By Ben Walters
This was the last spring budget (by current plans), and it was fairly muted in tone. That was expected: with all the uncertainty surrounding the UK economy, the Chancellor had no desire to add even more moving parts. But despite the lack of major announcements, there was something of interest for cities and LEPs.
We have also seen one of the fastest and most significant u-turns of a recent Budget. The reversal on self-employment NIC taxation after one week has been damaging to the Chancellor’s standing and will undermine the ability to reform self-employment and terms & conditions in the medium term. It creates a shortfall of £2 billion which will force the government to have to find these savings elsewhere. For Philip Hammond’s first budget as Chancellor this could have an effect in changing the balance of power in the Cabinet, and risks making the Government look weak and vulnerable to back bench pressure for policy change.
State of the economy
With significant revisions to economic forecasts over the last 12 months, it was no surprise that there were even more announced by the OBR. But, while many focused on the 0.6% increase for 2017 (1.4% growth upgraded to 2%), with lower growth from 2018-2021, both forecasts predict virtually identically sized economies in 2021. There were announcements that borrowing will fall, bringing borrowing down and the potential for a surplus by the next Parliament closer. This signals a continuance of austerity budgeting, which will concern local authorities who have experiences significant cuts since 2010.
Many planned welfare cuts will hit in April of this year (£12bn of day to day spending cuts over the next 3 years), with a bigger impact than any other announcement in this Budget, while median earning won’t exceed the 2007 peak until 2022. This continued austerity will hit local government particularly hard: from £8.2bn in 2016/17, down 34% to £5.4bn in 2019/20. This is the 2nd biggest fall in any department resource budget. With significant efficiency savings already having being made, it seems inevitable that services will be even further effected. Local Government has worked hard to mitigate cuts through service transformation and devolution. The role of Combined Authorities alongside the Northern Powerhouse, Midlands Engine and Great Western Cities will be important to ensure places can work together to deliver effective services at various spatial levels whilst continuing to grow in the coming period. Both the budget and recent announcements around Local Growth Fund and the Industrial Strategy Green Paper suggest that Government will fund projects and programmes which support UK growth. The challenge for places is to develop effective propositions which can tap into these funding sources.
There were signals that devolution and regional working continue to be supported by HMT. Already there are 13 areas in England which have received devolution deals, and 6 will (for the first time) be electing mayors in May of this year. The Midlands Engine Strategy was announced, codifying much existing thought, as well as allocating the £392mn announced in the Autumn Statement for its LEPs, and again confirming the importance of Mayors (with LEP funding per head over 30% higher than areas without a Mayor, similar to the Northern Powerhouse funding allocations). A further deal with London was announced, building on previous work around infrastructure funding, business rates, justice, health, skills and employment support. While much written about devolution tends to look at its ability to spread decision making away from Westminster, and reduce regional inequality, recently we have seen more devolution to London. Finally, Greater Manchester was confirmed to be in further talks about transport funding.
According to recent findings from the Inclusive Growth Commission, 55% of the 13.5 million living in poverty in the UK are working families. The Prime Minister has previously referred to wanting to create an economy which works for everyone. In the Budget the Chancellor referred to inclusive growth, linking it directly to “investing in skills and education”. A key part of this is reform of technical education through ‘T-Levels’ and a revised technical skills system, following from the work of Lord Sainsbury and Baroness Wolf. There will be support for students through maintenance loans for higher level technical courses. There were also announcements of changes to schools (including more free schools, and opening to door to more selective schools, and more money released).
This is a small step in the inclusive growth agenda. The IFS predicts that the overall changes to the tax and benefit system means that the bottom 10% of earners will see a fall in annual net income of £1,300, over 11% of their total income, and the bottom 70% of earners seeing falling incomes. The poorest decile of working-age families with children will see a £3,250 fall in annual net income, and a typical lone parent not in work will see over 20% of their income cut (and in work over 10%), while a typical ‘DINK’ (dual-income-no-kid) couple would see theirs rise. The impacts of these cuts will be significant, and demonstrate that Inclusive Growth will need more focus and support to achieve the Prime Minister’s ambitions.