Everyone was braced for the worst today; ready for “swingeing” cuts to all unprotected public services and a transformation of the role of the state in the UK. What we saw instead was still significant but much smaller cuts – about 25 per cent of those set out in March 2015, according to Gavin Kelly from the Resolution Foundation – and a reshaping of the way that the state works and policy decisions are made. So what will it mean for cities, and what more would we like to see? Three issues jump out.
First, devolution and cities are now much more at the heart of Government strategy. The devolution agenda is one of the big overall goals of the Spending Review, rather than being relegated to one self-contained chapter, and cities policies are mentioned throughout the document – reflecting a welcome recognition by the Government that to generate a surplus in public finances by 2019-20, cities will have to play a leading role in driving additional economic growth. Specific devolution announcements include confirmation of the various devolution deals announced to date, a further extension of the Manchester deal on children’s services, a community infrastructure levy and a commitment to try and do further deals, particularly with the major city regions (i.e. Yorkshire and Bristol). Other policies include £400m for a Northern Investment Fund, £150m for smart ticketing across the North and £22m to encourage investment into the Northern Powerhouse.
Second, some of the areas unexpectedly protected from cuts – or even given more money – will help to boost cities. This includes the U-turn on tax credits, but also increasing the housing budget, sustaining funding for the police and further education. While the all-important detail is yet to emerge, this matters for cities. Our research shows that investment in housing, skills and transport is vital to successful city economies, and that sharp reductions in tax credits would not only affect individual households, but also the overall economy of some cities where more people are dependent on these benefits.
Third, although the cuts were lower than expected, they were still significant, and we need more detail before we can fully understand how they will impact on places across the country. £12bn was cut from the welfare budget, while spending on the Department for Communities and Local Government was reduced by 29 per cent. The Central government grant to local authorities will be abolished by 2020, with a review of the funding formula and New Homes Bonus to be undertaken during the Parliament.
However, councils will keep all their business rates by 2020 (an announcement we’ve already welcomed). They will also be able to raise council tax by 2 per cent to pay for social care, and to retain 100 per cent of revenue from local asset sales. Although the Chancellor said that the growing business rates pot means that the total amount of funding available to local government will not have fallen, there are questions about what this will mean for different areas – what redistribution will look like, how places will respond to growing populations and rising demand for social care, and how they will be able to work together to share opportunities and challenges. Answers will only start to emerge as we pore over the numbers in the days ahead.
Today’s Spending Review marks a continuation of the re-shaping of the state’s role in public services and economic growth, which will undoubtedly bring major challenges as result of the re-allocations and reductions in public spending. Looking ahead, one of the big challenges will be finding ways to work more closely with the private sector to support and secure the additional investment in infrastructure, innovation and business growth which will be necessary to meet the Government’s aspirations.
It will also be crucial that, as devolution progresses and new spending plans are implemented, more decisions about housing, skills, enterprise and transport are taken at city-region level. This is the only way that public services can be reformed in a way that works better for people while improving efficiency, and that an economy increasingly driven by knowledge-based businesses, overwhelmingly based in cities, can continue to grow.