Rachel Reeves, the first female Chancellor in history, just delivered Labour’s first Budget in 15 years. Mary-Ann Stephenson looks at how the Budget’s announcements will affect women and finds that while there are some welcome changes, women who are the poorest or disabled will be impacted negatively.
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The UK’s first ever female Chancellor delivered her budget this week. Rachel Reeves had promised no return to austerity, and an economy that works for women So did her budget deliver on these commitments?
A welcome change of direction, but a lack of boldness
Reeves’ budget marked a significant change of direction for the first Labour Government after 14 years. It included an increase in day to day spending on public services of £44.1bn a year by 2029/30, alongside £41bn of new taxes. It also included £100bn of new public sector investment with a change to the definition of debt in the Government’s fiscal rules to allow for more borrowing.
This change of direction is welcome news for women, who have been hit hardest by the crisis in public services caused by austerity policies since 2010. Women are the majority of those who need these services, for themselves and those they care for as well as the majority of workers in the public sector. And, because women on average do 50 per cent more unpaid work than men, they are the majority of those who fill the gap unpaid when services are cut. So, women benefit from an increase in spending in public services.
The Women’s Budget Group has evidenced that investment in public services like health, education and care result in future economic benefits just as investment in roads and buildings does.
Spending on health, education and early education and childcare will increase significantly (although the spending announcements on childcare largely covered the costs of commitments made by the previous Government). However, only £600m additional spending was committed to social care, which is insufficient to deal with the needs in a sector where 1.8million people over 65 have unmet care needs.
In order to reassure the markets and see of rises in borrowing costs, Reeves has committed to funding all day-to-day spending from tax revenues. The Women’s Budget Group has evidenced that investment in public services like health, education and care result in future economic benefits just as investment in roads and buildings does. We would encourage the Chancellor to review her fiscal rules to allow for borrowing to invest in this type of social as well as physical infrastructure.
At the same time, because wealth is disproportionately concentrated in the hands of men, the increase in taxation on wealth to invest in public services is a transfer from better off men to poorer women. Here the Government changes to taxation on wealth were less ambitious than the Women’s Budget Group and others had hoped. For example, Capital Gains Tax could have raised £15.2bn a year if it was equalised with income tax rates, but the changes in this budget will raise only £2.49bn by 2029/30. However, even this increase marked a step towards taxing income from wealth at the same rate as income from earnings.
The increase in employers NI will put pressure on service providers in social care and early education and childcare which employ large numbers of low earning women.
The bulk of the increase in tax will come from an increase in employers National Insurance contributions. Prior to the election Labour ruled out some of the more effective and progressive options for raising tax (such as reversing the cut to NI made by the previous Government or raising income tax). The increase in employers NI will raise much needed income for public services. However, it will also put pressure on service providers in social care and early education and childcare which employ large numbers of low earning women. Further pressures will be created by the increase in the national living wage which will go up by 6.7 per cent from £11.44 to £12.21 an hour for over 21-year-olds and by £1.40 an hour, to £10.00 an hour for 18-20 year olds.
The increase in the living wage is very welcome and will particularly benefit women who make up 58% of those receiving the minimum wage. The above inflation increase could help narrow the pay gap as well as increasing the income of the lowest paid but needs to be combined with additional support to public service providers.
The decision to continue the plans of the previous Government to freeze the local housing allowance is particularly worrying at a time when the cost of private renting has been increasing.
Not a great Budget for the poorest and disabled
The Budget contained less good news for the poorest women. The decision to cap deductions from Universal Credit payments at 15 per cent rather than the current 25 per cent for claimants who have been overpaid or are paying back up front loans was welcome and will provide some relief for families who are struggling. But it would have been better to abolish the five week wait before first payment that means so many people have to take out a loan in the first place. The two child limit, which has pushed 1.6 million children and their families into poverty, remains in place. The overall benefit cap will be frozen from next year, as will the rate of local housing allowance. Women’s unpaid care responsibilities leave less time for paid work, meaning they are more likely than men to rely on social security. As a result, women have been hit harder by the cuts to social security since 2010.
The decision to continue the plans of the previous Government to freeze the local housing allowance is particularly worrying at a time when the cost of private renting has been increasing. The average rent for a one bedroom property in England is now taking up 47 per cent of a woman’s median earnings, up from 36 per cent last year. The cost of housing effects everyone, but because of women’s lower earnings there is a significant housing affordability gap – with rent for a one bedroom property now taking up 34 per cent of men’s earnings (up from 26 per cent last year).
For Disabled women there are particular concerns about the Chancellor’s announcement that this Government would continue with reforms to the Work Capability Assessment announced by the previous Government.
Universal credit claimants will have to make up the difference between the frozen local housing allowance and the actual cost of rent, leaving less money for food and other bills. And because their benefits are only due to increase by 1.7 per cent (the September inflation rate), while inflation next year is forecast to be 2.6per cent, they will be filling the gap from benefits that have fallen in real terms.
For Disabled women there are particular concerns about the Chancellor’s announcement that this Government would continue with reforms to the Work Capability Assessment (WCA) announced by the previous Government. WCA is used to assess eligibility for additional Universal Credit and contributory Employment Support Allowance and there are real fears that changes will reduce the levels of support available to Disabled people. Women make up 55 per cent of Disabled people and 55 per cent of PIP claimants. They also make up the majority of unpaid carers for Disabled people.
Work by the Women’s Budget Group published before the Budget showed that Disabled women have already seen a significant decline in their living standards as a result of changes to tax and benefits and cuts to public services. Since 2010 Disabled women have lost over £4000 a year in benefits and services.
The message from Government is that benefit entitlements will be looked at as part of the Child Poverty Review, so there may be better news to come. The Women’s Budget Group will be looking forward to this, and to the spending review next spring as an opportunity for the Chancellor to build on what she has started with this budget and truly build an economy that works for women.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.
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