Taking stock of the Autumn Budget 2017

Yesterday’s Budget comes at a challenging time for the Government, local government, LEPs and the UK economy. The Office for Budget Responsibility (OBR) has reduced its forecast of GDP growth for 2017 by 0.5%, with growth expected to weaken further through to 2020. In large part this reflects poor growth in productivity since the recession. And, of course, all of this is before we factor in the possible impacts of Brexit.


A strong focus on place

Nonetheless, for cities, local authorities and LEPs, yesterday’s Budget mostly felt like a positive step forward, making specific investments in key infrastructure and initiatives, and taking further steps towards devolution of powers to our key cities and places. The Budget announced the intention to agree a devolution deal with the North of Tyne, which would put in place £600m of funding over 30 years and see a new mayor elected in 2019. This would be the first new devolution deal agreed since Theresa May became Prime Minister, and as such an important milestone in re-establishing the good progress towards city and regional devolution that had occurred prior to the EU Referendum.

In the Midlands, the Government announced that it has agreed a second devolution deal in principle with the West Midlands Mayor and Combined Authority which includes £6m for a Housing Delivery Taskforce, £5m for a Construction Skills Training Scheme, and a £250m allocation for the Wednesbury to Brierley Hill Metro. The Government is also continuing Housing Deal negotiations with the West Midlands. The broader Midlands Engine will benefit from investments in Midlands Connect, and the Budget announced a pilot project for a manufacturing zone in the East Midlands which will use planning powers to reduce uncertainty for private investment.

Following on from the work undertaken by the National Infrastructure Commission (NIC) on the Cambridge-Milton Keynes-Oxford Corridor, the Budget set out plans for housing and transport improvements underpinned by land value capture and a new Joint Statutory Plan. The Budget also noted progress towards city deals in Stirling, the Tay cities, and the desire to develop growth / city deals for North Wales, mid-Wales, and Belfast.

More broadly, the Budget has also set out a new £12m capacity fund to support Mayors over the next two financial years. This will be essential to helping Combined Authorities and Mayors deliver on their promises to voters, but it is also important to ensure that Government does not force local government to get bogged down in cycles of bidding for funding. Instead, local government must be empowered to prioritise and invest based on evidence and local need rather than central mandates.


Addressing the productivity challenge through evidence-based policy and investment

The Budget did not shy away from the economic challenges – particularly the productivity challenge – that the country faces. Although economic growth was surprisingly strong in 2016, uncertainty over Brexit remains a significant challenge for the economy, and for local government and LEPs trying to promote growth.

There have been some welcome good news stories recently, such as BMW’s decision to make the new Mini-electric in Oxford, and in our work around the country we know that many local exporters have benefitted from cheap Sterling. But there have also been warnings from industry. Microsoft have hinted that they wish to move data centre activity abroad, ADS has warned of an additional £1.5bn of costs for the country’s aerospace exporters, and the automotive sector has voiced similar concerns with 56% of British car exports going to Europe.

All of which means there has never been a more important time for local government and LEPs to have a strong understanding of the businesses and sectors in their areas, and what they need to grow. We’ll have to wait till Monday to see the full Industrial Strategy White Paper, but it is clear that as part of the Government’s proposals they will want LEPs and local authorities to be far more knowledgeable about their business base, the barriers it faces, and the key interventions that are needed to unlock growth.

This isn’t an easy challenge. Business and sectoral data at a local level is often frustratingly high level, and muddied by concerns over excessive disclosure and outdated sectoral definitions. This makes it hard for economic policymakers to clearly understand their key businesses. That’s why the announcement on setting up a Geospatial Commission to open up access to important sources of data, although a lot less glamorous than some of the big-money announcements, is so important. Our new mayors, and local authority and LEP leaders around the country, must have the data needed to make objective decisions about policy and investment. Indeed, we are currently working with metro areas around the country to develop better intelligence to support policy, and we welcome the opportunity to engage with the Commission in due course.


Investing in growth, infrastructure and housing

The big centrepiece of the Budget, from the perspective of Industrial Policy, was the announcement of the increase in the National Productivity Investment Fund (NPIF) to £31bn up from £23bn, with this funding explicitly targeted at raising national productivity through investment in R&D, supporting businesses, housing, and infrastructure. This increase includes a further £2.3bn in R&D in 2021/22, raising the R&D credit, and a series of proposals aimed at unlocking £20bn of patient capital.

Within the NPIF, the Transforming Cities Fund is particularly welcome. The UK has a longstanding infrastructure deficit, particularly outside of London and the South East, and ensuring better connections between and within cities is essential to productivity growth. Half of the new fund has already been allocated to important investments in our Combined Authority areas with elected metro mayors, leaving the remainder open for competitive bidding. However, the size of the fund is cause for concern, at just £1.7bn, equivalent to 11% of the budget for Crossrail.

So, whilst the intentions are positive, we must question the ambition of such schemes. Our great cities deserve forward-thinking plans to transform inter- and intra-city connectivity, not piecemeal investment. This is an area where our regional powerhouse structures – the Northern Powerhouse and the Midlands Engine – as well as our new mayoral Combined Authorities, can play a vital role in thinking strategically at a city-region and regional level.

On housing, the Government is showing the right kind of ambition, proposing a national target that if met would begin to address the long-term underinvestment in housebuilding in the UK. However, there are many questions unanswered. The 300,000 homes a year target carries conscious echoes of MacMillan in the 1950s, but it should be remembered that in the 1950s this pledge was principally fulfilled by local authority housebuilding, and only later supported by recovery in the private sector. In contrast, the Budget placed a continuing strong emphasis on home-ownership as the preferred tenure.

Whilst acknowledging that home-ownership has decreased in recent years, the Budget set out proposals to meet the 300,000 home target, through:

- A further £2.7bn for the (already heavily oversubscribed) Housing Infrastructure Fund (HIF)

- £1.1bn for a new Land Assembly Fund

- An additional £1.5bn for the Home Building Fund providing loans for SMEs

- £630m to accelerate smaller stalled sites through funding for infrastructure and remediation

- £204 million of funding for innovation and skills in the construction sector

- Building five new garden towns, including in the South East

The Budget also proposes to respond to the CIL Review through launching a consultation on greater freedoms and flexibilities for the use of CIL by local planning authorities. And there is to be a review of the gap between planning permissions and housing completions.

This is therefore a strong and important set of policies, but it is important that there is consistency between the commitment to devolution shown by the Government in many areas of investment and the desire to hold local planning authorities to account. Particularly in areas with elected Metro Mayors it is important to ensure that local government is empowered to develop housing in a way that best suits the needs of local areas. This might involve more intervention and direct development, it might involve building on Green Belt land where this allows for sensible urban extensions and it will almost certainly require taking on additional borrowing and fiscal powers, as well as greater regional / sub-regional planning. It is vital that local places are empowered in these ways if the Government’s well-intentioned targets are to lead to high quality homes in the numbers that the country needs.

Investments in productivity and infrastructure are vital, but places also need to support more inclusive growth. For too many people around the country there is a gulf between working and making a living, many of our poorest citizens squeezed by low and irregular wages, and high and rising costs of housing, childcare and amenities.

Although inclusive growth wasn’t mentioned explicitly in the budget, there were some important announcements on skills, including greater investments in STEM education, and a new National Retraining Scheme supported by online learning, as well as an increase in the Living Wage and Minimum Wage.

It is essential that LEPs and local authorities act to ensure better kinds of work, supporting people to gain skills and supporting businesses to invest in their workforce. This will involve consistent approaches to measuring economic growth and monitoring improvements. It will also involve prioritising investment so as to support inclusive growth. Our recent work with JRF, in partnership with Cardiff and Sheffield, sets out a new framework for considering inclusive growth as part of project prioritisation processes.


How Metro Dynamics can help your organisation

At Metro Dynamics, we are continuing to support cities, local authorities and LEPs to build successful places that support inclusive growth. We are supporting places through:

·         Building a comprehensive evidence base that draws on innovative sources of data on businesses, the economy, people, property, and places.

·         Developing devolution deals with Government founded on strong evidence and robust local partnerships and governance.

·         Helping cities to develop attractive, prioritised investment propositions that appeal to private sector investors and developers.

·         Working with LEPs to develop Local Industrial Strategies informed by insights about local businesses and sectors.

For more information about how we can help your organisation, please contact us: ben.lucas@metrodynamics.co.uk / mike.emmerich@metrodynamics.co.uk