ResPublica’s Response to the Autumn Budget 2017

22^nd November 2017

The second Budget of 2017 delivered by Philip Hammond following the abolition of the Autumn Statement, was widely trailed as a tight political tightrope for the Chancellor due to worsening growth forecasts and tensions within The Cabinet. Below is our overall response from Director Phillip Blond in addition to analysis on what this Budget means for our key policy interests.

Phillip Blond, Director of ResPublica, said:

The headline on economic performance is that growth has been revised down by the OBR, to a lacklustre 1.3% by 2019.  Productivity has and will continue to fall despite increased investment in R&D and Skills. The chancellor announced a basket of incremental measures to boost growth, including:

• A new £2.5bn investment fund and £500m for tech industry, to support a range of initiatives from artificial intelligence, 5G and full fibre broadband
• Expanding the National Productivity Investment Fund to £31 billion
• Increasing the R&D tax credit from 11% to 12%
• Providing £20 billion of new investment in UK scale-up businesses

Mark Morrin, Principal Research Consultant said: “There was nothing in The Budget that resembled an overall plan or explained how disparities in regional economies will be addressed, short of general commitments to further devolution and a modest Transforming Cities Fund. The government’s own analysis points to the place-based solution; if the UK increased the productivity of the five biggest city regions outside of London to match the UK average that could increase GDP by £31 billion a year. We can expect more flesh on the bones when the Government’s flagship industrial strategy is launched on Monday but it was largely absent in today’s budget.”

Cities & Devolution

This budget widened the offer geographically on devolution, with a city deal for Belfast, a growth deal for North Wales, as well as further Scottish city deals in Stirling and on the Tay.

Notable for its absence was the previous promise for additional 1-2% business rate levy for Combined Authorities to pay for new infrastructure, which was promised previously. This had been delayed by the cancellation of the local government finance bill. In it’s place were two measures:

• Combined Authorities were could be offered a new Strategic Infrastructure Tariff (SIT) on new developments, much as London used to fund Crossrail.

• Local authorities will be able to access £1bn of discounted lending, accessible for three years.

However, these measures are not total replacements for the revenue that the infrastructure levy would have provided. The SIT will only be available from new developments. Lending must, of course, be paid back. Therefore these measures are not ideal for councils looking to invest in a long term, ongoing improvement in transport.

The most significant deepening of devolution was reserved for areas that had adopted an elected Metro-mayor. The Chancellor allocated them:

• Half of the £1.7bn Transforming Cities Fund

• £12m Capacity funding per year, to boost their central teams

A number of local infrastructure projects were also funded, with £250m to pay for a new tram line in the West Midlands, and £98m for a new bridge in Great Yarmouth. This demonstrated the advantage to authorities that had worked up infrastructure schemes that although unfunded, were “shovel-ready”.

Tom Follett, Policy & Projects Manager, said: “The budget saw a widening of the geographic offer on devolution, but the most radical measures are restricted to areas with Metro-mayors. New borrowing and developer contributions are welcome, but don’t make up for the absence of the previously planned infrastructure levy on business rates”.

Housing & Planning

The housing market needs different interventions to resolve different problems. The Chancellor’s broad range of measures is therefore welcome.

The focus on making both existing and new cities dense and therefore and sustainable. The Chancellor’s proposal to “expect local authorities to grant permission for development of land outside their existing plan if the homes are offered at a discount for sale or rent” is therefore concerning. For a small discount, developers could build unsustainable houses far from transport links.

By far the largest sum committed is £8bn for new financial guarantees for private sector house building. No detail has been provided, but it is hoped this will deployed along the lines of ResPublica’s National Housing Fund. Our proposal is much larger, at £100bn over ten years, and builds houses to rent, with money returned to the Government.

The issue of land was not mentioned, but is a major barrier. Land is very expensive as landowners retain the gains in land value that come with planning permission. Reforms to Compulsory Purchase Orders to enable councils to buy land at fair market value are needed to enable this, but there was no mention.

Phillip Blond, Director of ResPublica, said “The measures proposed are incremental rather than revolutionary. ResPublica has proposed a borrow-to-build National Housing Fund, where the government borrows through a shared partnership with Housing associations which build homes for rent. This isn’t specifically mentioned, although it is not clear how the £8bn allocated to ‘new financial guarantees’ to support purpose-built housebuilding will work. We urge the Government to deploy the £8bn along the lines of our proposal for a National Housing Fund to build the homes we need.”

Health

The Chancellor emphasized his commitment to ensuring free NHS access for all at the first point of need. He has set aside £6.3 billion for frontline NHS services as well as upgrades to buildings and facilities. In addition to the Government’s endorsement of the NHS’s Five Year Forward View, Mr. Hammond will allocate £2.8 billion of resource funding to NHS England over 2017-18, 2018-19 and 2019-20 for day to day spending. Of this, £350 million is earmarked for handling winter stresses this year. The Chancellor hopes this action will enable the NHS to meet the A&E four-hour target throughout next year, improve waiting time targets and reduce waiting lists.

Researcher Anna Hazelwood, said: “ResPublica welcomes this cash injection, at a time when the NHS is tackling the dual challenges of increased demand and reduced resources. Indeed, Mr. Hammond himself acknowledged the problems posed by an aging population and continued technological advancement.  However, the £2.8 billion figure falls short the £4 billion per year called for by Simon Stevens, Chief Executive of NHS England. Mr. Stevens argued that this was essential for the organization to maintain standards of care and meet the rising demand for health services.

Ultimately Britain is facing a health crisis of social and economic consequence. In this context, radical solutions are essential to secure the health of the population. Instead, the Budget outlines incremental changes. Indeed, Mr. Hammond’s failure to mention social care is indicative of this lack of innovation. Looking forward, one solution may be to relieve GPs by unlocking the skill and potential of Community Pharmacy, as proposed in our recent report Heartbeats on the High Street.”

Education & Skills

The Chancellors announced a variety of investment in education and skills:

• The Government recognises the importance of maths and computer science skills to the economy and has announced a package designed to support teaching and learning in schools.
  • £27 million to expand the Teaching for Mastery maths programme and rewarding schools and colleges who support their students to study maths by giving them £600 for every extra pupil who decides to take it to A level, alongside other measures.
  • £84 million to upskill 8,000 computer science teachers so every secondary school has a fully qualified computer science teacher. It will also work with industry to set up a new National Centre for Computing to produce training material and support schools.
• The National Retraining Partnership – a formal skills partnership with the Trades Union Congress and Confederation of British Industry, to develop the National Retraining Scheme. This will initially be targeted in sectors with skills shortages, in construction and digital skills. This includes a £30 million investment to test the use of AI and EdTech in online digital skills courses. It will also provide £8.5 million over the next two years to support Unionlearn, an organisation of the Trades Union Congress to boost learning in the workplace.
• The Government will invest £42 million to pilot a Teacher Development Premium.

Researcher Henna Shah said: “The policy of ‘more maths for everyone’ speaks to the demands of a changing world but whilst it is important for students and schools to be incentivised to improve performance, this should not come at the detriment of ensuring that all students are catered for – we do not want a perversion of incentives that pushes students towards options that are not right for them. We thus eagerly anticipate the support that will be provided for the introduction of T levels – these must be properly supported to ensure that every student receives the high quality training that is right for them.

The creation of institutions such as a National Centre for Computing to share best practice is vital to allow teachers to continue to learn and achieve the best outcomes. However, the Government has not gone far enough. If the investment in CPD and the National Centre proves successful, we should see this scheme expanded to ensure no teacher, and no child, is left behind.”