Autumn Statement leaves the big decisions for another day

03 Dec 2014

The Autumn Statement from the Chancellor of the Exchequer, George Osborne, contains some headline grabbing tax announcements (for example about stamp duty and Google) but has little of immediate interest to those working in colleges.

The announcements included:

  • a plan to remove employer's National Insurance for apprentices under the age of 25. This does not take effect until April 2016 and is expected to cost about £120 million in lost tax income and comes on top of the tax cut announced last year which means that, from April 2015, there will be no employers NI for anyone under 21. National Insurance will continue to be levied on the small number of higher paid young people (ie earning over £42,000).
  • postgraduate loans of up to £10,000 will be available for people under the age of 30 taking masters course in any discipline. This does not take effect until 2016-17. Treasury and BIS forecast there will be around 40,000 applicants (ie fewer participants than the current FE loan scheme) but that it will cost about £300 million a year in loan outlays.
  • a £20 million investment to improve careers advice. We expect more details from the DfE next week.
  • DWP will pilot career change work experience and training opportunities for older benefit claimants and will make further requirements for 18 to 24 year olds who claim Universal Credit. Both changes take effect during 2015.
  • a further £1 billion earmarked for a second round of Growth Deals. The first round of deals announced in July 2014 provides Government funds for economically valuable projects recommended by local enterprise partnerships but managed by colleges.

There were several things that might have been in the statement but were not mentioned:

  • although the Chancellor said his "door is open to any city who wants to follow Manchester's lead", there were no other plans for devolution.
  • there is no public decision yet on the consultation to extend the FE loan scheme to other adult students. The consultation issued in summer 2014 by BIS suggested extending FE loans to 19 year olds and those taking courses at level 2 or above. The proposal was to implement this in 2016 so there is still time to take it forward.
  • there is no information on the plans to route Government spending on apprenticeships (£1.5 billion in all) to employers via the tax system or using a new credit. A BIS consultation earlier in 2014 suggested this could happen by 2016 but this now looks rather optimistic.
  • there will be no additional reductions to pension tax relief for those in defined benefit schemes.
  • there will be no changes to VAT rules to tackle the various injustices in the education rules.
  • there is no reflief from the additional National Insurance facing the public services in 2016 which will account for around 2% of school or college budgets

The Autumn Statement is one of the two points each year when HM Treasury and the Office of Budget Responsibility update the official forecasts for the public finances. Key points from the latest update:

  • the various tax and spending changes cancel each other out (if you round the figures up to the nearest billion).
  • the Government's budget deficit will be higher in 2014-15 and 2015-6 than forecast back in March because of lower than expected tax revenue despite forecast underspending of £2 billion in 2014-15.
  • The Chancellor continues to forecast that the budget will be in surplus by 2018-19 but this assumes that public spending cuts can be made after 2015. Lower interest rates mean the Government will save money on debt interest payments while lower inflation in 2015 and 2016 translates into an assumption that benefit expenditure and public sector pay will be lower than previously forecast.
  • spending on public services (Departmental Expenditure Limits) will fall by 12% in absolute terms between 2014-15 and 2019-20 from £316.8 billion to £279.1 billion. The Treasury have added one more year and scheduled slightly bigger reductions in the DEL figures than in their March 2014 forecast. OBR describes the public spending plans as representing a "significant challenge" if confirmed as firm policy because the implied reduction for unprotected departments is a 43% cut in real-terms per capita spending. OBR describe these savings as "achievable" but do not explain the consequences for post-16 education. Many of the public spending cuts made in the last few years have involved government reducing its contribution and the shortfall being made up by higher fees and charges, for example higher university tuition fees, higher rail fares and higher charges for visas and passports. There is rightly no option to charge fees for sixth form education and it is not feasible to cover costs for basic skills courses from people on low incomes. Large post-16 education cuts after 2015 would mean a significant withdrawl in service. For example would it really be sensible to cut sixth form funding so much that there is only enough funding for two A Levels?

The Autumn Statement leaves the big public spending decisions until the 2015 Spending Review which will not take place until after the election. A new set of ministers and their officials will need to make decisions in a rush to make the first set of additional savings by April 2016.

AoC's proposals for the Autumn statement contain a number of proposals that still remain valid