Don’t expect too much from this Budget, but the Chancellor can take decisions now that will pave the way for a brighter future.
Keir Starmer called for the Budget to signal a ‘new chapter in our history’ as he set out Labour’s economic vision for Britain. My colleague and CPP Head of Research, Ben Franklin, also argues cogently for this to be our post-war moment of reconstruction. The Chancellor is expected to announce the government’s ‘Plan for Growth’ on the 3rd of March, framing how we will start to rebuild out of the crisis and find our economic and fiscal footing once again. As I mentioned recently in a Guardian Podcast (at 29:35), the Budget is likely to fall short on long term visioning and strategy. Despite high hopes of a rapid bounce back in the Bank of England, the Chancellor is still focussed on dealing with the immediate cost of coronavirus. Brexit might have been ‘done’, but the government’s wider domestic agenda has been caught in the storm of the pandemic and its winds continue to blow strong; we are likely to have to wait until the Comprehensive Spending Review later in the year to get a clearer sense of the long term.
However, there are several things the government can and should do in this Budget to pave the way for an inclusive recovery and clean, inclusive growth. Here are five:
- Dig deeper for extra health and social care resource spending: November’s Spending Review (SR) saw the Chancellor promise an extra £55bn for public services across the UK to cope with the ongoing crisis and to start making headway on backlogs. In the meantime, NHS waiting lists have continued to grow and at least a quarter of million people have been waiting 12 months or more for treatment. The recent Health and Social White Paper purports to have learned lessons from the crisis with a focus on formalising Integrated Care Systems and embedding prevention and population health at the heart of the NHS. But social care was once again notable by its absence in these reforms, suggesting the government has learned little about the interdependencies between the two services. Additional resource funding (not just capital) will be needed at this budget to tackle the short term backlog and to support the NHS to build back in new ways – relying less on hospital care (where capacity will continue to be constrained by social distancing measures and the shortage – or just sheer exhaustion – of staff) and more on community services. Direct accountability to the Secretary of State will not be enough to support this profound change in the short or longer term and could actively hamper it if it means greater centralisation of the NHS and a reduced role for local leadership and coordination. As we argue in our recent paper, the government also needs to go beyond words of praise for frontline social care workers. We need to see a fairer deal to reward those who stepped up to keep society going and rethink how we compensate social care workers for their contribution to society.
- Don’t let local government bear the brunt again: Whitehall’s approach to local government finance during the crisis quietly encapsulates the centre’s piecemeal and panicked response to the pandemic as a whole. In the summer CPP warned that more than 8 in 10 councils faced effective bankruptcy by the end of the financial year without additional financial support. Whilst additional funding has been made available, much of this has been scattered across an array of tightly ringfenced pots – making the challenge of putting together a comprehensive, strategic response on the ground (often delivering where central government has failed and most notably on track and trace) more difficult for councils. Local government bore the brunt of the last recession and was hollowed out over the following decade. If the government is committed to building back better the Chancellor must ensure the impact of the pandemic is net neutral on councils and beyond it pave the way for the restoration and reform of local government finance. The funding of social care, which swallows the bulk of local authority budgets, will be a major component of this as we look ahead to the Fair Funding Review.
- Embrace the case for council tax reform: Linked to the future of local government finance is the question of council tax reform. The Treasury has indicated it is exploring alternative options and there is a groundswell of support for this outside of Westminster (including the campaign spearheaded by Fairer Share). If done right, it could be a key competent of the levelling up agenda, re-establishing the link between tax paid and property wealth. CPP strongly supports reform of the current system and has recently argued that the Chancellor should cap local authority increases in £ rather than percentage terms to avoid places that already have the highest rates of council tax being affected most again with the Chancellor’s 5% increase ‘encouraged’ of councils as a means of accessing additional funding.
- Dare to innovate through the Levelling Up Prospectus: Commitment to level up the regions and nations of the UK was a key part of the Conservative’s landslide election result in December 2019. With the level of inequality so clearly exposed during the pandemic, this agenda is now more salient than ever. The Chancellor has shown he is determined to honour this pledge, largely through a combination of freeports, the Towns Deals Fund and a £4bn Levelling Up Fund announced at the SR. However, CPP has argued that this reliance on capital investment in physical infrastructure projects does not, on its own, support people into higher skilled, better paid, more secure jobs. Nor does it give them better housing or safer streets. Or break down inequalities of education and health outcomes, all of which tangibly impact on productivity and people’s prosperity as well as the degree to which places can attract private sector investment and drive forward inclusive growth in the long term. We are expecting HM Treasury and the Ministry for Housing, Communities and Local Government to publish the Levelling Up Prospectus alongside the Budget with more detail on how places can bid for additional capital investment from this pot. Included in this could be a provision for access to extra capital and resource spending for social infrastructure, in a similar way that the North of Tyne Combined Authority Devolution Deal allowed in its single investment pot. The onus would then be on places to show tangible returns (ideally – from a Treasury point of view – in cashable terms).
- Draw on local solutions to unemployment, skills and growth: The government woke up late to the importance of reskilling and upskilling workers at risk of permanently losing their jobs due to structural changes to the economy caused by the pandemic. The recent FE White Paper had many welcome elements, as CPP researcher Andy Norman writes here. But HMT’s Plan for Growth will have to show how further education, business engagement and industrial strategies (whether they are called this or not) align to support people into viable, higher value-added jobs in which the UK can develop competitive advantage. The IFS has called for a final end to the furlough scheme in April so that the economy can start to adjust to life after Covid, albeit with certain sector support schemes such as for aviation continuing beyond April. Place-based interventions and approaches will also be essential if the government wants to stop the levelling up agenda slipping further. CPP has long argued that mayors and other local leaders need to play a central role in shaping and delivering this. Devolving industrial policy to help local economies thrive would be starting point, but don’t expect too much on that front this week.
The Budget is an annual media moment for the Chancellor to give an update on the government’s fiscal strategy and spending priorities, responding to current policy context and public finances. As coronavirus continues to define almost every inch of our existence, we should not expect too much by way of longer-term visioning or investment. But the Chancellor has an opportunity to set that thinking in train and to make decisions now that will pave the way for a brighter future. In the meantime, local places will need to bring the totality of their resource – public, private and third sector – to the table, forging a shared path to recovery and inclusive growth.