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From a sugar tax to all schools becoming academies; Budgets are never just about Government spending plans and today was no exception. At its heart, however, this was a sobering Budget in which lower global growth was cited as the reason that forecasts for economic growth have been cut, by 0.4 per cent this year and 0.3 per cent in the next two years. It’s particularly concerning that productivity growth has also been revised downwards; strong employment numbers are good but without stronger productivity, it will be hard to manage the “cocktail of risks” around global growth that the Chancellor referred to more than once.
In this context, and amongst all the headline-grabbing announcements, the biggest issues for cities were ongoing commitment to devolution deals, city-based investment in infrastructure, and big questions about where next on business rates.
Devolution continues to be a flagship government policy, with deals and prospective deals announced in England, Wales and Scotland. The new deal for the West of England is particularly important from an economic growth perspective; with productivity much lower than forecast back in November, making the most of areas such as Bristol will be critical to the UK’s future prosperity. Extending Greater Manchester’s deal and signalling more investment in skills in the Northern Powerhouse are important markers that the Government is taking deals and investment in the fundamentals of city economies seriously. All the signals are that there may be a further deal with the Solent in the summer, and we will continue to argue that a deal should be struck with the Leeds City Rregion; it is too important a part of the economy in the North and the UK to miss out on further powers.
It was also striking that the big announcements on investment in infrastructure were all about making the most of city economies. High speed trains between Manchester and Leeds – which we identified as a priority for the Northern Powerhouse in 2014 – featured alongside a tunnel linking Manchester and Sheffield and commitment to Crossrail 2, and all recognise the importance of city economies. Nor is it just larger cities; less noticed is the request for the National Infrastructure Commission to recommend how best to maximise the potential of the Cambridge, Milton Keynes and Oxford corridor – something we called for in our recent Fast Growth Cities report.
But one of the biggest questions left by the Budget today is what happens to local government finances. Growth predictions have been cut and the Chancellor has had to commit to a further £3.5 billion of cuts in 2019/20 in unprotected departments in order to balance the books – with local government one of the prime areas likely to feel the pinch. While it’s debateable whether this will actually happen, given the Chancellor’s assessment that the UK faces a “cocktail of risks”, it’s certainly something local authorities should be factoring into future plans.
Business rates announcements will also have a big impact. Just four months ago, it was announced that councils could agree four year funding deals, that the grant system would end and business rates would make up the vast majority of council funding, creating a stronger incentive for local authorities to make decisions that support economic growth. A consultation is due to be launched this summer on what this would all look like and what extra responsibilities would need to be devolved to councils given that an additional £5 billion would be in the local funding pot as a result of growth in business rates to 2020. Today’s announcement changes the landscape again with the decision to cut business rates, reducing available funding by around £6.7bn over the five years to 2020.
Although the government has said they will compensate the sector, so much remains unanswered. How will these cuts affect different local areas – if you’re an area with a lot of small businesses, surely you’ll be hit much harder than those with bigger businesses? Will local government get the same amount of money in compensation? Where will the money come from – and will it break the very welcome link the Government was creating between decisions that the local authority makes to support economic growth and increased local revenues?
Devolution deals have been premised on local government taking some very difficult decisions, making compromises and working together to win the bigger prize of being able to influence spending, decision-making and delivery in their local area. But central government’s side of the bargain was making a long term commitment to give local government more control over revenues and it needs to keep to that, rather than continually shifting the goalposts.
Overall it’s a budget with many positive signs about how seriously the Government is taking the importance of city economies. However, there are ongoing questions about how willing it is to commit to a long term framework in which local government can take on the additional powers and responsibilities it needs to support local economic growth, improve productivity and potentially lift the UK’s growth rate in the years ahead.
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