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Today’s Budget was as bold as had been promised. Ahead of time, the Prime Minister was very clear that the Government wanted to end the “merry-go-round” where the low-paid have money taken in tax and receive it back in tax credits. In the first Conservative Budget for 19 years, free of concerns about coalition partners or an impending election, the Chancellor set out a series of measures to achieve just that. The vision underpinning his speech was of Britain moving, “from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create”. So what did he announce and what did it mean for cities?
The compulsory ‘national living wage’ was the rabbit out of the hat and one of the first of many examples of the Chancellor co-opting policies more usually seen as Labour territory. Replacing the national minimum wage, starting at £7.20 next April and rising to £9 an hour by 2020 for workers aged 25 and over, it is an eye-catching way for the Conservatives to signal that they are on the side of “working people”, as well as a riposte to those sceptical that employers will raise wages sufficiently to make up for cuts in welfare. It is also a significant boost for northern cities and all those with lower costs of living. As the details are developed, one of the big challenges will be working out how the geography of this will play out, particularly in the context of cuts to tax credits, and the extent to which those living in expensive cities such as London will benefit.
The much-trailed £12bn of welfare cuts, albeit now taking place over four rather than two years, were as significant as expected, and will play out very differently across the country. The reduction in the benefit cap (to £23k in London and £20k in the rest of the country), freezing of working age benefits and reduction in tax credits (with tax credit support limited to two children) will hit large cities particularly hard because of their dependence on these benefits.
Alongside higher wages and lower welfare went tax cuts. For individuals, there is an increase the personal allowance and the inheritance tax threshold as well as a reduced threshold for higher rate tax. Businesses will also get lower taxes, with corporation tax lowered to 18 per cent by 2020 and reduced national insurance payments for small businesses, to create more money with which to pay the living wage. These are intended to increase spending power for businesses and people, although questions have regularly been raised by organisations such as the Resolution Foundation about how much additional spending power this will create – more work needs to be done on this.
The Northern Powerhouse was another strong theme, as expected given its symbolism of ‘One Nation’ Conservatism (a phrase stolen back from Labour) and its potential for improving productivity. On transport, the Chancellor announced devolution of far reaching powers to the North’s Mayor-led city-regions to deliver fully integrated public transport systems, supported by smart and integrated ticketing technology, with the establishment of Transport for the North as a statutory body with statutory duties, underpinned by £30 million of additional funding. The aim is to appoint an interim Chief Executive and executive team for TfN by autumn 2015, work with TfN to advance the introduction of Oyster-style smart and integrated ticketing across bus, tram, metro and rail services throughout the region and to push forward plans to transform east-west rail and road connections via TransNorth and options for a new TransPennine Tunnel. These are all measures we’ve called for previously as being important to city economies so the challenge now is to implement these measures successfully and in good time.
On devolution, Greater Manchester’s new Mayor received additional powers, including control of fire services, the establishment of a land commission and further collaboration on children’s services and employment programmes. A nod was also given to deals being done with Leeds, Sheffield and Liverpool city-regions but it was made crystal clear that – in large cities – this had to be in exchange for elected mayors and that agreement would need to be reached by the Spending Review. For the North East, the West of England and the West Midlands (as Ben Harrison argues here) there’s a need to move quickly – if they can – before the window of opportunity for significant devolution during this Parliament closes. Other towns and counties should be seeking to follow Cornwall’s example; they also got a nod of recognition for a deal being done ahead of the Spending Review.
Innovation and skills featured as part of the push on productivity, although more is likely when the Productivity Plan is published on Friday. Today there was a very welcome announcement about an apprenticeship levy, alongside announcements about £23m being invested in six Next Generation Digital Economy Centres (London, Swansea, Newcastle, Nottingham, York and Bath), leveraging £22 million of additional funding, as well as the establishment of National Colleges for specialist high level training. Universities were also invited to develop proposals for supporting local collaboration, with further detail to come in the Spending Review.
There was much less detail on housing beyond the announcement that rents on social homes will fall by 1 per cent a year to reduce the housing benefit bill. This is a particular concern for high demand cities such as Oxford, London and Reading where lack of housing supply is fuelling high prices and is a big reason for the ever-increasing housing benefit bills. This remains a priority that the Government needs to grapple with, and soon.
There was also less detail on the very substantial cuts to local government budgets yet to come. Having announced £5bn of savings through a clampdown on tax avoidance and £12bn of welfare savings, the remaining £20bn of required savings will be made through cuts to Whitehall budgets in the Spending Review. While the Chancellor committed that no cuts would be as deep as those implemented in 2011/12 and 2012/13, £20 billion still remains a substantial figure and local government, an unprotected area, is bound to be hit hard, with significant implications for the way that public services are delivered and the spending that can happen on economic growth at a local level.
Overall this budget clearly sets out the direction that this Conservative Government wishes to take, shifting investment and policy away from taxes and welfare into boosting wages and employment opportunities. Cities need to be rising to the agenda, taking advantage of opportunities to secure more powers (which means biting the bullet on mayors for big cities) and arguing for fiscal devolution to be on the table, at the same time as ensuring they work out how national changes will play out for those living in their area, given the particular mix of industry, jobs, living costs and dependence on the public sector / benefits they have.
Change is inevitable. Tough budgets and very challenging choices are too. But as we head towards the Spending Review, now is the time for cities to argue loud and clear that if the Government wants to create a high wage, high productivity economy, its policies and funding decisions over the weeks and months ahead need to consider and reflect the individual strengths and challenges that different places across the country face.
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