A Budget for growth tomorrow

Mar 20, 2013

The UK needs growth and it needs it now: the forecast for 2013 is now halved to
0.6 per cent and unemployment is rising once more. So did the Budget deliver?
By Alexandra Jones
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, and it will happen 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. Its good
the Government is recognising (through New Buy and Right to Buy) how much many
people are struggling to buy their own homes the Centres Cities Outlook highlighted this.
But the UK needs 232,000 new homes a year just to meet demand, and were already at
least 100,000 homes short of that. Without more measures to build homes, and soon,
theres 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. Its 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 Whitehalls 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 Budgets very welcome endorsement
of Lord Heseltines 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 wont be confirmed until the 26 June
Spending Review announcements. Even when it is confirmed, it wont make a difference in
the short term as, again, it wont launch until 2015. In the meantime, its 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).

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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
its 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 its the most important thing for long-term growth, there was a sense
he felt the Government is already doing enough. Wed like to see more investment in this
area Cities Outlook 1901 shows its critical to keep investing in skills and wed 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.

Its also likely that, as we pore over the figures, therell 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, Im sure that
this wont last long. Its also likely that local government will be affected by the
announcements on higher pension contributions from the public sector, so Id 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, its 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 thats the only way to
achieve the kind of uplift in economic growth that the OBR is pointing to for 2014 and
beyond.