Does COVID-19 mean austerity 2.0? How should the charity sector respond?

With the charity sector – and wider society – facing huge challenges in the months ahead, charities face a balancing act between prioritising providing immediate support to their beneficiaries or looking to influence government policies which might help them. Noah, one of our consultants, looks at this question by focusing on the issue of austerity.

A background to austerity

May marked 10 years since the Conservative Party entered government in coalition with the Liberal Democrats before winning an outright majority in 2015. Those governments’ policy of fiscal austerity, generally seen as the responsibility of Chancellor George Osborne, continues to have a big impact on the charity sector. Overall, according to the NPC’s State of the Sector 2020 report, 69% of charities report having changed their strategy or operations over the last three years as a result of austerity.

The spending cuts implemented under these austerity policies were concentrated on certain departments. For example, the Department of Communities and Local Government experienced a cut of 51% in its budget in the five years after 2010, impacting severely on local authorities. In contrast, during the same period, the Department of Health experienced a 7% real terms increase in its budget. It can be argued that this was not sufficient to keep pace with growing demand but there was clearly a trend of protecting and prioritising popular and symbolic services. This continued even during the 2019 election, in which a key Conservative pledge was the recruitment of thousands of nurses and police officers.

This means that austerity has accordingly affected charities, their contracts with government and their beneficiaries in different ways. As a broad example, overall cancer survival rates have continued to increase, whilst life expectancy has fallen for some of the most disadvantaged groups in society since 2010.

Does COVID-19 mean the end, or the return, of austerity?

Talk of ending austerity is not new. However, ending successive rounds of cuts is not the same as restoring spending on services to the level they were at pre-austerity. Then, in 2019 the Conservatives won the election on a manifesto that was forecast to push up government spending, whilst leaving a considerable financial hole which would require more taxation to fill.

COVID-19 and the resulting emergency expenditure threw all these forecasts off kilter and pushed government borrowing up, seemingly mirroring the situation which led to post-2010 austerity.

This isn’t inevitable, though, for a number of reasons. Politically, it has become less tenable as the government is in the middle of a massive intervention to save the economy, showing it can spend its way out of a crisis when it needs to. This strikes a blow to the idea that government debt is like household debt and should therefore be avoided at all cost. Secondly, COVID-19 has highlighted the importance of the public sector and public services. Economically, interest rate reductions by the Bank of England in response to the crisis has cut the already-low cost of borrowing for the government, meaning it is easier to make the case for borrowing for investment.

One recent survey of MPs shows many reject measures which were the hallmark of austerity, such as the public sector pay freeze. Instead, they expect greater state intervention and higher taxes. Considering this is a parliament in which the Conservative Party dominates, that really is significant. At the same time, Policy Exchange, a think tank generally seen as leaning right, has argued for government spending and investment to power growth.

It seems unlikely these measures could be adopted alongside continued fiscal tightening, which would affect the contracts charities deliver for government and the services the people they support rely on. These polling figures suggest there is not just momentary political support for key workers but also recognition that austerity policies are politically damaging.

Even if talk of ‘tough decisions’ for Chancellor Rishi Sunak does not lead to overall cuts to state spending, the trend of uneven spending in the last few years could well be continued, with some departments seeing increased budgets and others facing cuts. Charities which help certain groups are justified in worrying that the patterns of spending in the last few years could continue. After all, many of the services that have been the most high profile during the crisis were the ones which were already valued by the public and had avoided the worst in terms of cuts. Eventually, the government will have to rebalance spending and revenue. Whilst this may well include both tax rises and cuts to spending, these cuts could be just as lopsided as those post-2010.

What can charities do?

As well as noting how the last decade of austerity has affected charities, the NPC’s State of the Sector report explored the sector’s interest in influencing government and the political environment before COVID-19 hit the UK.

With only 10% of charities believing that the sector is too political compared to 31% who believe it is not political enough, there is a clear appetite among the sector for more campaigning and influencing. The question is whether charities choose to make it a priority. The report also shows that whilst the number of bigger charities trying to influence policy has remained relatively stable since 2017, the number of smaller or medium sized charities attempting to influence policy has grown from 31% in 2017 to 52% in 2020.

Given the sheer human impact of COVID-19, charities face a choice over whether to cut back on influencing and concentrate more on offering immediate support to those in need during this crisis.

As always, there is really a false choice between using resources on delivering effective frontline services and impactful influencing. For example, changing policy and priorities of decisionmakers can bring changes for beneficiaries beyond anything a charity can do on its own. On the other hand, delivering more services in more areas and to more people increases the ‘clout’ and reputation behind charities’ influencing work.

There is now another reason to think about influencing in the coming months. Now is clearly a critical point for shaping attitudes towards public spending. More people are being exposed to the value of public services and more people are becoming aware of issues with them, from reports about social care to more people receiving Universal Credit. However, it is not inevitable that this leads to the better policies that charities want to see or more money for the right areas and issues.

Instead, to achieve their goals, many charities will need to play an active role in shaping this moment and therefore the views and priorities of the public, MPs and government.