Spring Budget Briefing
CEDOS Spring 2023 Budget Briefing
Today was consistently billed as being a boring Budget and it certainly didn’t disappoint in that regard. Perhaps after an emergency budget, followed by an emergency statement in the space of two months, anything without the word ‘emergency’ attached to it was always going to be perceived as a little flat. That is not to say there aren’t elements within the budget that will have an impact on local economies and the economic development profession.
Whilst the budget may be perceived as ‘boring’, the wider economic context for the budget is far from it. Inflation is falling but stubbornly high, growth is see-sawing quarter on quarter and we are potentially on the brink of another systemic event in the global banking system – driven by spiralling interest rates and the falling value of Government and other bonds. The backdrop to this boring budget was an almost 4% daily collapse in the FTSE 100.
According to the OBR, the UK is predicted to avoid recession this year and then grow 1.8%, 2.5% and 2.1% over the next three years, with inflation falling to 2.9% by the end of 2023.
In terms of widespread tax and spend policies there was no real headline grabber, but there has been a focus on the labour market within this budget. There has been a push to use fiscal policy to expand the labour force, with investment in 30 hours of free childcare for working parents and up-front childcare support for families on Universal Credit. This was supported by incentive payments and an increase in the number of children childminders can look after to increase the supply of childcare places.
One area of the labour market that has received most attention in recent CEDOS sessions has been workers over 50 either retiring early, leaving the labour market voluntarily or suffering from ill health. The headlines in this area were a significant uplift in annual pension allowances and £63m to develop ‘returnerships’ programmes to encourage retirees back to work. It is not clear where the funding for these programmes will lie or if Local Government will have a role. A range of analysis has already suggested these measures will only have a small impact on the labour force and is more likely to keep higher paid workers working longer, rather than bringing significant numbers of older workers back to the labour force.
One of the key reasons over 50s have been leaving the labour market is caring responsibilities for older relatives and there has been nothing to tackle this announced in the budget.
There have also been a number of changes to Universal Credit to encourage, support or potentially coerce people back into employment, including those with a disability.
The budget has viewed an expansion of the labour pool as critical to drive up UK productivity and lack of skilled staff has been a significant bottleneck on economic growth.
As part of the productivity package comes the announcement of twelve new Investment Zones (or at least the ability to bid for an Investment Zone) with an £80m budget allocation over the next five years (although over half of this is tax incentives rather than cash).
Proposals will need to be developed around a University(s) or Research Institution(s) and cover one of five key sectors (Digital and Tech, Life Sciences, Creative Industries, Green Industries and Advanced Manufacturing). Moving away from the original policy, this is now clearly a very urban focussed programme (as has been Freeports) and one starkly aimed at Mayoral Combined Authorities.
The eligible areas are:
- The proposed East Midlands Mayoral Combined County Authority
- Greater Manchester Mayoral Combined Authority
- Liverpool City Region Mayoral Combined Authority
- The proposed North East Mayoral Combined Authority
- South Yorkshire Mayoral Combined Authority
- Tees Valley Mayoral Combined Authority
- West Midlands Mayoral Combined Authority
- West Yorkshire Mayoral Combined Authority
In the DLUHC sphere, the budget also announced £400m to develop 12 Levelling Up partnerships. Areas that have been shortlisted include Torbay, Tendring, Stoke-on-Trent, Boston, Redcar and Cleveland, Wakefield, Oldham, Rother, Torridge, Walsall, Doncaster, South Tyneside, Rochdale and Bassetlaw. There were announcements for a range of other regeneration projects in England that met the shortlist for the second round of Levelling Up funding but were not part of the initial award.
Also within the small print of the Budget came the confirmation that Government funding for Local Enterprise Partnerships will cease from 2024 and their functions will be transferred to Local Government.
The only other major devolution announcements focussed on the West Midlands and Greater Manchester securing multi-year devolution funding deals, including devolution of post-16 skills funding, the ability to retain additional business rates and greater control of the affordable home programme.
There has been no rethink in Corporation Tax and the planned increase (with some exemptions) from 19% to 25% will go ahead as planned. There is a new policy for 3 years of ‘full capitalising expensing’ to encourage business investment – which historically low has been hammered in recent years by BREXIT, COVID-19 and now the cost-of-living crisis. Again it remains to be seen if this can bring forward business investment to improve productivity. Many of us working at the coal face of the drive for productivity in small and medium business have seen how hard it has been after the pandemic to get businesses to take 50% grants to invest in their productivity. It has also been clear that local businesses understanding of productivity is considerably different from the purism of policy makers.
Generally, there were measures that will not stoke short-term inflation such as no hike in Fuel Duty and an extension of the subsidies under the Energy Price Guarantee (although no mention of any successor scheme for businesses) and of course no mention of any Public Sector pay awards.
In the meantime, we can all sleep easier knowing we can max out our pension pots, go for a swim in lukewarm water for the next year and have a slightly less expensive pint of warm ‘post BREXIT guarantee’ beer.