The UK needs growth and it needs it now: the forecast for 2013 is now halved to 0.6% and unemployment is rising once more. So did the Budget deliver? From a growth perspective, there are various welcome measures. Putting infrastructure and housing centre stage, policies to stimulate business investment, a cut in the cost of employing people and, of course, confirming that the Heseltine Single Local Growth Fund will be implemented are all good to see. But it is too little, too late. It lacks a ‘place’ focus that means policies could have adverse consequences for both London and the South East as well as many northern cities.
Housing is a good example of what happens when you have place-blind policy. It’s good the Government is recognising (through New Buy and Right to Buy) how much many people are struggling to buy their own homes – the Centre’s Cities Outlook highlighted this. But the UK needs 232,000 new homes a year just to meet demand, and we’re already at least 100,000 homes short of that. Without more measures to build homes, and soon, there’s a danger that a further house price bubble will be fuelled, particularly in the least affordable cities which have most pressure on the few homes available. We would also have liked to see more of a place-sensitive approach: while many fast-growing cities need new houses – and this could help create jobs, other cities with weaker economies – many based in the North - would benefit more from measures to stimulate refurbishment and retrofit, also creating jobs.
Infrastructure is also another case of benefits later rather than sooner. It’s good that the Chancellor is so clear about the importance of infrastructure to growth, and an extra £15bn for new road, rail and energy projects by 2020, starting with £3bn in 2015-16, could make a big difference to cities across the UK, especially where lack of infrastructure has been identified as a major barrier to growth. But why wait until 2015? And since many of the ‘shovel-ready’ infrastructure projects are relatively local, why not loosen Whitehall’s control on the purse-strings so that local areas can reallocate money towards infrastructure projects (or even other projects, if locally-appropriate) that they know will kickstart local growth?
Central pursestrings may well be loosened with the Budget’s very welcome endorsement of Lord Heseltine’s Single Local Growth Fund, alongside a range of other commitments to devolve more control of economic policy to local areas. Yet, the impact of policies such as the Fund will depend upon their scale, and this won’t be confirmed until the 26 June Spending Review announcements. Even when it is confirmed, it won’t make a difference in the short term as, again, it won’t launch until 2015. In the meantime, it’s vital that Government make use of City Deals as a way to devolve powers and funding more quickly (and considering how to extend the ‘core package’ to all other LEPs as a way into the Single Local Growth Fund negotiations in 2015).
Some of the tax cuts may help increase spending in cities, whether the increase in the personal allowance, the scrapping of the 3p rise in fuel duty or the 1p reduction in beer duty (a boon for community pubs at any rate). And, help on childcare is also good for cities, as it’s one of the biggest barriers to work – although there are questions about whether this approach (again not happening until 2015) – will really help reduce costs for parents, a particular concern for cities like London where childcare is most expensive.
Some of the business tax cuts may also be helpful to the UK economy as a whole (and therefore to cities), although the jury is out on the additional impact of some of the measures. For example, the interesting question about the Employment Allowance – the reduction by £2k of national insurance costs for all firms - is whether the additional benefits of encouraging businesses to take on employees will outweigh the deadweight incurred by a policy that subsidises employers for doing things they would have done anyway. What is undeniable is the importance of policies to generate jobs given today's figures showing youth unemployment is up.
It was a shame that there were such limited announcements on skills, despite the Chancellor saying that it’s the most important thing for long-term growth, there was a sense he felt the Government is already doing enough. We’d like to see more investment in this area – Cities Outlook 1901 shows it’s critical to keep investing in skills – and we’d also like more of a place lens on this policy area, as our evidence clearly shows that in certain cities, a lack of jobs available is further compounded by lower levels of achievement by school leavers.
It’s also likely that, as we pore over the figures, there’ll be more interesting nuggets to come on local government funding. It was good to hear confirmation of protection from further cuts for 2013/14 but, given the £11.5bn savings that need to be found, I’m sure that this won’t last long. It’s also likely that local government will be affected by the announcements on higher pension contributions from the public sector, so I’d expect to see local finances continuing to be squeezed over the next few years. Which brings us back again to the need for more local control over the money there is, enabling local areas to decide how to spend what little money is left.
Overall, it’s a Budget with various policies for growth – but more for growth tomorrow than growth today, with the inevitable impact this will have on cities. In the short term, it is to be hoped that policies on infrastructure, housing and business can be delivered in a way that helps cities grow. And, looking to the future, the key will be implementing Heseltine in a way that changes decision-making and funding in cities so that they can drive economic growth more effectively in the future – that’s the only way to achieve the kind of uplift in economic growth that the OBR is pointing to for 2014 and beyond.