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Chancellor's Budget must prioritise long-term public funding plans over short-term giveaways

Chancellor Jeremy Hunt will present the Spring Budget on 6 March (Alamy)

4 min read

When the Chancellor takes to the dispatch box next week, he faces a choice between a politically driven tax giveaway or making credible long-term spending plans to drive the country’s future prosperity. Given the government’s recent track record of short-term decision-making, it will be telling to see which course he takes.

The consequences of short-term thinking are stark – and nowhere more so than in the 2.8m people who are out of the labour market due to ill health. Updated ONS estimates mean this is around 200,000 more people than previously thought. This is similar to the boost to employment levels expected from measures announced at the last two fiscal events. 

Health Foundation has demonstrated that the working age health challenge is not limited to those who are out of work. The number of people with work-limiting health conditions who are in employment now mirrors those who are out of work. The increase in these two groups is driving the OBR's estimate that worse health since the pandemic is costing £16bn a year in lost tax revenues and extra benefit spend.  

This is the equivalent to more than a 2p cut in the basic and higher rates of income tax. Not good news for a Chancellor keen to find room for tax cuts.

Nor is it good news for a future government that wants to invest in recovery. The failure to maintain the health of the working-age population is having a direct and growing effect on the public finances. Spending on working-age health benefits is set to increase by £17bn a year in real terms by 2028/29.

Breaking this cycle requires a longer-term approach focused on maintaining people’s health and their employment in the first place, as well as helping people overcome barriers to work and move back into employment. While some of the government’s previously announced measures to help people with health conditions move into work are welcome – such as Universal Support and Workwell pilots – they don’t go far enough.  

The forthcoming Budget provides a vital opportunity to signal a credible long-term path for public finances and public services

A punitive approach to benefit entitlements and removing financial support from people with long-term health conditions who are unable to work is also likely to be counterproductive, leaving people in a precarious position from which it is harder to focus on finding employment.   

More broadly, cuts pencilled-in to public services risk further eroding the vital services and infrastructure needed to support a healthy population. The COVID-19 pandemic unearthed wide cracks in public services and the cost of living crisis has only added to the pressure with higher-than-expected inflation leading to real-term cuts in day-to-day spending. 

Last autumn’s fiscal event, on paper at least, proposed further cuts to public services to offset the cost of the cut in National Insurance rates. However, a number of economic commentators including the Institute for Fiscal Studies and the Resolution Foundation have lined up to say these cuts are not deliverable given the current state of public services, demographic pressures, and the scale of cuts that have already been delivered since 2010. Not only do these plans lack credibility, but prioritising tax cuts over funding public services is woefully short-sighted.

The perilousness of council finances is a prime example of how short-term decision making generates greater costs. Many of the vital services councils provide to help people to live healthy lives are under strain. This is creating a hamster wheel where councils are increasingly forced to focus limited resources on tackling the most acute needs at the expense of prevention which means that need continues to grow.

This is evident in the housing sector where councils have been forced to increase their budgets for providing temporary accommodation for people who have lost their homes. There are now 138,000 children living in temporary accommodation, compared to 79,000 a decade ago. This is not only expensive for councils - living in temporary accommodation is often very damaging to health. Some respite is coming with increased support for low income private renters from April, but many people have already been left struggling to cover the cost of their rent or living in insecure and unsuitable housing – all of which can also have a negative impact on their health. 

The last fiscal event was billed as an “Autumn Statement for growth” from a government taking “decisions for the long term”. Yet the small print revealed spending plans that lacked a basis in reality and if delivered would further erode public services. The forthcoming Budget provides a vital opportunity to tackle worsening working-age health and signal a credible long-term path for public finances and public services. The test is whether this opportunity is sacrificed on the altar of another tax giveaway for short-term political benefit.

David Finch is an Assistant Director at the Health Foundation.

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