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Looking into the Budget tea leaves

Looking into the Budget tea leaves

Ciaran Gunne-Jones 05 Mar 2020
​See Lichfields' "Budget 2020 - getting it done" Economic outlook for  reactions and analysis of Rishi Sunak's first Budget speech.  Rishi Sunak’s ministerial red box was already overflowing when he took office last month – handed the keys to Number 11 at short notice following the resignation of Sajid Javid – and it has been a tumultuous three weeks since. With coronavirus now weighing down heavily on the global economic outlook, the early tetchy stages of the UK’s negotiations with the European Union on future trade underway, and speculation of interest rate cuts later this year, the Chancellor may well be turning to his preferred brand of Yorkshire tea leaves for guidance.   Given the macroeconomic uncertainties, HM Treasury officials are reported as saying that next week’s Budget will be the first installment in a “trilogy” of statements this year – something for the aficionados to relish. Some decisions on tax, spending and borrowing are likely to be pushed back to the autumn, a year after last November’s Budget was itself postponed due to the general election. However, the Budget is one of the key set pieces of the parliamentary calendar, and is particularly important in the context of a new government keen to deliver quickly on its manifesto promises. So what might the Chancellor’s red box hold in terms decisions on planning, infrastructure and regional economic policy? Here’s a round-up of 10 key points to look out for next Wednesday: Economic growth – tea leaves aside, the Office for Budget Responsibility (OBR) – the independent fiscal watchdog – will publish its latest UK economic forecasts alongside the Budget. It is widely expected that the OBR will downgrade their forecasts from those published in March 2019. This matters because it would result in higher forecasts for government borrowing and, in theory, give less bandwidth to increase public spending if the Chancellor also wants to limit tax increases in line with manifesto commitments. ‘Levelling up’ – the phrase that featured prominently in the Conservative election campaign, and is already permeating into the policy sphere (seemingly replacing the ‘rebalancing’ lexicon which became popular in the Osborne and Hammond eras). The Queen’s Speech in December referred to making investments, “in order to unleash productivity and improve daily life for communities across the country.” Following success in breaking the so-called ‘Red Wall’ in the North and Midlands, the government have been clear that levelling up will be a key factor in all future policy and decision-making, so we can expect this theme to be writ large. Practically, this could extend to creating a new hub for HM Treasury officials on Teesside. Revisions to the Green Book – the ‘Green Book’ (HMT’s guidance for appraising public spending decisions) was an unlikely media star over the quiet Christmas news cycle when it was reported that significant revisions are in the works aimed at boosting investment in the North and Midlands. We considered the implications in an earlier blog. The Budget will provide an opportunity for the Chancellor to set out the details on how this will work in practice, but clarity about how decisions on local infrastructure spending will be decided will be keenly sought from both north and south. Devolution White Paper – government has committed to publishing a Devolution White paper, promising a review of more directly elected mayors in the mould of the Metro Mayor, and the possibility of more combined authorities and unitary authorities. These policies reflect wider effort to devolve decision-making to the local level. The future of sub-national partnerships such as the Northern Powerhouse, Midlands Engine and Oxford-Cambridge corridor will also depend on any funding and powers devolved to them over the next few years. Planning White Paper – in the works since being first announced by Theresa May in March 2019, and now anticipated around the time of the Budget or shortly thereafter. A recent Ministerial Written Answer confirmed, “the purpose of the White Paper will be to make the planning process clearer, more accessible and more certain for all users, including homeowners and small businesses. It will also address resourcing and performance in Planning Departments.” It remains to be seen what influence Jack Airey’s (co-author of Policy Exchange’s report in January on ‘Rethinking the Planning System’ for the 21st Century’) recent appointment as No. 10 housing and planning adviser will have on policy proposals. Local Industrial Strategies – Mayoral Combined Authorities and Local Enterprise Partnerships (LEPs) across the country have been busy preparing their local response to the national Industrial Strategy since 2018 through the form of Local Industrial Strategies (LIS). So far, seven LIS have been agreed and published but some thirty remain in the pipeline still to be agreed with central government. At the very least, an extension to the deadline for nationwide coverage by March 2020 seems inevitable – or potentially a shift to something different as has been rumoured. The Budget could usefully provide some clarity. Big infrastructure – the recent confirmation of HS2 might signal that the government is moving towards funding big ticket infrastructure investment, relaxing its fiscal rules. Eyes will be on the Budget to see whether this is backed with investment for Northern Powerhouse Rail and an indication on the future of the Oxford-Cambridge growth corridor. A further indication of the priorities of this government might be its omission of major road investment announcements (so far transport infrastructure spending announced has been for trains, busses and cycling), but this will need squaring with the legally-binding target of net zero greenhouse gas emissions by 2050. Research and development – in the spirit of levelling up, the Prime Minister and his Special Adviser Dominic Cummings are looking closely at R&D funding nationally, pointing out that more than half of the national gross domestic expenditure on R&D is spent in London, the South East, and East of England. This might be through investing into nationally-significant hubs like the “MIT for the North” and the Midlands “Gigafactory”. Options include strengthening the existing Catapult Centres, National Productivity Investment Fund and Strength In Places funds, or through new initiatives. UK Shared Prosperity Fund – further detail on the plans to replace the £2.1billion EU structural and investment funding, the proposed UK Shared Prosperity Fund, is long awaited. A consultation period is expected before the fund kicks in. While the fund is committed to tackling inequalities between communities by raising productivity in areas of the country that are ‘furthest behind’, clarity is needed to ensure local authorities have certainty over long term funding arrangements in order to effectively plan for future interventions. Freeports – a key policy for government, given the aspirations for global trade following Brexit. They will operate similarly to enterprise zones but specifically for port areas, in which goods are only charged tariffs when they leave the freeport area. With a 10-week consultation recently launched by the Government aims to announce up to 10 new freeports across the UK at the end of this year to be operating in 2021. The Budget provides the Chancellor with the opportunity to say more about the potential funding and regulatory framework for this initiative. With a promised dose of new public spending, a significant parliamentary majority and a new phase of Brexit and global macroeconomic developments, next week’s Budget will be significant not just for the decisions made but how this sets the tone for policy and funding for the years ahead. Lichfields will be providing further comment on the Budget in due course. Click here to subscribe for updates (opens in email) Image credit: Rishi Sunak (@RishiSunak)  

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A light at the end of the tunnel or stuck at the station?
Following the recent Tory election victory, where seats were secured in a number of traditional Labour strongholds, the Government's attention appears to have once again turned to the North.  As the Country awaits the March 2020 budget announcement, this blog looks at some of the potential benefits of proposed transport infrastructure provision in the north, and the implications for its delivery. One of the key issues in the North is inadequate transport connectivity which acts as a barrier to attracting investment.  This also means that firms cannot tap into the labour market and get the skilled workers they need.  A number of infrastructure initiatives are proposed to help address this issue including Northern Powerhouse Rail and HS2 and these initiatives have been carried forward into a range of strategies and transport plans. For example, the Transport for the North [TfN] Strategic Transport Plan sets a number of objectives to achieve a vison of “a thriving North of England, where world class transport supports sustainable economic growth, excellent quality of life and improved opportunities for all” [1] including increasing efficiency, reliability, integration, and resilience in the transport system. It seeks to realise the benefits of agglomeration and economic mass, in the North by providing faster, more efficient, reliable and sustainable journeys on the road and rail networks. Under the transformational growth scenario outlined in the plan, it notes that growth is expected in high and medium-skilled occupations (an increase of 35,300 and 1,600 jobs per annum by 2050, respectively). In addition, the Greater Manchester Strategy, which provides a framework for the Local Industrial Strategy, states that it will capitalise on the investment planned at Manchester Airport, including the arrival of HS2 and Northern Powerhouse Rail, to strengthen Greater Manchester as an internationally competitive employment location. It emphasises the importance of delivering this infrastructure in order for Greater Manchester to achieve economic growth and states[2]: “Given the decision to withdraw from the European Union, we need to focus on maximising our existing competitive advantages.  Greater Manchester has always been an outward looking city with a rich history of global trade and welcoming of diversity and talent. Remaining open, international and connected will be ever more important in the coming years. As the heart and driver of the Northern Powerhouse economy, we need to prepare for, and take advantage of, the transformational opportunities major infrastructure improvements, such as HS2 and Northern Powerhouse Rail, will provide”. The Strategy notes that a skilled workforce is essential to deliver the key infrastructure projects on which prosperity depends. It emphasises the need to bring together policies and investments around housing and transport to create inclusive, sustainable, growth locations. To provide one example of the amount of employment which may be generated by these strategic infrastructure improvements, GMCA growth and reform plans [3] suggest that the HS2 hub at Piccadilly station has the potential to create 30,000 additional jobs in the immediate vicinity of the station. We are also seeing initiatives in the wider North West to help maximise the benefits of new infrastructure provision, such as the Crewe Hub Area Action Plan, which establishes a development framework to facilitate and manage development around a future HS2 station within the town. The proposals include a new commercial district, mixed use commercial and residential development within walking distance of the station, advanced digital infrastructure and vastly improved physical connectivity to the station, supported by environmental and social infrastructure. Development strategies suggest growth at Crewe of around 7,000 new homes and 37,00 new jobs by 2043 as part of this process. Source: The Potential of Northern Powerhouse Rail – Transport for the North However, there is a long way to go and those with experience of using the northern rail network will be familiar with delays, slow services, and poor carriage quality which have contributed to the Government’s recent decision to nationalise Northern Rail. This does however help create new possibilities for the future of services in the northern franchise area.    One of the key initiatives for ensuring that sub-regional connectivity is improved is Northern Powerhouse Rail.  This would offer much faster, more frequent and reliable rail links and open up new opportunities for people and businesses by linking the North’s six main cities. At the moment, fewer than 2 million people in the North can access four or more of the North’s largest economic centres within an hour. This would rise to 10 million once Northern Powerhouse Rail is delivered; transforming the job market and giving businesses access to skilled workers.  The Prime Minister recently gave his backing for the Leeds to Manchester route which would reduce travel time between the two cities from 50 minutes to less than 30.  Major upgrades to four stations, the electrification of lines and the installation of more railway tracks are part of a planned £2.9bn upgrade of the route.  Whilst this has been greeted with optimism from some, Liverpool Metro Mayor Steve Rotheram has questioned the focus on Transpennine connectivity over routes linking Liverpool and Manchester. The delivery of both HS2 and Northern Powerhouse Rail, in tandem, would arguably do most to achieve economic prosperity and continue to encourage investment in northern businesses.  However, it is still not certain whether either scheme will fully deliver.  The cost of HS2 in particular has been subject to criticism from some quarters recently, perhaps most vociferously from Lord Berkeley, the former deputy chair of the Oakervee Review into HS2, who, in his own review of the scheme has claimed the project costs are likely to soar to more than £108 billion.  This is almost double from the £56bn expected in 2015.  So, it is no surprise to learn that the Transport Secretary, Grant Shapps, requested more data before making a decision on the scheme.  There are currently various levels of commitment to each section of HS2 and the future of the whole network is uncertain. For example, the Rail Reform and High Speed Rail 2 (West Midlands - Crewe) Bill, which gives the powers to build and operate Phase 2a between Birmingham and Crewe, passed through the House of Commons and had completed Second Reading in the House of Lords before the dissolution of the previous Parliament, and was covered in the December 2019 Queen’s Speech. However, reference to Phase 2b, the eastern link of the route, connecting the East Midlands into Yorkshire, was absent in the Queen’s Speech and there have been media reports that Phase 2b could be dropped.  A decision on the future of HS2 is expected imminently.  The fate of other schemes has still also yet to be sealed.  For example, the proposed £560m ‘Northern Hub’ to increase capacity within a bottleneck at Manchester Piccadilly station, first announced by George Osborne in 2014, has yet to reach fruition. Over the coming weeks and when the Chancellor’s budget is revealed on 11th March it should hopefully become clearer whether there is a light at the end of the tunnel or whether we will still be stuck at the station. [1] Transport for the North Strategic Transport Plan, page 6[2] Our People, Our Place: The Greater Manchester Strategy §6.2[3] A Plan for Growth and Reform in Greater Manchester, March 2014

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