As the economy continues to falter, the Autumn Statement – or mini-Budget – was an opportunity to set out a clear strategy for economic growth. Overall, despite various positive individual announcements, the Government did not present a clear route out of our economic woes. The speech was strong on a range of supply-side measures, but weaker on how to kick-start the economic demand we need to get the economy moving. More support is likely to be required, from national Government and from cities, if we are to see a step change in private sector growth over the years ahead.
So what are the most significant measures for cities in the Autumn Statement? Three measures stand out as particularly significant for cities.
First, infrastructure investment, which featured strongly in the speech – but more still needs to be done. The announcement of a £5bn investment in infrastructure over the next two years, funded by cuts in Whitehall department budgets, will be a boost for various local economies. £1bn investment in roads, the extension of the Northern Line in London, improvements to flood defences and rolling out ultra-fast broadband in 12 smaller cities* are all measures that will deliver jobs and training in the short term and help to boost growth in the longer term.
Announcements designed to encourage investment in infrastructure over the longer term were also welcome. These included: funding and reforms to assist construction of up to 120,000 new homes; an independent infrastructure investment platform for pension funds; increasing the annual investment allowances in plant and machinery to £250k; plans to take High Speed 2 to the North West and West Yorkshire; and offering empty property rates relief to speculative new developments.
But these are small measures in the scheme of things and are unlikely to give the economy the kick-start it needs. More still needs to be done, particularly on: supporting house-building – we need 232,000 homes a year just to keep up with demand according to CLG; developing new investment models for infrastructure that cities around the country can use to share risks and rewards with the private sector and get developments moving (PF2, the updated version of PFI could be significant in this regard); and ensuring that infrastructure delivery is brought forward quickly rather than taking decades to deliver.
Second, spending cuts matter to cities because of the likely impact on economic demand. Alongside various measures designed to help those on low incomes, such as increasing the basic tax threshold and cancelling the 3p rise in fuel duty, were measures designed to reduce public spending, most significantly including below-inflation increases in working-age benefits. All of these measures are likely to affect local economic demand as they affect how much money is in people’s pockets. Cities will be particularly affected by these reforms because they contain the highest concentrations of people on various forms of benefit, and certain cities will be hit harder than others (HM Treasury’s charts show that those on the lowest three income deciles will suffer the biggest proportional impact (although the wealthy will lose the most in cash terms).
Third, reallocation of spending along place-lines is a positive measure – not least the endorsement of Lord Heseltine’s recommendation for a single capital pot.
The Autumn Statement spared neither national nor local government from cuts. Whitehall departments will continue to feel a squeeze and be encouraged to follow the Department for Education model of reducing spending on administration, while local government are being given a reprieve from next year’s 1% cut but expected to deliver a 2% cut in spending the year after.
However, there was more of a place-focus with the announcement that the 2015-2016 Spending Review (due in the first half of next year) will include a single pot pulling together “more of the funding that currently goes to transport, housing, skills and getting people back to work” that Local Enterprise Partnerships can bid for.
Over the next year, the Centre for Cities will be investigating how more funding in areas that affect local economies can be allocated to ‘city regions’, many of which approximate to LEP areas. The devil is bound to be in the detail of this announcement, and it will be particularly important to understand the implications of having a competition between LEPs for the money. But it is good that the Government will be using the one year Spending Review to pilot this kind of place-focused approach, allowing areas to allocate money that supports a better functioning labour market to the priorities of that local area, whether that’s transport, childcare, skills, housing or a mix of all of the above.
This Autumn Statement was never going to be easy in this economy and with the Coalition’s commitment to reduce the deficit and therefore only introduce fiscally neutral policies. But more action is still likely to be needed, from national Government and cities, if the UK and its cities are to realise their economic potential.
* These cities are: Brighton and Hove, Cambridge, Coventry, Derby, Oxford, Portsmouth, Salford, York, Newport, Aberdeen, Perth and Derry-Londonderry