Budgeting for Stability

Budgeting for Stability by Dr Angela O’Hagan

In preparing for a recent conference on “Stability Matters” and my topic of “Budgeting for Stability” organised by Perth, Dundee and Angus CABx, I was thinking about stability in the context of change, or as a contrast to instability or chaos. Are we talking about the importance of stability, or are we talking about the matters, as in the factors that create stability – or both?Change in itself is not necessarily destabilising, but when the change is a decline in the resources available to manage every day expenses whether as an individual, a household, or an organisation, in the case of today, a third sector organisation, then in can be destabilising.  Change is not necessarily problematic.  How it is managed, what the rationale for change is, and what the intention is can however contribute to instability.

We know that public finances have been and are unstable, in the sense that multiple economic factors are contributing to uncertainty and volatility. We also know that political decisions are producing instability and uncertainty.  Decisions from the UK Government over the last 6 years have resulted in a reduction in public spending.  According to the UKWBG, “Over this government, total expenditure, as a percentage of GDP, is forecast to fall from 40.2% this year to 37.0% by 2019/20, based on OBR figures[1].  This will be its lowest level since the mid-1990s and, arguably, a level where it can no longer protect the incomes of the poorest or provide the services we need for a healthy and educated population”.

We know that these decisions have significantly affected women, with 86% of the changes in tax and benefits directly affecting women’s income. Added to these changes, we know that the changes to disability payments and other forms of social security have had damaging effects on the lives of women and men, compounding the gendered impacts of non-specific payments and transfers.

The Scottish Budget has been falling and will continue to decrease over the period up to 2019-20, with a projected cumulative reduction of +/-12.5% in 2020. That’s a fall of 3.9bn from 31.5bn in 2010-11 to 27.5bn in 2019-20.

The implications of this for public spending in Scotland are well known to us. There has been a steady decrease in funding available to the Scottish Government and subsequent political decisions at this level of government have had negative knock-on effects in the stability of funding for third sector organisations, local government and the public sector more broadly.  This has manifest in public sector ‘reform’, with the loss of significant numbers of jobs across the public sector, largely occupied by women; and in the integration of health and social care.

In the current Scottish budget, local government felt the pinch with a 7.5% real terms cut of £774m in their budgets, meaning further service cuts and job losses.

So far this week we have heard of further instability at the national, individual and household levels.

– GERS figures – Ongoing deficit  between current spending and net fiscal balance (what we have brought in) of around £15bn, 9.5-10.1% of GDP depending on whether you include oil revenue or not.  It’s down from £2.3bn in 2014-15 to £76m in 2015-16. The UK deficit is around 4% of GDP.  Scotland’s economy and the Scottish Government therefore face significant challenges to keep the deficit manageable while introducing new taxes and new spending liabilities for social security.

– A TUC study has highlighted household indebtedness, with stark figures that 16% of households earning £30,000 or less to be over-indebted.  Over-indebted – a formal term that masks the reality of unsecured debt and having to spend more than 25% of household income on debt interest.  1.2m low income households in employment face ‘extreme problem debt’. 9% of low income households are ‘extremely over-indebted’ – up from 5% in 2014.  Household indebtedness is on the rise as consumer credit is growing at 10% per year, according to the Bank of England.

– And to top it all, the IFS and enduring pay gap, motherhood ‘penalty’, and persistent discrimination in the labour market affecting women’s economic independence.

– The hourly wages of female employees are currently about 18% lower than men’s on average. It’s taken 16 years to close the gap by 10%.

– There is, on average, a gap of over 10% even before the arrival of the first child but the time that child is 12, women’s hourly wages are a third below men’s. The gradual nature of the increase in the gender wage gap after the arrival of children suggests that it may be related to the accumulation of labour market experience.  Thereafter the gap in employment rates between women and men opens up and persists, whereby after 20 years, women have on average been in paid work for four years less than men and have spent nine years less in paid work of more than 20 hours per week.

The Chartered Management Institute (CMI) looked to some of the causes of the gender pay gap, and its analysis of salary data for more than 60,000 UK managers and professionals showed that in the past year 14% of men in management roles were promoted into higher positions compared with 10% of women. Therefore, the difference in promotion rates are one of the main causes of the gender pay gap. The CMI’s measure of the pay gap for managers was 23.1% for this year, compared with 22.8% in 2015.

Childbearing and rearing, segregation and discrimination in the workplace at all levels still combine to reduce women’s earnings. The reporting of the IFS and CMI stats was rightly criticised by feminist organisations, Engender and Close the Gap among them, and joined by the EHRC as the focus remained on the issue of motherhood and false ‘choices’ rather than illuminating the combined factors of unequal pay, motherhood penalties, low pay, and job segregation.

Now that I’ve cheered us all up, what can we do about this mess? Once we’ve gathered ourselves and had a nice cup of tea, we should ensure that any financial and economic policy and proposal at government or organisational level is fully appraised and subject to gender/equality impact assessment. If governments, local authorities and individual organisations such as CABx are serious about their obligations under the Public Sector Equality Duty and the Equality Act, as well as the spirit of the legislation, then equality impact assessment must be a central part of financial scrutiny.

Further instability in the sense of change is coming to Scotland with the new powers in taxation and social security. Arguably these are also opportunities for positive change and greater stability as Scotland has increased control over taxation – generating revenue for government spending – and over spending in social security, within a reconfigured approach to social security and protection.  How realistic is the prospect of increased stability and reduced vulnerability?

What would we look to see in the Scottish Budget this autumn to provide the direction and reassurance some of you might be looking for by way of improved stability?

– investment in social care infrastructure for affordable childcare and enhanced social care?

– maintain/increased benefit levels and payments?

– use the tax powers to increase the rate of tax across the higher tax bands?

– use the tax powers to close loop holes that allow for tax avoidance and evasion?

“A ‘tri-partite review’ of Holyrood’s Budget process, involving the Finance Committee, the Scottish Government and external financial expert” was announced in June, to be led jointly by the Cabinet Secretary for Finance and the Finance Committee of the Scottish Parliament. As Scotland’s budget changes to become a revenue and spend budget and not just a spend budget, ministers, MSPs, officials and us – the public – are facing a new set of challenges.

The budget is not neutral it has consequences for organisational stability and for stability and certainty in everyday lives. When the budget review is up and running, what might you make a case for? What characteristics would you want to see in our national budget process?  What about building in equality impact assessment and compliance with PSED?  How can the public be more engaged and challenge government?  There is opportunity then to use the Budget Process Review to ensure consultation, participation and the advancement of equality characterise the Scottish budget process, as well as effective execution of the technical responsibilities of financial planning and scrutiny.

Ensuring that financial propositions do not discriminate unlawfully or unnecessarily against one or other group or ‘protected characteristic’ is a legal requirement. More than that though, ensuring that public finances are planned and organised in such a way that they act as ‘motors for change’ is essential.  The starting point is not, how will women, disabled people, people of colour, older people, children, and so on be affected by this decision.  Rather, decisions on resourcing – whether it’s revenue generation or spending plans – should start with where do we need to allocate resources so that we can advance equality and eliminate/reduce inequality; and how do we raise resources is such a way that we do not create further unfair disadvantage?

We have the levers in the PSED and the forthcoming socio-economic duty to take decisions differently in our public authorities. As members of the public we need to know about these levers and challenge decision making about public resources so that equality is about stability rather than chaos, that change is positive and transformative, and that advancing equality is our core objective all year round, not just for Christmas or when the finance books are looking good.

[1] OBR (2016) ‘Economic and fiscal outlook charts and tables – March 2016,’ available at http://budgetresponsibility.org.uk/efo/economic-fiscal-outlook-march-2016/