The budget “signals” a tentative move towards a more active role for the public sector, especially housing, says Andrew Burns, but with much less detail about the future funding of day-to-day public services.
The most striking feature of the chancellors autmun budget was that the GDP growth forecasts from the Officer for Budget Repsonsibility will average only 1.5% over the next five years—down from annual 2% increases—meaning that the economy will be 2.5% (£65bn) smaller in 2021 than forecast back in March.
I will leave better qualified economic commentators to explain the extent to which this change is a result of Brexit uncertainty, a lack of investment in infrastructure, technology and skills or the UK’s general poor productivity malaise and focus on some of the most significant issues for local authorities.
The higher priority given to their role in building new homes and the lifting of the cap on borrowing for this purpose in high demand areas will be welcomed by most councils. And a further boost to the council tax income base could come from the confirmation that councils will be able to levy a 100% council tax premium on empty homes.
The chancellor also attached a high priority to transport and information infrastructure with a noticeable investment focus on those local areas that have made most progress on devolution. In particular the expected announcement of a local industrial strategy for Greater Manchester is both intriguing and encouraging.
It is also no surprise that the chancellor has responded to the demands for an immediate cash injection for the NHS. However, the £2.8bn to be allocated to frontline services falls short of the £4bn NHS leaders called for, and is therefore unlikely to make the financial position of the health service significantly less precarious.
The fact that this was badged by the chancellor as “exceptional” also implies that it might not be ongoing funding, creating more financial planning uncertainty at a time when it is needed more than ever.
The £3.5bn additional capital promised to NHS sustainability and transformation plans over the current parliament may go some way to underwriting the longer term transformational actions needed to put health on a more sustainable footing.
But looking at the whole health and care system, the pressures on children’s and adults’ social care have apparently been ignored and will continue to intensify, with knock-on effects on the NHS.
Adult social care services are essential to keeping people out of hospital and living independent, dignified lives at home and in the community and alleviating the pressure on the NHS.
Simply investing more money into the NHS while not addressing the current funding crisis in adult social care will help the joint efforts with local councils to prevent people having to go into hospital in the first place.
Less welcome news for local authority budgets (but good news for business) came in the form of a technical adjustment to the formula for annual increases in business rates. These will now rise by the CPI measure of inflation rather than RPI, saving businesses (and therefore costing councils) £2.3bn next year.
Business properties will in future be revalued every three years rather than the current five.
It is not yet clear whether or not councils will be compensated for this loss of income and it is somewhat ironic in a budget that seeks to promote greater devolution to local areas that such key determinants of business rates income is being set nationally in this way.
The promise of further 100% business rates pilots (in London and elsewhere) is a welcome step but we still have a long way to go beyond the decentralisation of some responsibilities to any real fiscal devolution.
So, taken as a whole, the budget signals welcome first steps towards a more active role for the public sector in developing the UK’s infrastructure, but with less to say about the financial sustainability of day-to-day public services.
Hopefully—as in previous years—the government will use the upcoming local government finance settlement to reveal more details and plans for how it will fund local services both now and in the future.
I agree with the Local Government Association position that local government as a whole must be able to keep every penny of business rates collected to plug funding gaps while a fairer system of distributing funding between councils is needed.
“Only with fairer funding and greater freedom from central government to take decisions over vital services in their area can local government generate economic growth, build homes, strengthen communities, and protect vulnerable people in all parts of the country,” the LGA says.
Andrew Burns is CIPFA president and director of finance and resources at Staffordshire County Council
He tweets as @CFOstaffscc
