The fiscal mandate
The key piece of political theatre this quarter was the Chancellor’s Autumn Statement. This now annual event outlines the government’s spending plans for the remainder of this parliament, and gives us the best indication of their plans following the 7 May election next year.
Due to a combination of lower than expected income tax receipts (due to the increase in low quality and zero hours contracts), an increase in the National Insurance thresholds, low oil and gas revenues and corporate tax avoidance, the treasury has less money than it planned for at this point in the parliament.
This is why we’ve seen the government’s target for its ‘fiscal mandate’ – to eliminate the structural deficit with a small surplus – move from ‘within a parliament’ to 2018/19 and finally to 2019/20. This leaves the Treasury and all other government departments working toward the 2019/20 date as their ‘planning horizon’.
The challenge for the Treasury is to achieve this goal whilst maintaining spending on ‘protected’ departments[1].
. The chart below outlines (up to the ‘planning horizon’) the proportion of spending on ‘protected departments’ (below the pink line), with ‘everything else’ having to come out of a rapidly declining remainder.
Small wonder then that some commentators are asking ‘which bits of the state do you plan to close, minister?’[2]
Education and Skills in the Autumn Statement
So, to the key takeaways for the Education and Skills Sector:
The Statement saw announcements around Adult Community Learning and Mental Health – with the government committing to £20million spending in 2015-16 & 2016-17 to fund courses to help adult experiencing mild to moderate depression, anxiety and sleep disorders in England[3], the expansion of effective Academy chains ‘to drive up educational standards in the North’ and an additional £20million to improve careers advice and support for young people (although the detail of these is yet to be confirmed).
The key announcement for apprenticeships was the abolition of National Insurance Contributions (NICs) to upper limits for employers of apprentices who are under 25 from April 2016. This was sold as a measure to increase apprenticeship uptake in the 16-25 age group.
However, a subtlety worth picking up on here is that this is in addition to existing measures exempting all under 21 employees from NICs from April 2015. So it is best to view the Autumn Statement announcement as an extension of this measure for apprentices up to their 25th birthday.
It is also worth noting that, employers will only ‘qualify’ for the NICs ‘exemption’ on weekly earnings of £156 or above, so it will not benefit firms paying low apprenticeship wages (less than £8,112 per year).
Is this a stealth measure to push for greater numbers of higher paid apprenticeship vacancies (generally those in the Science, Technology, Engineering and Mathematics sectors)? Where does this leave those young people on the apprenticeship minimum wage (currently £2.73 an hour?).
The Fiscal Mandate has been set, any party wishing to retain economic (and media) credibility after the General Election will have to broadly adhere to a similar level of cuts. The outcome of the Election is far from clear, with any spending plans post 2015 being even more opaque.
Any victorious Party (or Parties) worth their Westminster credentials will have a series of increasingly difficult spending decisions to make, and will articulate these starting with their spending review next summer.
[1] ‘Protected Departments’ are the NHS, International Development and the Department for Education (DfE). Unfortunately, the Department for Business, Innovation and Skills (BIS), the Skills Funding Agency and the Department for Work and Pensions all sit outside of this protection.
