Budget reaction: Short term fixes or long term solutions?

March 8, 2017   By Jessica Studdert, Deputy Director

The Chancellor’s first Budget, and the first following the UK’s decision to leave the EU, needed to shore up the domestic economy, particularly against structural challenges of weak productivity and our ageing population. So how do the announcements affect local government?

The increasingly fraught issue of business rates as revaluation kicks in next month was first up, after the bad jokes and the revised economic forecasts were out of the way. The Chancellor confirmed that the full £25bn of business rates was still on track to be devolved to local government by 2020 so abolishing them was not an option. Instead he announced a package of short term measures to alleviate some immediate pressures: a time-limited cap for small businesses coming out of rates relief; a discount for pubs and a £300m fund for local authorities to provide some discretionary relief to local small businesses.

In making these announcements, he seemed to acknowledge the decreasing legitimacy of a property tax when property values are so distorted nationally, and in an economy which generates value outside of business premises. Proposing more frequent revaluations is geared to alleviating volatility. Hammond indicated his intention to consider taxing digital parts of our economy. But set against a reduction of corporation tax, absent was any richer understanding of the role of tax incentivising and investing in value-creation in our economy (beyond lowering it). Such an exercise might consider the role of diversifying local revenue bases in creating virtuous cycles of investment in people and infrastructure with financial gains retained locally for further investment. But fiscal devolution remains off the table: the name of the game is propping up business rates rather than reducing overall dependence on them.

Hammond again placed the national productivity challenge front and centre, but his approach is very much driven from the Treasury down. Some transport funding will be allocated to local transport schemes at his discretion and linked to particular projects – so Whitehall retains a grip of initiative. Indeed there remains a lack of maturity in the government’s approach to local government – a £690m pot from which local authorities can compete to get funding to tackle urban congestion. So divide and rule, limited trust and earmarked pots are guiding principles, rather than outright devolution of funding and power to address local productivity pinch points.

There was a moment of relief for devo-watchers, as a brief mention was made of a new London deal. Further deal areas were not mentioned, however, and it was interesting to note instead the emphasis on the Northern Powerhouse and the Midlands Engine, with a strategy for the latter to be announced tomorrow. So can we expect these new super-regions to be the primary footprint for powers and investment to be channelled from government, superseding mayoral combined authorities? Maybe not after May’s elections, but the emphasis was interesting. For London, new powers over justice, health and infrastructure (the details of which are to be announced) are welcome but don’t appear radical. And the promised agreement to explore further flexibility over business rates seems likely to boil down to freedoms of administration rather freedoms over the application of it, or indeed wider fiscal freedom to meet the ambition of the London Finance Commission.

Given the absence of mention of social care in the Autumn Statement, the Chancellor needed to make amends, and he left his big announcement on this as a crescendo at the end. He pledged £2bn to local authorities for social care over three years, which will be frontloaded with £1bn of that in 2017/18. This is a significant sum, but each allocation is a one-off measure rather than addressing the structural gap, which the LGA estimates to be £2.6bn by the end of the decade. Key questions on the detail remain for local authorities. How will this funding be allocated? Will it be ringfenced? What degree of prescription and regulation will accompany the allocation of it? And if the funding is about freeing up hospital beds, is there recognition also of the NHS role also here, particularly when defining those areas “facing the greatest challenges”?

There is a risk here for local government that the injection of funding raises expectations that “immediate action” is possible, when the complexity of the human, logistical and capital resource required to alleviate the pressures within a system for so long starved of funding, is rather more complex than the top line soundbite would suggest.

But in addition to these shorter term fixes, the Chancellor acknowledged that these alone were insufficient to the scale of the social care challenge, and he announced a forthcoming green paper to set out options for long term reform. So the ball has hopefully only been kicked into the short grass – a green paper indicates more immediate action than a new Dilnot- or Barker-style commission, although it isn’t quite as urgent as a white paper. But the good news is, the consensus message on the unviability of the status quo on social care seems to have been heard in the corridors of the Treasury. Actions will speak louder than words.

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