Autumn Statement 2022: public sector response on a page

Our public sector team responds to the key announcements in the Chancellor's Autumn Statement affecting the sector and what will change.

Net Zero and energy

Alasdair Grainger

The Chancellor did not deliver a significant change in approach on energy taxation in today’s announcement – but he did seek to convert some of the higher profits into tax to fund government spending. While there was a helpful rebalancing of focus towards the demand side, with new funding promised for energy efficiency, this will not actually be in place until after the next general election (2025).

No further detail on how businesses will be supported with energy bills after the end of the current price freeze in March 2023 was provided – but a “review” is underway.

Household support will be increased (to £3,000) and extended, and those households that use alternative fuels from the gas main will see a doubling of support to £200. Keeping with the theme of the overall statement, the most vulnerable will be protected with additional cost of living payments of £900 for households on means-tested benefits, £300 to pensioner households and £150 for individuals on disability benefits.

In terms of direct taxes, electric vehicles are set to pay road tax (or Vehicle Excise Duty) – but not until 2025. For oil and gas, the recently introduced windfall tax (or the Energy Profits Levy) will move from 25% to 35%. The levy also reduces the investment allowance from 80% to 29% and introduces a new decarbonisation allowance, set at 80% for upstream decarbonisation expenditure. Importantly, this change means the marginal tax rate for the oil and gas sector is now 75%.

In a move that had been muted in the run up to the Statement, there will be a new 45% levy on electricity generators from 1 January 2023. This new tax will be levied on nuclear, biomass wind and solar, as long as the project does not currently benefit from a Contracts for Difference contract (which already limits the upside available to the generator). In practice, this will only impact older, larger assets, typically brought forward under the renewables obligation scheme.

The previous announcement of a new nuclear plant at Sizewell C was again referenced, with contracts due to be signed “within weeks”.

Critically, the Chancellor referenced the Net Zero 2050 target on the floor of the house and all of the measures announced are likely to be compliant with the government policy response to Net Zero.

Transport and infrastructure

Andy Boak

Overall, the Autumn Statement commitments to infrastructure, as the second growth priority, should be viewed positively considering the challenging economic climate. Confirmation that funding will continue to deliver HS2 to Manchester, Northern Powerhouse Rail and East West Rail is significant and hugely positive in demonstrating the Government’s long-term commitment to rail and its role in driving economic growth. Furthermore, the expectation that more Mayoral regions will be created will potentially allow for further reform of the bus sector, which could improve bus services for passengers, although funding to achieve this was not explicitly mentioned.

However, revenue budgets will be challenged significantly given inflationary pressures. There remains a need to focus on recovery from the pandemic and efficiency of delivery. Recovery, affordability and maintaining industrial relations remain key challenges. Support to public transport during the pandemic facilitated a quick response during the recovery phase – sustaining this is now critical to operating within the strict affordability parameters. Delivering reform priorities and budgetary savings already committed are critical. Industry reform will be at the centre of any future transport policy, alongside consideration of potential rightsizing to reflect new travel patterns.

From an energy perspective, the Chancellor did not deliver a significant change in approach on energy taxation in today’s announcement – but he did seek to convert some of the higher profits into tax to fund government spending. There was new funding promised for energy efficiency and the previous announcement of a new nuclear plant at Sizewell C reconfirmed, alleviating some concerns about long-term future energy security.

Government and public sector

Helping deliver and reshape public services for a new era

Local government transformation

Phillip Woolley

The Chancellor did not, as many were expecting, bring down the spending cut axe on local government. Instead, he confirmed that the previously announced increases in the current spending round will be maintained for the next two years. While this will provide some relief to the sector, the hard decisions look to have been deferred by the Chancellor until the next spending round in 2025/26. There was also no new funding announced for local government to reflect the impact inflation has had on budgets since the current spending round was announced.

According to our analysis, the local government sector is facing a funding gap of c. £7.3 - £9 billion by 2025/26. Even with the referendum limit for council tax being increased, there will not be enough funding generated to fill the shortfall many councils are facing. If three quarters of all local authorities in England lift council tax to 4.99%, our data shows that it would reduce the sector’s budget gap by c.£2 billion by 2025/26. Raising council tax by an unprecedented level in a cost-of-living crisis is a hard but arguably necessary political choice in the face of a significant funding shortfall.

But the amount of funding this would generate for local authorities will also greatly differ across the country. For example, when comparing increases in Band D properties, an increase in Nottingham would generate an additional £114.48 per Band D property, which amounts to significantly more than what would be generated in Solihull - £88.45 per Band D property. It will also depend on whether individual councils utilise the increase, which is by no means certain.

Support for social care, on the surface, seemed to be boosted, but only some of the headline funding is actually new money. Of the £2.7 billion additional funding announced for social care for FY2023/24, £1 billion is new funding; the rest comes from both delaying Charging Reform and allowing councils to increase the adult social care precept as part of council tax. While the additional £1 billion for next year is welcome, in percentage terms it is significantly below the rate of inflationary pressures every council is currently facing in delivering care to its residents, so could further increase the financial impact of delayed discharges on the NHS.

The financial sustainability of many councils remains precarious, and there will be some very difficult decisions to be made when councils set their new budgets in February.

Health and social care

Christine Armistead

The NHS faces a challenging winter. October saw the most demanding October on record for both A&E attendances (2.1 million patients) and ambulances callouts (responded to nearly 8,400 life threatening incidents). The Autumn Statement announced that existing departmental spending under the 2021 Spending Review (SR) will remain with an additional £3.3 billion for the NHS to respond to key challenges including elective recovery, emergency demand and primary care.

The SR assumed inflation of c. 2% per year and 2% pay settlement with significant reductions in Covid costs and stable capacity in social care. Efficiency assumptions assumed in the SR were c. 3% for 2023/24. The current estimate of additional funding required by NHSE for 2023/24 is £6-£7 billion assuming pay awards tracked inflation. The RCN is calling for pay rises of 5% above RPI. The pay review body recommendations could produce eye-watering efficiency requirements in 2023/24 to balance the books. Although some of this efficiency assumption will be reversing Covid costs out of the system.

The Autumn Statement committed to funding the New Hospitals programme, although the detail is yet to be published of what this means for individual schemes and the impact of inflation on the overall budget, and how this will be managed.

Delayed discharges remain a major challenge for the NHS, with impacts across the health and care system. In social care, the vacancy rate has increased sharply, as such reducing capacity and further exacerbating discharges. Workforce is a major issue across health and social care and, while additional funding is hugely welcomed, attracting and retaining staff to both health and social care is critical to post Covid recovery of the sector and long-term sustainability.

Webinar: Autumn Statement analysis

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As the government aims to manage recent turbulence and plug the funding gap, we're offering two sessions that cover the public and private sectors, and how the announcements impact them.

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