What the March Budget means for colleges

There is very little new in the budget of interest to colleges. We will need to wait for this Autumn’s Spending Review to find out what will happen to public spending. The Chancellor said that a Conservative-led Government must stick to existing public spending plans which would involve further substantial cuts between 2016 and 2019. SFA allocations were due on Tuesday (17 March) and are now due later this week. At the end of February, SFA’s Chief Executive announced that the budget for the 2015-16 academic year for adult further education is 24% less than this year’s budget Economic forecasts and the UK public finances The Chancellor reported a better financial outlook for UK Government because of changes in various economic forecasts: Economic growth is expected to be slightly higher in 2015 compared to the forecasts made last year (e.g. 2.5% rather than 2.4% in 2015). This contributes to forecasts of slightly higher tax revenue. Inflation is expected to be lower than forecast last year (mainly because of lower oil prices). This is expected to lower future public service costs. Unemployment in 2015 is forecast to be 5.3% of the workforce (about 1.6 million) compared to the earlier 5.4% forecast. Lower interest rates are expected to save the Government a total of £35 billion over the next five years compared to earlier plans. Fiscal Decisions The macro decisions and promises on the public finances The Budget itself is planned to be fiscally neutral with giveaways balanced by takeaways. Any costs from tax cuts and spending reductions are due to be balanced by tax rise and spending reductions elsewhere. HM Treasury cost the total takeaways in terms of tax revenue at £3 billion for the five years from 2015 to 2020. The Government’s aim is to reduce total public sector net debt in 2015-16. A decision to sell various Government investments in banks helps reduce total public sector net debt from 80.4% of GDP in 2014-15 to 80.2% in 2015-16. This is a marginal reduction, but fulfils a promise made in 2010 that the Government would start repaying debt by 2015. A Conservative-led Government would recommit to the fiscal path set out last year which he estimated will require £30 billion in public spending cuts (£12 billion from departmental spending, £13 billion from benefits and pensions, £5 billion from lower debt interest). At the same time, the longer-term plan is to stop the next cycle of public spending cuts in 2018 rather than 2019. Issues of specific interest to colleges There are a number of specific decisions and promises of interest to those in colleges: Pension tax and Labour’s fee plans - There is a plan to reduce the Lifetime Tax Allowance (LTAs) on pension savings from £1.25 million to £1 million in 2016 while making no change to the Annual Allowance (which was reduced to £40,000 in 2014). The decision on LTAs is expected to raise £600 million which removes one of the taxes expected to finance Labour’s £6,000 fee plan. Devolution - A third devolution deal has been agreed with the West Yorkshire Combined Authority (WYCA) to add to deals agreed in the autumn with Greater Manchester and South Yorkshire. There are promises to Greater Manchester and Greater Cambridge on business rates but nothing explicitly on skills Apprenticeship Funding – A commitment to introduce an apprenticeship voucher scheme to route the £1.6 billion Government training budget via employers, but no information on what this will involve, when it will be introduced, who might manage it or whether it will result in any changes for individual programmes. Minor adjustments to existing education plans, for example £20 million extra for free school meals in very small primary schools and a plan to provide postgraduate loans of up to £25,000 for those taking PhDs. Living standards - There was an assortment of measures to increase take-home pay including a higher income tax personal allowance, a higher basic threshold for the higher rate, a higher national minimum wage (up 3% to £6.70 in October 2015), a higher apprenticeship wage (up 20% to £3.30), lower fuel, beer and cider duty, a new personal savings allowance and more flexibility on private pensions. Taken together, these represent a political decision to tackle living standards issues rather than use available money to protect public spending.