Treasury Committee publishes Government response to Budget report

The Government will launch a review into the leaking of information on the National Living Wage increase, the Treasury Committee reveals today.

In response to the Committee’s report on the Autumn Budget and Spending Review 2021, the Government commits to conducting a review of handling arrangements ahead of future announcements. In the report, published in January, the Committee voiced concerns that the leak could have breached market sensitivity rules.

The Government states that it is aware of the risks of rising inflation, particularly on the cost of debt interest payments, but does not respond to the Committee’s conclusion that the upcoming increase to National Insurance could cause further inflation increases, as businesses may pass these additional costs onto consumers.

The Treasury also outlines that funding for the Department for Levelling Up is to increase by c. 4%, when the Help to Buy policy is excluded. In the report, the Committee presented concerns that, while the Department was receiving a real-terms increase, additional spending requirements for adult social care would mean local authorities are not better off.

Commenting on the Government’s response, Rt. Hon. Mel Stride MP, Chair of the Treasury Committee, said:

“It is reassuring to see that the Chancellor is completely alive to the very real risks of rising inflation. With financial sanctions rightly being imposed on Russia, the cost of gas is likely to continue to increase, leading to higher inflationary pressures. The Government will need to consider how these knock-on effects will impact the cost of living.”

The report contained the following conclusions and recommendations:

• The OBR forecast states that the policy mix chosen at this Budget will act as a boost to inflation, identifying in particular the increase in employer National Insurance Contributions, and the large fiscal loosening that took place in the Spending Review. The Prime Minister has advocated high wage growth. Setting out an economic policy of promoting high wage growth that is not accompanied by increases in productivity will be inflationary, and risks contributing to a wage price spiral. The Chancellor showed that he is alert to the fiscal risks of higher inflation and higher interest rates becoming entrenched. The Treasury should keep these risks at the forefront of their thinking when designing policies at future fiscal events.

• It is understandable that total departmental spending is rising at present, and that the UK's tax burden will rise to levels not seen during peace time, given that the country is still in the midst of a global pandemic. However, not all departmental spending choices that the Chancellor made were pandemic-related. If the Chancellor wishes to be able to cut taxes later in this Parliament while still meeting his fiscal rules, he may have to identify areas of departmental spending where he can reduce spending in real terms, even if this is in the face of increased demand.

• The Government stated that the UK Shared Prosperity Fund will be the successor to the EU Structural Investment Funds. However, the Government is only providing 60% of the money provided by the EU fund. If the new fund is intended to be one of "the centrepieces" of the Government's ambition, it is surprising that the size of the fund is being reduced to such an extent. The Government will need to demonstrate how these reduced funds will achieve their defined metrics for levelling up.

• Compared to the existing adult social care framework in England, the Government's new policy proposals are more generous. These changes are welcome. And compared to the Dilnot proposals, the Government's measures are more generous to those who receive care in their own home. In addition, the cap on how much a care home can charge for weekly "living costs" has been capped in real terms at a higher amount than under the Dilnot Review.

• However, the Government's proposals are less generous compared to the Dilnot proposals in how they treat means tested contributions made by local authorities. As a result, while most people will pay less overall, those who have a longer care journey and assets of between £20,000 and £106,000 will pay far more towards their care than they would have under the Care Act 2014. People within this cohort will have to contribute £86,000 of their own money. It is regrettable that a such a large cohort of people are still exposed to the possibility of incurring these high costs, which make up a large proportion of their assets. Compared to the original Dilnot proposals, this will be regressive.

• We are deeply concerned that the rate of the National Living Wage was disclosed to ITV in an unauthorised fashion prior to the Budget, and we agree with the Treasury that this could have caused confusion in the market as to whether the information was accurate.

• The rate at which the National Living Wage is set will clearly affect companies and sectors which have large numbers of staff at the minimum wage more than it affects those who do not. Some of those firms will be listed on the stock exchange. Given that the ONS deems retrospective wage data to be market sensitive, we believe it is not unreasonable to conclude that the announcement of the change to the National Living Wage might have been market sensitive.

• The Permanent Secretary to the Treasury has stated that the Government will review arrangements for such policies ahead of future announcements. Given the potential opportunity for disruption that this unauthorised leak could have caused, the Government should investigate how this policy came to be leaked prior to the Budget and should publicise its findings.