chancellor George Osborne announced that the present budget targets “people who aspire to work hard and get on” and those sectors driving up economic growth in the UK. The ResPublica team have collated some of the key reactions from policy-makers and practitioners discussing the potential impact of these measures.

The overall message the Chancellor tried to get through was that the economy is recovering, albeit at a slower pace than anticipated and with forecasts on debt, growth and the deficit being revised yet again. The deficit will now be 7.4% of GDP, higher than the estimations in December of 6.9%. Borrowing is down to £114bn this year, but still higher than last year’s predictions, as is the net debt which continues its worrisome rising trend. The only indicator that had to be corrected negatively was GDP growth, from 1.2% forecast in December 2012 to 0.6%. This explains the apologetic note of the first half of his speech, noted by James Dowling, former Treasury official, in The Commentator:

“It was, he said, taking “longer than anyone hoped … but we must hold to the right track”. The entire first half of his speech was spent justifying this – and setting the scene for what followed. The borrowing figures were awful – and the OBR has, again, revised down growth expectations.”

While the debate in the PMQs preceding the budget concentrated on international issues, such as the conflict in Syria, the financial situation in Cyprus, and Britain’s commitment to international aid, David Cameron’s official spokesperson reflected the fact that the government was “sticking to the course of tackling the deficit whilst continuing to support aspiration”.

On the other hand, leader of the opposition, Ed Milliband declared Osborne’s speech to be “a downgraded budget from a downgraded chancellor”, referring to the revised forecasts and expressed his concern that the chancellor “gives with one hand and takes a lot more away with the other”.
The majority of the economic measures announced in the second part of Osborne’s speech, however, are considered to be encouraging for Britain’s middle class and business environment, with proposals like cutting corporation tax to 20%, extra funding for home ownership and cutting employer’s national insurance bills by £2,000 being well-received.

Good news was also received by the employee-ownership sector, with the budget announcing a new capital gains tax (CGT) relief on qualifying disposals of a controlling interest in a business into an employee-owned structure. Furthermore, to ensure that the first £2,000 of share value received by those adopting the new employee shareholder status is free from income tax and NICs, the Government will legislate to deem that employee shareholders have paid £2,000 for shares they receive from 1 September 2013, when the new status comes into force. The government is also considering further incentives targeted at employees through indirect ownership models.

A week before the budget, Iain Hasdell, CEO of the Employee Ownership Association, called on the Chancellor to propose further supportive measures for employee ownership:

“This Budget is absolutely the time for the Government’s words of support for employee ownership to be reflected in bold action. Without such action it will be difficult for the recent and very welcome public statements of support to be taken seriously.”

Also, Graeme Nutall, author of the Nutall Review of Employee Ownerhsip, expressed his confidence that the Government would acknowledge the benefits of the employee ownership model and his reaction to the Chancellor’s speech was positive:

“This optimism was well placed. (…)The government has again confirmed its support for employee ownership as envisaged by the Nuttall Review.”

ResPublica welcomes the Chancellor’s commitment to support employee ownership and co-operatives. This builds on the work of our recent publication, Making it Mutual, which outlines the benefits of the mutual model and calls for a more inclusive model of ownership that would bring consumers, producers and employees closer together.

Another aspect on which Osborne’s Budget focused was the importance of social enterprises. Three distinct new measures are meant to support social investment and ease access to capital for social enterprises: the community investment tax relief (CITR) which will enable the activity of Community Development Finance Institutions, the social investment tax relief, destined to encourage investment in social enterprises and Gift Aid, which will foster the development of a wide range of digital giving channels.

The news was well received by a range of practitioners who admit that access to finance represents a crucial obstacle in the development of social enterprises, charities and voluntary organisations.

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), particularly welcomed the Chancellor’s support: “Charities run expert, high quality services, but often struggle to find the finances they need to expand their work. Social investment is an increasingly important way for charities to grow. This is a very welcome step and we look forward to contributing.”

Jonathan Jenkins, CEO of the Social Investment Business Group said: “We are pleased that the Government has listened to this demand from the social sector. This measure could go a long way to helping social investors like us raise more risk capital to back ambitious social ventures deliver better services to our communities and we look forward to seeing the detail.”

The announcement regarding Gift Aid reflects the recommendations comprised in ResPublica’s report from 2012 Digital Giving, which suggested a series of measures designed to boost charitable giving and reform the current Gift Aid.

Furthermore, ResPublica has been stressing the importance of social enterprises and the concept of social value in the past, through projects such as ‘Putting Social Value at the Heart of Public Services’ or The Civil Effect and working closely with Chris White MP, Respublica’s advisor and the main sponsor of the Social Value Act 2012. Therefore, we also welcome the Chancellor’s new measures and the increased support for the activity of social enterprises.

We will be taking the discussion even further with our forthcoming project, ‘The Community Renewables Economy’ which will be looking into how private businesses and individuals can invest socially into community energy projects. This is of the utmost importance for the policy-making debate, since the Chancellor’s energy and environment announcements on Wednesday stirred mixed reactions from practitioners and policy-makers alike.

The importance of a public-service reform has been acknowledged by the Chancellor himself within his Budget speech by reinforcing the Whole Place Community Budgets. The Government will establish a new multi-agency network to drive the transformation of local public services. The network will spread innovation from the Whole-Place Community Budget pilots and What Works Centres to support other places at key stages to provide advice and support on co-designing local public service transformation.

As stated in a DCLG case study on the efficiency of these programmes, this measure will call for increased localism, flexibility and decentralisation in order to understand local needs, opportunities and specific potential obstacles in implementation and delivery. In other words, the participation and empowerment of local communities is absolutely necessary for the proper functioning of public services.

Local government had previously asked for bold, revolutionary measures and further decentralisation that will provide local councils with the tools needed to tackle the low levels of efficiency and competitiveness of public services. However, with departmental spending cuts being laid more heavily on local government and devolved administration budgets, the challenge will be even more difficult to deal with.

Building on this debate, ResPublica’s forthcoming project ‘Localism 2.0’ will engage practically with partners in local government and other community intermediaries to map out the need for further reform to achieve a deeper, more radical localism.

If you have a response to the Budget, or to the ResPonses, please leave a comment and join the debate.