Does the Budget deliver the Government's bold ambition to build a new economy?

This week the Chancellor set himself a goal of preparing for a new economy, but how did his announcements stack up against this bold ambition?

We face a challenging few years. Living standards will be squeezed, and in the near-term worsen in the face of cost-of-living pressures. Technological change continues to transform our labour market, and moving towards a net zero economy will require a major shift across our whole society. The deindustrialisation of the 1980s taught us that major economic transitions can leave lasting and damaging legacies if left to run with inadequate support for people and places to adapt. Today’s drive to level up is in large part a consequence of that era.

Supporting people through transition and improving living standards are the big challenges facing the Government, ones which a Budget and Spending Review for a new economy must meet head on.

Social security has a vital underpinning role; providing people with security as the world around them changes. This week’s Budget took a significant step towards a better settlement for low-income workers. The National Living Wage rising and changes to the Universal Credit (UC) taper and work allowance show serious intent to turn back the rising tide of in-work poverty.

However, JRF analysis shows households able to work the most hours gain most. This week’s Budget changes mean that couples where both parents are working fully regain the £20 a week lost when UC was cut earlier in the month. Lone parents in full-time work and couples with at least one full-time worker come close. However, as the graph shows, even for these families rising cost of living pressures wipe out all or most of the gains.

The picture is much more concerning for those who are constrained in how much they can work – for example because they have to fit work in around the school run, or they’re managing a limiting health condition. For many people, working more hours than they already do is not feasible. These families are much worse off than they would have been if the Government had not cut UC by £20, and the soaring cost of living pulls them even further down.

Most concerning of all, this week’s announcements offered no respite to those who are out of work. The safety net remains threadbare for people that are currently unable to work at all due to a disability, illness or caring for very young children, or who lost their jobs in the pandemic. In the coming months they will be exposed to steep cost of living rises with little protection. Some crisis funding has been announced in the form of the Household Support Fund (£500 million) and support with arrears (£65 million) but this pales in the face of the £5 billion in arrears on essential bills already accrued by a third of low-income households.

Also missing in action was greater ambition for more people to have a secure and affordable home. JRF research shows a million people are stuck paying private rents they can’t afford, pulling them into hardship and often trapping them in homes that are damp or unsafe. The Chancellor could have increased investment in homes for social rent without breaking his fiscal rules. Instead, he directed some welcome but small-scale funding to ameliorating homelessness but did nothing more to combat its single biggest driver – the lack of truly affordable homes for people to live in.

Beyond greater economic security, transitioning the economy requires clarity on where we’re trying to get to, and a plan for supporting people to adapt. Here the Government still seems to be struggling to get beyond top-level slogans.

Levelling up - creating greater prosperity in lagging parts of the economy - should provide people with a platform from which they can build a better life. But the agenda didn’t make much progress this week. The first projects under the Levelling Up Fund were announced - spreading money around the country and not clearly prioritising the areas with greatest need, either as defined by the Government itself (with 70 priority areas missing out), or by the Index of Multiple Deprivation (with a third of projects in England going to places outside the bottom 30%).

The funded projects also continued the trend of focusing almost solely on hard infrastructure like bridges, stations, ferries and community centres. Recently the Government has begun to acknowledge the importance of social infrastructure to changing people’s lives, but there was little sign yesterday that the Treasury had got that memo. The Shared Prosperity Fund, the replacement for EU Structural Funds, will have an important role to play here, but the funding confirmed in the Spending Review falls a long way short of what’s needed. Despite a manifesto commitment to match EU funding levels - which were around £2.5 billion a year once match funding is included - just £0.4 billion has been allocated for 2022/3, rising to £1.5 billion in 2024/5.

Any new economy must be a net zero one, but the Chancellor was oddly silent on the topic. Ambition and pace are needed, but opportunities were missed this week that would both support living standards and the transition to net zero. For example, the Chancellor could have taken a bolder approach to energy efficiency, helping tackle fuel poverty as well as reduce carbon emissions, or he could have driven forward affordable integrated public transport to help connect disconnected communities to jobs and services and get people out of their cars.

When it comes to jobs, there will be transitions to manage here too as jobs in carbon-intensive industries fall by the wayside and new green, clean opportunities emerge. Both net zero and levelling up require a high premium on skills and retraining, both so people can adapt and change jobs and to drive up productivity and earnings in lagging places. Yet the adult skills budget has faced enormous cuts over the last decade. Following this week’s announcements around 60% of these cuts have now been reversed, which is welcome, but unlikely to be enough to transform our performance as a nation and underpin the ambitions for a new economy.

Better than expected economic performance left the Chancellor with some cash to splash this week. But a decade of departmental spending cuts meant most of this money was absorbed by departments that were creaking under the pressure, leading the IFS to conclude that austerity may be over but it’s not undone. Where George Osborne liked to describe his Government’s programme of spending cuts as fixing the roof while the sun was shining, this budget was more like a patching-up job after the decade of neglect that resulted from that approach. The increase in spending is welcome, but it’s definitely not the same thing as building a new economy and supporting people through the transition to it.