Alexandra Jones predicts the announcements in the Budget, and how they may affect city economies.
Tomorrow’s Budget will be the third major financial statement that George Osborne has made in eight months, but his first as Chancellor of a majority government. As is traditional, many announcements have already been drip-fed to the press, from Sunday trading to cuts to child tax credit and housing benefit for 18 to 21 year olds. So what else will we hear about tomorrow – and what will get left out of the Budget but still be a big issue for cities around the country?
Achieving welfare cuts will be at the heart of reducing the deficit, but we’ll hear much less about how blanket national cuts will affect different people and places. Delivering £12bn of savings to the welfare bill has been widely trailed, as has reform to the tax credits system, with speculation growing about how this could happen without causing real problems for working people. Yet we’re unlikely to hear about how national savings will affect different people in different places in different ways – the chart below shows that some of the highest levels of spending on benefits is in the biggest cities and in coastal areas.
We’ll hear more about budget cuts to unprotected areas such as local government but I’m expecting less about how Whitehall’s budgeting process will change to empower places to deliver savings through a more people-focused approach. Community Budgets have made some progress in showing how wrapping services around people can deliver cheaper and better services, and ‘Devo Manc’ is a significant start for thinking about how savings can be partly recycled back to local areas. But these approaches need to be rolled out more widely to help achieve the scale of cuts required.
Reducing the deficit will be a central theme of the speech, but savings are unlikely to be made when it comes to expenditure on older people. Having agreed that the BBC will pay for the free TV licence for over-75s, the rest of the budget spent on older people is relatively sacrosanct, not least because older people are more likely to vote, vote Conservative and shout loudly when unhappy. Yet 16 per cent of national public expenditure goes towards old age – double the amount spent on the economy, infrastructure and environment. As the group of pensioners continues to grow, there will come a point when this has to change.
We’ll hear more about rebalancing the economy but little detail about how much work is left to do, and how much productivity varies across the country. London generated £126bn of ‘economy’ taxes in 2013-14, over twice as much as the Northern Powerhouse city regions (which generated £62.5bn). If you look at ‘economy’ taxes per worker, the South East is a long way ahead of other places around the country.
We’ll hear more about devolution to the Northern Powerhouse cities, particularly Manchester, and beyond, but little about the lack of fiscal powers that cities – big and small – have. Big cities underperform on taxes and economic growth – if Manchester, Leeds and Birmingham performed at the national average, they would deliver an additional £9bn in taxes, three-quarters of the required welfare cuts. Although I’m expecting further northern powerhouse announcements, I’m not expecting much in the Budget on fiscal devolution either for the large or the fastest growing smaller cities, such as Cambridge and Milton Keynes. This is despite the fact that currently cities keep only 9p in every £1 of tax collected, and despite the potential of fiscal devolution to enable cities and their surrounding areas to invest in reducing congestion and housing shortages.
We’ll hear some announcements about road, rail and housing, but we’re unlikely to see a change in the way investment spending is treated in the public accounts. Currently spending is treated as the same whether it is investment in tangible, long-lasting infrastructure (such as roads or housing) or revenue spending on services that will not generate any longer term return. If there was greater scope to invest in infrastructure and it was ‘counted’ differently, this could help increase productivity and reduce the welfare bill. For example, building more homes, including affordable homes, in London would help people access the capital’s jobs and reduce the housing benefit bill.
We now have more evidence on all of the above. When Osborne gives his Autumn Statement in four months’ time, we need to see a far greater movement towards viewing the national finances and economy through the prism of both people and places if we’re going to successfully cut spending, drive efficiencies, rebalance the economy and decentralise power.
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