ResPublica’s Response to the Autumn Budget 2018

29^th October 2018

The 2018 Budget delivered by Philip Hammond was the first since 1962 to be delivered on a day other than a Wednesday, and was moved forward from an expected November date to avoid a clash with the final month of Brexit negotiations in November. Below is our response in relation to some of our key policy interests.

Cities & Devolution

• The Chancellor claimed to be giving councils greater control of their finances, as well as announcing that the lifting of the cap for housing would begin on 29^th This will lift the Housing Revenue Account cap that controls local authority borrowing for house building, enabling councils to increase house building to around 10,000 homes per year.
• Hammond announced he would increase the Transforming Cities Fund to £2.4bn, as well as £37m of additional funding for Northern Powerhouse Rail.
• The Chancellor announced £350m for a Belfast City Region Deal, £120m for a North Wales Growth Deal and £150m for a Tay Cities Deal. ResPublica made the case for a Growth Deal for Belfast in November 2016 in partnership with Belfast City Council.
• He also pledged an additional £950m for the Scottish Government, £550m for Wales and £320m for Northern Ireland.
• Finally, £300m for shared and integrated education projects in Northern Ireland was also announced, as part of the Fresh Start Agreement.

The budget devoted extensive time and funding for the topic of devolution and city deals across the UK. With the devolution agenda ascendant, and with central Government under pressure from the devolved governments for more funding post-Brexit, it was a topic that needed to be given significant attention.

However, despite calls from a consortium of elected mayors, including Conservative Tees Valley mayor Ben Houchen, there were no further details on the UK Shared Prosperity Fund. This is a pot of cash that will replace EU money. Houchen also hoped to see plans detailing how local government could take control of its share of the cash. In an op-ed for the Northern Echo, Houchen claimed that a “devolved” Shared Prosperity Fund would “supercharge our ability to create jobs and maximise growth.”

It is notable that significant investment has been promised for Northern Ireland despite its relative size to Wales. This is likely due to the Government’s confidence and supply agreement with the Democratic Unionist Party.

Low cost credit

Leaked before the Budget but not mentioned in his speech the Chancellor’s commitment to a strong and vibrant social lending sector is buried in the detail of the budget report. Following the work of the Financial Inclusion Policy Forum, the Budget announces new policies to increase access to fair and affordable credit. There is no detail relating to the ‘no-interest loans scheme pilot’ but the government, will launch a feasibility study early next year.

This is an idea that will need testing. It is unlikely to happen very quickly. Probably not at scale and probably for those who are not already insolvent. However, the announcement of £2m to launch the Affordable Credit Challenge Fund is interesting. This will aim to harness the power of the UK’s world-leading Fintech industry to support social and community lenders.

See our Credit Emancipation report which makes the case for a place-based approach to building credit. We argue that improving aggregate credit scores at the local authority level through wide scale adoption of salary linked lending can help to address the problems of unaffordable credit, indebtedness and in-work poverty.

Health

• Hammond reaffirmed the Government’s prior announcement for an extra £20.5bn a year for the NHS by 2023/24, and announced that this would include £2bn a year extra of mental health spending.
• Within this, a new mental health crisis service would be established, with comprehensive mental health support in every major A&E by 2023/24, more ambulances for mental health problems, a 24-hour mental health hotline and children and young people’s crisis teams in every part of the country. The NHS 10-Year Plan, which would be published soon, would include more details about this.
• Local authorities in England will receive a further £650m of grant funding for social care next year. This is in addition to the £240m winter pressures funding that the Government announced for 2018/19 earlier this year.
• The budget will also provide £84m over 5 years for up to 20 local authorities, to help more children to stay at home safely with their families.
• Lastly, the budget will provide councils with an additional £55m in 2018/19 for the Disabled Facilities Grant to provide home aids and adaptations for disabled children and adults on low incomes.

Mr Hammond stated that “our NHS is the number one priority for the British people”. In other words, he knows that this is a key electoral issue which needs to be addressed if the Conservatives are to stay in power at the next election.

Technology

• The UK will introduce a new ‘Digital Services Tax’. The Treasury predicts it will raise around £400m per year.
• Digital firms earning over £500m worldwide will be taxed 2% on the money they make from UK users.
• The chancellor said the tax will be narrowly targeted on UK generated revenues of specific ‘tech giants, not the tech startups’.

The OBR has said this tax will only target around 30 companies. Do the maths, if the Digital Service Tax will only raise £400m a year, that’s less than £15m a year each. Given Google’s most recent £3.8bn fine by the EU Commission (for Android antitrust violations) represented just over two weeks revenue for the company, the Tech Giants will continue to avoid paying their fair share. As our Technopoly report argues only serious reforms to competition law will tackle their dominance.

Brexit and Trade

• The Chancellor announced an additional £500m for Brexit preparations. This follows the £2.2bn already announced, and £1.5bn announced at the spring statement.
• He committed £15m to post-Brexit contingency planning.
• A commemorative 50p coin will be introduced to mark the UKs exit.
• Hammond predicted a Brexit dividend in the event of a deal.
• But he said he is prepared to upgrade the spring statement to a ‘full budget’ in the event of a ‘no deal’ scenario.

The budget has been dubbed the “Brexit Budget”, however exactly five months to the day before Britain leaves the EU, Hammond’s financial plan rests on securing a deal with the EU or risk being replaced by an emergency rethink. Hammond is gambling that MPs will back plans to start spending – with his ‘austerity is coming to an end’ rhetoric – rather than risk a messy break with the EU.

High Streets

The Chancellor acknowledged that, with changes in retail behaviours, our high streets are struggling. These changes were described as ‘irreversible’, meaning that high streets must adapt to thrive. To these ends, the Government have pledged:

• £675m of co-funding to support a ‘future high streets fund’, designed to rejuvenate the high streets.
• This will help local councils convert some retail areas into residential spaces, helping high streets to adapt and address the acute housing shortages found in some areas.
• £900m in business rates relief for small businesses (with a rateable value of less than £51,000) over next two years. An annual saving of £8,000 for 90% of independent businesses.

The British Chambers of Commerce has supported the announced cut in business rates, after a year where a high number of high street firms have closed. This is a relatively minor financial pledge for Government, but one that is likely to be popular among businesses and local MPs (many of whom are concerned by the demise of local high streets). However, in a year where large businesses such as Debenhams and House of Fraser have struggled, some business groups have cautiously welcomed these announcements as a positive short-term fix. A number believe that longer-term, wholesale change will be crucial to ensure security for the majority of retail workers, who are employed by larger businesses.

Policing

• There will be an extra £160m funding for counter-terrorism police in 2019-20.
• Sajid Javid, the Home Secretary, will review the Provision Police Funding Settlement in December 2018.

The budget saw extra funding for one, specialised, branch of the police. Notably, there were no promises around increasing funding for day to day policing, an area which has been coming under increasing scrutiny, as reported crime has been on the rise. Just last week, the Home Affairs Committee released a report, saying that the police are ‘under serious strain’ and struggling to respond to the changing nature of crime.

Housing

• The Government has pledged a further £500m for its housing infrastructure fund, which will help to build a further 650,000 homes (this brings the fund to a total £5.5bn).
• Stamp duty will be abolished for all first-time buyers, now including those who are buying propertied of up to £500,000 under shared ownership (applied retrospectively to the date of the last budget).
• From April 2020, private residence relief will be tightened. Lettings relief will be limited to owners who share occupancy with their tenants, and the final period exemption will be reduced from 18 to 9 months.
• Strategic partnerships allocating £653m to nine housing associations to deliver over 13,000 homes.

These are not radical announcements from the Government considering the Prime Minister’s pledge to make addressing the housing crisis her key domestic policy priority. The tightening of lettings relief does demonstrate that, while the Chancellor believes that entrepreneurship must be encouraged, in the current climate, first time buyers must be prioritised over those moving into the buy-for-rent market.

These announcements will be welcomed as instruments to increasing supply, but measures such as scrapping stamp duty have already come under fire for stoking demand, without truly addressing the problem of supply. Again, these announcements demonstrate that the Government are taking some welcome moves to address the housing crisis, but these are incremental steps, when the country needs bolder moves.

ResPublica’s National Housing Fund proposes a borrow-to build fund, where the Government borrows through a shared partnership with Housing Associations. Our proposal which suggests an investment of £100bn over ten years, is more radical, and more substantial than anything proposed in this budget. It is positive to see government working with housing associations, but we believe that the model for investing and increasing supply needs to encourage the creation of new homes at a much larger scale. 

Gambling

• Remote Gaming Duty will be increased by 21% to reduce loss in revenue from Fixed Odds Betting Terminals.

The Chancellor announced an anticipated increase in the Remote Gaming Duty, but campaigners will be disappointed to see that the duty is being set at the lower end of the expected range. Additionally, the implementation of the reduction in the FOBT maximum stake has now been delayed until October 2019. Once again, this will cause outrage among campaigners, who are already suggesting that this is a demonstration of Government’s preference for protecting the industry over the vulnerable.

As ResPublica recommended in The Wheel of Misfortune (2017), the maximum stake on FOBTs must be reduced to protect individuals, their families, and our communities.