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Autumn Budget and Spending Review – Our Response

This afternoon the Chancellor set out the Autumn Budget and the multi-year Spending Review. Here are the 10 policies that we think are the most important:

1. Investment in family

£500 million in funding has been introduced for a range of programmes to strengthen families, including £80 million for Family Hubs, as well as an extra £200 million for the Supporting Families programme. Early Years Providers are also expected to receive an increase in hourly pay of £170 million by 2024-25. 

2. Universal Credit taper cut

The Universal Credit taper rate has been cut by 8% from 63% to 55%. As a result, nearly 2 million low income families will keep an extra £1,000 a year.

3.  National Living Wage increase

Adopting the Low Pay Commission’s recommendations, the National Living Wage has been increased by 6.6%, to £9.50 per hour, from April 2022. This realigns the minimum wage trajectory to achieve government goals of two-thirds of median earnings by 2024. 

4. Business rates relief

A new, temporary business rates relief for retail, hospitality and leisure properties in the forthcoming financial year. This relief will be worth almost £1.7 billion for up to 400,000 eligible businesses, helping these small businesses, many of which are the backbone of many local economies, keep their doors open.

5. NHS efficiency

£2.1 billion has been announced to support the innovative use of digital technology. The uplift for health R&D will focus on building efficiency and connectivity. Also, the transformation of diagnostics services will be supported by £2.3 billion, building capacity and making services more efficient by bringing together checks, scans and testing.

6. Energy efficiency funding

With energy bills on the rise, £950 million has been allotted for the Home Upgrade Grant and £800 million for the Social Housing Decarbonisation Fund. This will help low income households to reduce their energy bills and carbon footprints.

7.  R&D reforms

Identifying innovation as a key element to achieving the high-skill, high-wages economy, the highest ever increase to public investment in R&D has been announced, expected to reach £20 billion by 2024-25. Coupled with modernised and restructured R&D tax reliefs to best serve the domestic economy, R&D spending is to rise to 1.1% of GDP, surpassing the OECD average of 0.7%. 

8. Draught relief

A new draught relief, cutting duty rates on beer and cider by 5%. This is the biggest cut to beer duty for 50 years. This relief will particularly benefit community pubs who do 75% of their trade on draught.

9. Levelling Up parks fund

A new £9 million Levelling Up Parks Fund for 100 new “pocket parks” on derelict land. With research showing the vital importance of access to green spaces for people’s mental health, this new fund will ensure equal access to green spaces and the well-being benefits they bring.

10. Public transport

£5.7 billion has been directed at London-style transport settlement in English regions, focusing on Greater Manchester, the West Midlands, and Liverpool. In line with both levelling up and net zero plans, a long-term pipeline of local road network upgrades worth £2.6 billion has been committed for the 2020-25 period, with an additional £5 billion each allotted for improving local roads and bus networks and promoting cycling and walking.

Reflecting on the Chancellor’s speech, Onward Director Will Tanner says:
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The Chancellor had more wiggle room than we anticipated today, and he used the £50 billion a year of additional fiscal firepower gifted by the OBR judiciously.

On top of the expected uplift for the NHS and social care (which accounted for £15 billion a year alone) and a surprise real-terms rise for public service departments, Rishi Sunak rightly targeted the economy he wants to build post-pandemic, spending £20 billion on R&D, £3.6 billion on skills and an extra £1.5 billion for regional urban transport.

This is welcome. It is only by fixing the economy’s long-term structural weaknesses that the UK will succeed in developing the high-skill, high productivity economy that will, in the long run, support higher living standards and more regional growth. We shall see more in the Levelling Up White Paper but today was a worthy downpayment. 

The Budget also delineated a new front in the Conservative economic pitch: stressing the value of family, community, personal responsibility and hard work. This was evident in the Chancellor’s announcement of family hubs, community sports pitches, business rates cuts for high streets and – the rabbit out of the Budget hat – the cut to the Universal Credit taper rate, which will reduce the marginal tax rate of working claimants by 8 percentage points.

There is a name for this kind of politics: the ”politics of belonging.” As the Chancellor said: “There’s a reason we talk about the importance of family, community, and personal responsibility. Not because these are an alternative to the market or the state…it’s because they are more important than the market or the state.” We could not have put it better ourselves. 

Will also wrote for Times Red Box this morning on why the Budget should not just be about the cost of living, but focus on R&D, skills, and investment.

We are delighted that a number of Onward recommendations were featured:

In Age of Alienation, we recommended a new model of Family Hubs to support young families and children at the start of their life, to help repair our fraying social fabric. 

£6.9 billion will be dedicated to improving local transport links, focusing on regional towns and cities. Onward called for regional transport funding in our recent report Network Effects, where we exposed the yawning transport gap between different parts of the country. 

The Spending Review acknowledged that our R&D tax credit regime must reflect the innovation taking place in British businesses. In Levelling Up Innovation we called for an expansion of the definition of eligible R&D activity to include data and cloud computing software expenditure.

In our report Firm Foundations we called for new incentives to encourage foreign direct investment into the UK, as many of our G20 counterparts already do. The Chancellor announced today a 1.4 billion pound Global Britain Investment Fund to support and encourage foreign investment into the UK economy and reforms to make this investment easier.

We were also pleased to see a number of announcements that chime with Onward’s work:
  • The Government’s focus on asset based regeneration. As we found in our Turnaround report, an investment-led, sustainable approach was the best approach for supporting communities to regenerate their local areas. In line with this, the Government has committed to continuing the Heritage Action Zone programme, as well publishing the first round of projects that will receive support from the £150 million Community Ownership Fund.
  • The announcement of £205 million for building and improving 8,000 community multi-use sports and football pitches across the UK as well as an additional £22 million to refurbish over 4,500 tennis courts. The Government’s investment in sporting facilities is a vital step in defending and bolstering civic strength. In our report, The State of our Social Fabric, we found that those areas with higher levels of physical infrastructure tended to have stronger social fabric scores.
  • Investment of over £850 million over the SR21 period for cultural and heritage infrastructure, including £52 million in new funding for museums, cultural and sporting bodies. In addition, the Museums and Galleries Exhibition Tax Relief (MGETR) will be extended for a further two years to support recovery from COVID-19. In Levelling-up: Rebalancing Growth-Enhancing Spending, we found evidence that cultural spending helps promote clustering of highly-skilled workers, and that creative cities tend to be more productive.
  • To ensure the foundations are in place to meet the demand of decarbonisation, the Budget and SR announced £1.5 billion in net zero innovation including nuclear power and £1.7 billion to support nuclear investment. Onward’s Net Zero Researcher, Alex Luke, recently wrote for CityAM on the gas crisis, arguing that one long term solution would be to embrace nuclear power in the UK.
Several unanswered questions remain:

Net zero

The UK’s net zero agenda saw a number of important contributions through the budget including £1 billion for Carbon Capture, Usage and Storage. However, the programme is still short of manifesto commitments by around £2 billion. Furthermore, carbon pricing was notable in its absence from the budget. Onward noted in Green Shoots the value that carbon pricing could have on incentivising the uptake of low-carbon products.

Business rates reform

While the Budget did announce some reforms to business rates, including a freeze on the rates multiplier, more regular revaluations and a new temporary relief for retail, hospitality and leisure properties, these measures seek to tinker with the system rather than overhaul it altogether. The Government has announced its intention to launch a consultation on introducing an Online Sales Tax, which could help protect the high street.

Regional distributional analysis

If the Government is serious about levelling up, understanding how tax changes affect different regions would be valuable. We have recommended previously that the Treasury publish a regional distributional analysis to ensure that the levelling up agenda is not held back by the tax system. It was disappointing not to see the Treasury undertake this today.

Thank You for Reading

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