Budget 2018: opportunities for local growth

By Anton Bridge

With the outcome of Brexit negotiations still up in the air, the Government’s scope for a major shift in direction at this autumn’s Budget was limited. Nevertheless, this is a Budget that supports investment and growth, and local growth in particular.

The Chancellor reiterated Government’s commitment to boosting productivity, and to regional and city growth to achieve it. There are new sources of funding at all levels of local government and these sit within the overarching structure of the Industrial Strategy published last year. So although the country’s finances and policies will be ultimately determined by what happens with Brexit – Philip Hammond has reserved the right to upgrade the 2019 Spending Review to a full Budget should no deal with the EU be struck – this Budget offers much of interest to places in the interim.

The productivity challenge

Overcoming the UK’s underperforming productivity growth is this Government’s principal economic goal and the focus of the budget’s largest funding announcements (excepting the NHS settlement). The National Productivity Investment Fund (NPIF) will be extended by a year and £6bn to total £37bn to 2023-24. This includes an additional:

  • £1.6bn for scientific research and development;

  • £1.1bn for the Industrial Strategy Challenge Fund; and

  • £115m to extend the Digital and Medicines Discovery Catapults

The priority growth areas outlined last year in the Industrial Strategy remain in place – the £1.1bn extension of the Industrial Strategy Challenge Fund includes:

  • £121m to support the use of digitally-enabled technologies in manufacturing;

  • £78m for innovation in electric motor technology;

  • £70m for the development and commercialisation of quantum technologies; and

  • £20m for the UK Atomic Energy Agency to support its work in nuclear fusion technologies.

The Budget also acknowledges that investment in R&D and innovation requires investment in infrastructure to realise productivity gains. Thus:

  • £200m of the NPIF has been earmarked to pilot approaches to deploying full fibre broadband in rural areas;

  • £420m will be available to local authorities in 2018-19 to repair potholes and damaged roads and invest in bridges;

  • A further £150m of NPIF funding will be available for small improvement projects, such as roundabouts; and

  • £90m from the NPIF will be allocated to the Transforming Cities Fund to create Future Mobility Zones in which to trial new transport modes, services and digital payments.

Productive cities and regions

If the Industrial Strategy guides Government’s thematic focuses in enhancing productivity, it is regions, cities and places that are expected to deliver it. At a regional level, the announcement of refreshed Northern Powerhouse and Midlands Engine strategies next year provides an opportunity for these areas to take stock of the emerging Local Industrial Strategy developments.

The Budget also provides:

  • £37m to support the development of Northern Powerhouse Rail;

  • £20m to develop a strategic outline business case for the East West Rail between Cambridge and Bedford;

  • £70m to contribute to the construction of the Defence and National Rehabilitation Centre in the East Midlands, a world class rehabilitation facility to help people recover from debilitating injuries.

The Budget restates Government’s view of cities as principle drivers of growth and ‘deals’ remain an important means of distributing economic development funding, with a series of city and growth deals announced for Scotland, Wales and Northern Ireland. These comprise:

  • £150m for a Tay Cities Deal;

  • £120m for a North Wales Growth Deal; and

  • £350m for a Belfast City Region Deal

Alongside these, formal negotiations are set to commence on a Moray Growth Deal, a Mid Wales Growth Deal, and a Derry/Londonderry and Strabane City Region Deal.

In England, the Transforming Cities Fund has been extended by a total of £770m, and, as in last year’s Budget, metro mayors benefit from an initial £240m earmarked for transport investment in their areas only. A further £440m will be more widely available for competitive bidding, open to 12 city regions in total.

Smaller interventions are similarly concentrated in Mayoral Combined Authorities. Greater Manchester will be the site of the Government’s £20m skills pilots to tackle digital skills gaps, training for the self-employed and moving young people not currently in employment, education or training into sustainable careers paths. Alongside, the West Midlands is set to receive:

  • Up to £20m to create the UK Mobility Data Institute;

  • £8.5m to support Coventry’s hosting of the UK City of Culture in 2021; and

  • £165m investment in the Commonwealth Games Athlete’s Village.

The announcement of £14m funding for the South Tees Development Corporation (STDC), the first Mayoral Development Corporation outside of London, is particularly important. MDCs have the potential to become key elements of the new devolved mayoral model, helping to drive substantial levels of investment into cities and delivering transformative projects. The announcement of £10m of funding for proposals to create such bodies will encourage other parts of the country to consider how an MDC could support growth locally.

Local growth opportunities

Hot on the heels of the raising of the Housing Revenue Account (HRA) cap, local areas received a further boost in the shape of £675m for a Future High Streets Fund. This is intended to assist in the development and funding of plans to transform the UK’s high streets, which is particularly important given the wave of retail chain closures and broader consolidation in the retail industry. Local authorities should think creatively about the opportunities this creates for placemaking, regeneration and inclusive economic development. The funding is coupled with a reduction of business rates by up to a third for retail premises with a rateable value of up to £51,000 in 2019-2020 and 2020-2021 which will provide immediate relief to small and often struggling retailers.

Where next

If we take the Chancellor at his word, everything in this Budget is contingent on what is (or isn’t) agreed with the EU by March 2019. That said, there is clear appetite within Government for partnering with places to negotiate innovative city, growth and housing deals. While Mayoral Combined Authorities appear to have benefitted the most, local government elsewhere has generous scope to claim the funding available to transform their places. Development Corporations are an excellent opportunity and mayoral combined authorities will need to consider carefully how best to align with Government’s broader growth agenda. Robust Local Industrial Strategies will therefore be crucial. If local government budgets are set to remain tight and Brexit remains shrouded in uncertainty, this is the surest means of achieving good local growth.

Metro Dynamics is working with places across the UK on Local Industrial Strategy, inclusive growth and city, growth and housing deals. For more information on how we can help your place grow, please contact: patrick.white@metrodynamics.co.uk / ben.lucas@metrodynamics.co.uk