Demos Responds to the Autumn Statement

No one is in any doubt that the government has a sizeable challenge trying to boost economic growth against a backdrop of ongoing instability caused by Brexit. In the broader context of the Referendum, and the divisions it laid bare across society, the Prime Minister has made plain her objective to speak to the needs of the ‘Just About Managing’ class – perhaps in part recognising many voted to leave the EU as an expression of their frustration with the status quo. This necessitates spending in areas that matter most to them and adjustments to help with the day-to-day bottom line, such as the relief on fuel, childcare and other everyday expenses.

This seems to be the approach Hammond is taking – popular giveaways such as the fuel duty freeze mixed with investment for growth. It seems incongruous, however, that we should be raising 40% tax bracket at all, helping as it does those at the upper end of the income scale while reducing the government’s tax take.

One might also argue the boost in research and development spending isn’t the best short term strategy. Hi-tech innovation lifts the entire UK economy eventually, but the trickle down effect is slow – it helps professionals in niche sectors and geographical hot spots first. In Brexit year, scarce resources might be better put towards investment that directly benefits the JAMs in the immediate term through jobs and country-wide local regeneration: “low tech” manufacturing perhaps, alongside infrastructure and house building.

Despite best intentions, the fact remains that finances are tightly constrained, and there is little to go around; while the language of austerity may drift away, its legacy will be hard to shift.

Welfare

Cuts to Universal Credit work allowances and Employment and Support Allowance are set to continue as planned. This is worrying given the inadequacies of the Work Capability Assessment. Demos’s research with Ben Baumberg of the University of Kent on Rethinking Incapacity shows that the WCA fails to assess claimants’ capability for work.  Cuts to ESA and Universal Credit work allowances should be delayed, at least until the recently announced reform of WCA is complete, in order to prevent vulnerable people having their income unfairly slashed.

The Chancellor has emphasised that the uncertainty created by Brexit means that there is no end to austerity in sight. Nevertheless, this Autumn Statement also signals a more flexible approach than his predecessor. Our recent research into children’s services reform shows that short term cost-cutting measures can produce greater costs in the long term. We urge the Chancellor to adopt an evidence-informed, strategic approach when choosing which areas to cut and which areas to invest in.

Education and Skills

With the inevitable attention of government departments turning towards Brexit, efforts to retain a focus on improving social mobility will be vital in the coming years. Evidence points to Britain’s stubbornly poor social mobility record compared to many other developed nations, as well as swelling in-work poverty and poor progression routes for many people from disadvantaged backgrounds entering the labour market. Our research has shown education to be key – both measures to close attainment gaps between poorer students and their wealthier peers in our schools, as well as putting an adult education and skills system on a surer financial footing.

It is surprising that the Government is planning to set aside substantial funds to aid the setting up of new grammar schools, given the evidence that current grammars tend to perpetuate educational inequality and new ones don’t seem likely to help the Just About Managing families that the Prime Minister is focused on. Given that school budgets will be declining in real terms over the course of this Parliament there’s a question as to whether this is the right focus, rather than the recruitment and retention of excellent teachers, amending the national school funding formula, or supporting the kinds of activities that develop the character attributes that matter for later life success.

Housing

It is encouraging to see solid commitment to infrastructure investment ‎and house building, though years of under-investment in housing means the shortage is so bad now we need much more ambitious volumes being built – but it’s a start. Funding to build on public sector land is also positive, given there are large areas all over the UK laying unused. Where land prices are at a premium unlocking public sector stock makes house building affordable.
What we would want to see is the detail on how the Government is going to maximise this investment through partnership with private housebuilders, and the sort of portfolio of houses this will create. Governments too often focus on first-time homes with new builds – the shortage affects the entire chain, however, and the Government would do well to ensure new developments not only offer affordable but also accessible and older people’s housing to spur more downsizing and free up family and larger properties ‎- that benefits everyone on the housing chain, not just those at the bottom

Devolution and Growth

Announcements in this Autumn Statement echo many of the recommendations of Demos’ recent report Invest, Devolve, Liberate. Our paper called for an economic reset in the wake of Brexit, and it is encouraging to see an emphasis on increasing investment in infrastructure and innovation, with much greater funds focused outside London.