Planning matters

You’d be forgiven for thinking that there wasn’t much left for Rishi Sunak to announce at today’s Budget – his second this year – given the degree of pre-briefing by HM Treasury officials and various ‘leaked’ announcements over recent days. But such was the packed agenda – new forecasts from the Office for Budget Responsibility (OBR), the outcome of the delayed departmental Spending Review as well as the Autumn Budget itself – it was perhaps inevitable in order to create as much airtime as possible.

One of the most important elements of all the early news was actually last week’s figures from the Office for National Statistics that revealed a reduction in government borrowing levels (£7 billion less than last year’s high water mark, but the second highest since the early 1990s), largely reflecting the rebound in economic growth and strong labour market over recent months boosting tax receipts for the Treasury. Coupled with upward revisions by the OBR to UK economic growth forecasts (6.5% for 2021, up from 4%) released today, the Chancellor found some extra room to manoeuvre than he might have expected back at the time of the March Budget. The quicker than expected rebound does mean that growth in 2022 is now forecast to be slightly lower, at 6%.

Notwithstanding, the state of the public finances is still far from straightforward. The public sector’s net debt excluding public sector banks amounted to £2.2tn in September, equivalent to about 95% of the country’s entire gross domestic product, a proportion last seen in the early 1960s. While the OBR is now taking a more optimistic view on the long-term effects of the pandemic on the economy – cutting its estimate of the “scarring” effects from 3 to 2% of GDP – which will also give some more fiscal headroom, other factors still risk clouding the outlook, such as rising interest rates which could substantially increase the costs of servicing that debt. And all that comes before the various extra spending commitments that had already been made over recent months, for example to the NHS.

However, the Chancellor was keen to focus on what he described as “an economy fit for a new age of optimism” following the pandemic. Of course, this was his cue for talking about how to get the government’s policies around regional policy, housing, regeneration, infrastructure and innovation and net zero on track – all of which, the government contends, are critical opportunities for its wider levelling up agenda.

Key announcements in this regard include:

1. Levelling up funding – £1.7 billion of funding was announced for 105 places to upgrade local infrastructure through the first bidding round of the £4.8 billion Levelling Up Fund. This includes projects in all regions and devolved administrations, which we have analysed in more detail in a separate blog.
   
   
2. UK Shared Prosperity Fund – the UKSPF will be worth £2.6bn over the next three years as the successor to the EU Structural Fund programme addressing local needs across the UK. The UKSPF will rise to £1.5 billion a year by 2024-25. Government is committed that total funding through the UKSPF will, at a minimum, match the size of previous EU Funds in each nation and in Cornwall, each year.
   
   
3. Brownfield land – £300m grant funding was announced that will be distributed to Mayoral Combined Authorities and local authorities to unlock smaller brownfield sites for housing and improve communities in line with their priorities. This follows the Prime Minister’s recent call for more housing to be delivered on brownfield land.
   
   
4. Business rates – following the publication of the long-awaited business rates review, the multiplier for calculating business rates will be frozen for 2022 and 2023, saving businesses a total of £4.6bn over the next five years. Additionally, revaluations will move to every three years from 2023 (currently every five years). A new 50% business rates discount for businesses in the retail, hospitality, and leisure sectors in England (worth £1.7 billion) was also announced for 2022-23. Business rates raise about £25bn in England each year, but the Treasury has indicated that it will also consider a future online sales tax to raise revenue that could fund a potential reduction in other business rates.
   
   
5. Residential property developer tax – the new tax to be levied on developers from April 2022 (and expected to run until 2032) was confirmed as part of the government’s wider plan to bring an end to unsafe cladding in February 2021. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million (profits to be calculated using an activity-based approach on trading profits) through the Corporation Tax process. In addition, a new levy will be applied when developers seek permission to develop certain high-rise buildings in England. Build to rent activity will be excluded from the new tax.
   
   
6. Regional transport – £5.7 billion over five years was confirmed for City Region Sustainable Transport Settlements, subject to the creation of appropriate governance to agree and deliver funding. This will fund projects such as the Sheffield Supertram renewal and the Wednesbury to Brierley Hill metro extension in the West Midlands. As is often the case with infrastructure spending announcements, there is some debate about how much of this constitutes “new money” with an estimated £4.2bn of this funding having already been announced in the 2020 Budget.
   
   
7. Digital planning – an additional £65 million investment to improve the planning regime, through a new digital system with the intention that this will ensure more certainty and better outcomes for the environment, growth and quality of design. This is very much in the spirit of last year’s White Paper on the future of the planning system, but the Budget was silent on planning reforms more generally.
   
   
8. Freeports – the first designated tax sites have been confirmed at the Humber, Teesside and Thames Freeports, and which will be able to begin initial operations from next month. This follows the announcement in March to establish eight Freeports across England, while there also remains a commitment to also establishing at least one Freeport in Scotland, Wales and Northern Ireland.
   
   
9. DLUHC departmental budget – the Spending Review settlement for the freshly renamed Department for Levelling Up, Housing and Communities (DLUHC) provides a £2.6 billion budget increase over the Parliament to £8.9 billion in 2024-25, which represents an annual average 4.7% increase in spending above inflation. This is higher than for the overall departmental spending which is set to grow in real terms at 3.8% a year on average over this Parliament. In part, it reflects that the new UKSPF falls within the DLUHC budget.
   
   
10. Devolution deals – the Budget confirmed that the forthcoming Levelling Up White Paper will outline the government’s plans to enable more areas to agree ambitious devolution deals, where there is local support, and to strengthen existing devolution arrangements to ensure local leaders can deliver. There was no reference to the outcome of the ongoing review of Local Enterprise Partnerships.