On 27 October, the Chancellor delivered the post-Covid-19, post-Brexit Budget and first multiyear Spending Review in six years. One narrative of this Budget is that Government is sweeping up some areas of public spending back to where we were in 2010. School spending per pupil will go up to 2010 levels in cash terms, the NHS capital budget is being increased to form the largest pot since 2010, and local government core funding will receive the largest increase in a decade. The imperative to undo the effects of austerity on public services is driving increased public spending going into the 2020s.

Another is that things are getting more expensive. The rising cost of delivering health services – even before factoring in the impact of Covid-19 and emergency additional funding – puts further upwards pressure on overall public spending. The increases in some spend back to 2010 levels are in cash terms – in real terms in key areas, spending remains lower. Consumer inflation is rising with energy costs, supply chain and trade disruption. And from April 2022 the rise in National Insurance Contributions will mean a hike to employers’ wage bills and a hit to employees’ take home pay.

Three things that we know are priorities for places today are: raising living standards and opportunities for residents, support for transitioning to net zero, and local control over funding and investment. How did this Budget deliver?

Economic outlook and living standards

The OBR’s uplifted outlook for growth recovery puts economic output on a stronger trajectory than was predicted earlier this year. the interest in the OBR’s medium term forecast that the rate of growth will be quite sluggish, after the initial covid-19 recovery, with growth only at about 1.5% thereafter. Meanwhile inflation predicted by the BoE to be 5% next year will drive down living standards and whilst the Government is pushing for higher wages it is hard to see how this will be sustained without productivity growth.

However, according to Resolution Foundation analysis, real wages are expected to fall again next year and rise in the medium term at a slower rate than in 2010. With higher taxes and high inflation, both the Resolution Foundation and IFS note a predicted squeeze on living standards for middle earners. The increase in minimum wage and reduction in UC taper rate will benefit some of the lowest paid in work, but not the 3.6 million people receiving Universal Credit and not in work. They will continue to feel the impact of the scrapped additional £20 per week.

Skills

The Chancellor hailed a skills ‘revolution’ with an additional £3.8bn funding to support people into higher skilled higher wage jobs. Much of this will go towards embedding T Levels, whose introduction has been met with concern over higher entry requirements than the BTECs that are being discontinued, ability for schools and colleges to engage with enough employers to offer the required work placements, and recognition of the new qualifications.

In the context of little to no access to FE capital funding over the last few years, and Government reforms to technical education, with a bigger focus on the system working with employers, this skills funding is being asked to do a lot. The IFS points out that FE spending per student remains well below 2010 levels.

Elements of the skills announcement, such as Multiply, the adult numeracy programme, are not discretely new funding. This will be funded from the UK Shared Prosperity Fund pot, which intends to replace EU funding that supports skills and employability programmes now, but won’t reach EU funding levels until 2024.

Net zero

A plank of investment in net zero transition was perhaps not as large or central as might be expected a week before the UK hosts COP26. How to deliver and fund decarbonisation retrofit for buildings and housing is a question being asked up and down the country. The Chancellor confirmed £3.9bn to support social housing retrofit, but this falls below the £9.2bn promised in the Government’s 2019 manifesto for homes energy efficiency, and won’t meet the challenge places are facing to decarbonise social housing stock alone. The UK Infrastructure Bank’s first investment – in a Teesside offshore wind project – was announced this week. in order to accelerate growth in green jobs, such investments need to be ramped up across the country.

Levelling up

A raft of projects were announced for places across the UK from the Treasury’s Levelling Up Fund – with a heavy emphasis on direct UK Government investments in the devolved nations. Innovate UK’s budget for R&D project funding will be increased to £1bn. Brownfield site development funding has also been allocated to local and combined authorities as part of the housing settlement. But, further devolution and control of funding to places in England was absent from the Spending Review. The Levelling Up White Paper – further delayed until the end of the year, is expected to detail devolution deal approaches. The Multiply programme hints at central allocation and control of at least some of the UKSPF.

Local government and place

The local government funding settlement – with a 3% rise in core spending power – may not do enough for local authorities facing financial challenges, exacerbated by demand and revenue impacts of Covid-19. A significant chunk of the rise – which will be frozen after next year – will go to rising social care delivery costs. The IFS has warned that many local authorities face possible future cuts with future grants frozen after the initial increase, no changes to funding formulae, and the rising pressure of social care costs.

It is notable that the £5.7bn transport funds announcement for eight city regions in England was in the news ahead of the Budget. This demonstrates the Treasury’s continued recognition of Mayoral Combined Authorities as local leaders in economic development and infrastructure that gives the statutory bodies an advantage in fiscal events. This also signals that the era of city region devolution is not passed, and with the recent policy focus on towns, Mayoral Combined Authorities are effective vehicles for delivering local bus and rail improvements that better connect residents in towns to their cities.

Increasing public spending may undo impacts from cuts played out over the last decade, and support improving life chances in many of our communities. However, as delivering public services and the cost of living continue to rise, places are seeking more opportunities for investment to grow good jobs and transition to net zero.

Summary of announcements

Local government finance

A multiyear settlement to enable local authorities, with an average real-terms increase of 3% per year in core spending power
£4.8bn of new grant funding for English councils over the next three years to support social care, including an additional £200m for the Supporting Families programme.
Additional £37.8m to tackle cyber security and £34.5m to strengthen local delivery and transparency over the Spending Review period.
The referendum threshold for increases in Council Tax is expected to remain at 2% per year to support delivery of core services, and the business rates multiplier will be frozen in 2022-23 to support businesses.

UK Shared Prosperity Fund (UKSPF)

The UKSPF, the replacement to European Union (EU) Structural Funds, has been launched. It will be tailored to supporting people to access new opportunities in places of need.
It is confirmed that the Fund will be worth over £2.6bn over the next three years with it rising to £1.5bn per year by 2024/25, matching EU receipts. Almost all of this funding will be revenue rather than capital.
The Budget notes that the UKSPF will at least match the size of EU Funds in each nation and Cornwall annually, but does not give detail on allocations for other places.

Levelling Up Fund

The £4.8bn Levelling Up Fund, lasting up until 2024-25, is core part of the UK Government’s stated ambition to level up the regions of the UK, investing in infrastructure in local places to make a positive impact on people and communities.
The first round of capital funding, taking place in 2021-22, is focused on transport, regeneration and town centres, and culture, and categorised local authority areas into three priorities.
The first 105 places receiving funding have been announced in the Budget.

Subnational investment

The Chancellor announced further subnational investment with £660m for the Northern Powerhouse Investment Fund and £400m for the Midlands Engine Investment Fund.

Skills

Skills spending to increase by £3.8bn over the parliament, including:

Meeting government’s commitment to National Skills Fund, by providing a 29% real terms increase in adult skills funding from 2019/20 to 2024/25 expanding the Lifetime Skills Guarantee up to level 3 and scale up Skills Bootcamps
£560m for a new UK wide numeracy programme, Multiply, to improve basic numeracy skills.
£2.8bn capital investment in skills, across post-16 education, T Levels and 20 Institutes of Technology.
Apprenticeships funding to increase to £2.7bn by 2024/25
£900 million for each year of the period on DWP work coaches.

Net zero

£6.1bn to support the strategy set out in the Transport Decarbonisation Plan with £416m to help commercialise low and zero emission transport technologies.
·£3.9bn across England and Wales to ensure buildings are warmer and more energy efficient.
£450m to grow the heat pump market in England and Wales
£950m for the Home Upgrade Grant and £800m for the Social Housing Decarbonisation Fund. £1.4bn to help decarbonise the public sector estate in England
£240m Net Zero Hydrogen Fund supporting over 8,000 jobs and unlocking £4bn of investment by 2030 across the UK, and £140m Industrial Decarbonisation and Hydrogen Revenue Support scheme
£30bn of domestic investment on green industrial revolution

Innovation

Government aims to reach £20bn R&D spend by the end of this Parliament. Combined with R&D tax release, this will increase total UK R&D support to 1.1% of GDP by 2024-25 (from its current base of 0.7%, in line with the OECD average).
Providing £2.5bn for Innovate UK core funding by 2024-25, a 36% increase across the Spending Review period.
Establishing the new Advanced Research and Invention Agency with £800m allocated by 2025-26, including £50m in 2021-22.
Supporting world class R&D in aerospace, co-investing with injury and guaranteeing funding for the Aerospace Technology Institute to 2031

Business growth

Business rates conclusions will be published today. Business rates to be retained but with reforms (investment relief totalling £750m) including 3 year evaluation cycle from 2023, new green and property improvement relief, and 1 year new 50% business rates discount for retail, hospitality and leisure up to max of £110,000
New £1.4bn Global Britain investment fund across world leading sectors including life sciences, offshore wind and automotive manufacturing sectors.
Over £1.6bn going to British Business Bank’s (BBB) regional financing programmes, expanding their coverage for North East and South West of England, Scotland and Wales.
£150m additional commitment for the Regional Angels programme, which reduces imbalances in access to early-stage equity finance across the UK.

Housing

The Government has announced a nearly £24bn multiyear housing settlement including:

A further £1.8bn to meet the Government commitment to £10bn investment in housing supply and unlocking over 1m new homes. This includes £300m local-led grant funding to combined authorities and local authorities to unlock smaller brownfield sites, and £1.5bn to regenerate 1,500Ha of underused land, deliver transport links and community facilities, and unlock 160,000 homes.
£9m Levelling Up Parks Fund, creating over 100 new parks across the UK on derelict land.
Additional £65m to improve the planning regime.
Confirmed £5bn, with £3bn in the Spending Review period, to remove unsafe cladding, partially funded by a property developers’ tax.
£639m by 2024-25 to end rough sleeping and homelessness, bringing total resource funding to £1.9bn and capital investment to £109m over the Spending Review period.

Infrastructure

Announcements deliver on the commitments set out in the National Infrastructure Strategy, with much of this existing funding, but there are new investments, bringing the total commitment to £130bn. Road, rail, digital and local infrastructure investments include:

£5.7bn for eight English city regions to transform local transport networks through London-style integrated settlements, with £1.8bn of this confirmed as new funding.
Confirmed over £35bn in rail investment over the Spending Review period, including HS2, rail enhancements, and renewals focused on the Midlands and North, and £500m to restore select Beeching lines.
£24bn in strategic roads (2020-25), delivering over 60 upgrades, plus over £2.7bn over the next three years for local road maintenance in non-city regions, and £2.6bn for long-term pipeline of over 50 road upgrades (2020-25).
Over £3bn of funding for buses, including a new dedicated commitment of £1.2bn for bus transformation deals in England, to deliver London-style services, and a further £355m new funding for zero emission buses, and an allocation of £70m zero emission bus funding in specific places.
More than £2bn investment in cycling and walking over the Parliament, including £710m of new active travel investment.