SNC Spending Review

Spending Review and Local

Growth White Paper – Issues for Business

 

1. The Spending Review

 

The Spending Review announced on 20^th October 2010 sets out spending cuts of £81bn by 2014/15.

 

Setting aside the protected areas of health and overseas aid, departments will see average real budget cuts of around 19% over the Spending Review period.

 

Underpinning the Review, the government says, is a commitment to ‘fairness and social mobility, providing sustained routes out of poverty for the poorest’. It promises ‘radical reform of public services to build the Big Society where everyone plays their part, shifting power away from central government to the local level’.

 

The reforms will have a particular impact on reshaping of the economy with implications for South Northants business, the wider public sector and the services provided to residents of the District.

 

This briefing summarises the key Spending Review decisions for business, the local economy and South Northamptonshire District.

 

Business, innovation and skills

 

In the Spending Review the Government has forecast that 490,000 jobs will be lost in public sector over the period to 2014/15, but the OBR Budget also forecast that employment would increase by around 1.3 million over the same period through jobs growth in the private sector.

 

The Spending Review announced a 7.1% cut in the annual BIS budget (£21.1bn last year). The shift in focus includes a freeze in the science budget at £4.6bn and ring-fenced for the next four years although savings of £324m will be found within this, a real terms cut of 10%.

 

In the Spending Review it announced a number of national and regional measures to secure a rebalancing of the economy, including by stimulating private sector growth and science and low carbon sectors growth in all regions. To secure this the Spending Review announced:

 

·         A £1.4 billion Regional Growth Fund (RGF) to support projects with significant growth potential; helping areas move from public sector dependency to sustainable private-sector growth and employment. An extra £500 million has been allocated to the RGF for a new, third year (the fund was originally worth £1 billion between 2011 and 2013). The RGF will be operated by the Local Enterprise Partnerships (LEPs) though allocations to individual LEPs have not yet been made by Ministers.

·         A Green Investment Bank to be funded by £1bn from the government with the rest coming from the private sector and future asset sales.

·         The Chancellor announced "the largest ever investment in adult apprenticeships', consisting of an extra 75,000 placements a year, although the "train to gain" programme will be axed.

·         New powers to implement Tax Increment Financing using business rates. (details followed the Spending Review in the Local Growth White Paper).

 

The East Midlands is to benefit from a number of schemes announced in SR 2010:

 

·         £530m of investment in broadband, benefiting around 2 million households.

·         A £5,000 incentive for the purchase of electric vehicles, coupled with the roll out of electric vehicle charging infrastructure.

·         Funding the increase in participation in education and training, benefiting 5.5% of 16-18 year olds in the East Midlands that are not in Education, Employment or Training.

·         A new 3 year scheme will exempt new businesses from up to £5,000 of employer National Insurance Contributions (NICs), benefiting up to 48,000 new business set up from 22 June in the East Midlands.

·         The impact of the employer NICs rate rise previously announced will be largely reversed. This could save around £230 million in the East Midlands.

 

Environment, Energy and climate change

 

Environmental stewardship schemes which pay farmers to be more nature-friendly are reduced, while UK farm payments (about £170m for 2009-10) may be cut – it is unclear. The bulk of EU subsidies (£230m last year) appear to be protected.

 

The chancellor announced a £2bn "major improvement" in flood defence and coastal protection, but this is a 30% cut in flood defence spending.

 

The Department of Energy and Climate Change (Decc) took a small cut of 5% pa with nuclear power, green energy and climate change initiatives continuing. The commitment to international climate change remains at £2.9bn, with the Carbon Trust and Energy Saving Trust (which provide advice to business) "under review".

• Offshore wind power and energy saving will receive £200m which will help shift incentives away from onshore wind generation.
• Feed-in tariffs, which allow anyone generating electricity to sell it to the grid at a premium rate, will proceed with a £40m cut. The renewable heat incentive, a subsidy for small-scale projects such as ground source heat pumps, will be cut by 20% or over £100m by 2015.
• The CRC energy efficiency scheme, a business tax on energy consumption due in 2011 will now go direct to the exchequer rather than being recycled back to business.

 

Transport

 

15% cut in its £15.9bn budget due to the DfT's status as a large capital-spending department has spared it from the worst of the cuts. Decisions on funding for HS2 are for the next Spending Review covering 2014 onwards.

 

Price increases for rail passengers have deferred for one year. However, the cost of season tickets will increase sharply from 2012 onwards, when tickets prices will increase by 3% above inflation for the next 3 years. The current price cap limits increases on season tickets and off-peak long distance fares to 1% above inflation.

 

Education

 

Schools have been promised increased funding every year, for the next four years, just as a demographic bulge puts pressure on primary classrooms. The extra spending will help schools deal with a rise in the numbers of children and deliver the coalition's £2.5bn pupil premium to support the education of the poorest.

Capital spending will be cut by 60% by 2014 after the scrapping of the Building Schools for the Future programme. But £15.8bn will be spent on replacing or refurbishing 600 schools.

The government will increase the school participation age from 16 to 18 by the end of this parliament and end the Education Maintenance Allowance, a grant intended to keep 16-19-year-olds from poorer homes in education. This will be replaced with "targeted support" for those facing financial barriers to education.

 

There will also be 15 free hours of early education and care for all disadvantaged two-year-olds. The existing 15 hours a week of free care for all three and four year olds will be maintained.

 

Housing

 

The Spending Review makes a series of major changes to the funding of social housing to make it ‘more responsive, flexible and fair so that more people can access social housing that better reflect their needs’.

 

Key points include:

• A cut in the capital budget for affordable housing from HCA to £4.4bn over the next 4 years. (Down from £8.4bn over last 3 year period). A grant rate of 29%.
• Social rents to be allowed to rise to 80% of market rents. More details are awaited. According to the Spending Review document - “Social landlords will be able to offer a growing proportion of new social tenants’ new intermediate rental contracts that are more flexible, at rent levels between current market and social rents.” But the Chancellor said in his speech “New tenants will be offered intermediate rents at around 80% of the market rent.” It is not yet clear whether the higher rents are for all new tenants or just a proportion of them? Will this open up rented housing to middle income people & how does it relate to the benefit changes?

• Housing minister Grant Shapps says the ‘affordable rent’ plans will finance the building of 155,000 new affordable homes over the 4 year Spending Review period  (2011-2014) - equivalent to 37,500 p.a. compared to 53,730 provided in 2007/08 - a 30% reduction in affordable housing output. It is not clear whether the finance of the 155,000 new affordable homes is from higher rents, or a combination of new homes bonus, bonds & association reserves?
• Social homes for life could also end for new tenants, who might be handed fixed term contracts, under the proposals.
• A New Homes Bonus, matching the additional Council Tax from every new home for each of the following six years, to give Councils incentives for housing growth (levels will relate to the local housing growth figures to be agreed in 2011 for the Local Development Framework (LDF) for 2001-2026, the framework planning strategy for West Northamptonshire).
• A pledge to reduce the total regulatory burden for house builders.
• Funding for the most vulnerable to be ‘relatively protected’ with more than £6bn for the Supporting People budget over the Spending Review period (a 11.5% cut) and Disabled Facilities Grant to rise with inflation.
• Reform of the council housing finance system and to ‘build in resources’ for disabled housing adaptations.
• Spending on Decent Homes to continue, with £2bn over the Review period.
• Homelessness grant will remain at £100m a year.

 

Further reforms of the Housing and Planning systems in England are due to be set out in the draft Localism Bill due to be introduced to Parliament in November 2010, with passage not anticipated until November 2011.

 

Communities and Local Government

 

Real terms cut of 33% to CLG’s resource budget, allied with devolution of £1.6bn to local government – making a 51% overall cut by 2014/15

• A reduction of 42% in administration costs, including a slimming-down of the department, a reduction in quangos (including WNDC to transfer functions to Local Government) and the closure of Government Office network
• An end to Working Neighbourhoods Fund, Growth Area Funding and the Thames Gateway programme.

• Reduced funding to Councils of an average 7.25% per year for 4 years
• Capital funding from all departments to councils will fall by around 45% over the Spending Review period
• An end to ring-fencing of all revenue grants from next year (except for simplified schools grant and new public health grant)
• An end to the ‘top-down performance framework’, including the ending of Local Area Agreement targets and a reduction in the amount of data councils will be asked to supply to Government.

 

Health and Social care

 

Health spending will increase by 0.4% annually in real terms over the next four years, seeing its budget grow from £103.8bn to £114.4bn by the end of 2015. This includes a £1bn social care fund and £200m for a new cancer drugs fund.

 

£1bn extra has been announced through the NHS budget to support joint working between the NHS and councils on social care. Personal social services grant for social care will be increased by £1bn to £2.4bn a year by 2014/15. But questions are being raised over whether this money will materialise as the funding is not ring-fenced in County Council budgets. This has implications for the scale of the Supporting People projects operating in South Northants (funded by NCC supporting services by SNH and other Housing Associations)

 

The money will come from two sources - a direct grant and via the NHS - but all will be funnelled through local authorities. Overall, council grants will be cut by 7.1% a year for each of the four years of the spending review, but the Chancellor said local authorities would be given more flexibility in how to spend the money, with only school and public health funding being ring-fenced and social care is unprotected.

 

Police and the Home Office

 

The £5 billion police budget will be cut by 20%. Chief constables have indicated that cuts on this scale would mean the loss of more than 11,500 police jobs in the eight out of 43 police forces that have so far put a figure on their plans. The exact impact on frontline policing in Northamptonshire and elsewhere is unclear.

 

Prisons, justice and legal aid

 

The Justice Ministry has a 20% cut including a 3,000 cut in court staff numbers stems from the plans to close 153 magistrates and county courts (including Towcester).

 

Welfare reform and benefits

 

The welfare reform component of the Spending Review is substantial and allied to the reform of Housing is set to have major implications for those on benefits in the metropolitan areas. The precise implications for rural areas are unclear. Key points include:

• Reform of benefits to save £7bn a year by 2014/15 
• Cap on benefits of around £500 a week for couple and lone parent households and £350 a week for single adult households
• On Housing Benefit, the age threshold for the shared room rate to be raised from 25 to 35. From 2012, single claimants under 35 will be paid a shared room rate rather than a rate for a self-contained flat or house. This change is expected to save £215m by 2014/15
• A 10% cut in spending on Council Tax benefits
• A new universal credit to ‘promote work and personal responsibility’.
• A new work programme using the ‘expertise of the private and third sector to provide personalised support with payment based on benefit savings
• The state pension age to be raised to 66 in 2020 following re-linking the state pension with earnings from 2012.
• Annual winter fuel allowance for pensioners made permanent.

 

 

2. The Local Growth White Paper

 

The White Paper Local Growth (25^th October 2010) sets out the details of the proposals for ensuring that local areas are able to take a lead in developing economic growth through Local Enterprise Partnerships (LEPs).

 

The confirmation of support for the South East Midlands LEP (of which South Northamptonshire District) is framed by the Local Growth White Paper.

 

The Government aims to enable local growth as part of its commitment to re-orientate the economy with private sector growth playing an important part in addressing the budget deficit through increased tax revenues and the creation of new jobs alongside those lost from the public sector.

 

As Lord Sassoon, commercial secretary to the Treasury said when the White Paper was launched ‘For the economy to flourish, people, goods and information must move freely. Reliable infrastructure: energy, water, transport, digital communications and waste disposal networks and facilities, are essential to achieve this. Ensuring these networks are integrated and resilient is vital.

 

‘We recognise the scale of the challenge and the need to encourage new sources of private sector capital. We are targeting government’s own investment at a series of bold and critical projects that go to the heart of this vision and support a private sector led recovery.’ This is the challenge that the establishment of the LEPs across England are intended to address.

 

The Local Growth White Paper sets out the wider policy objectives that accompany the spending commitments set out in the Spending Review to support growth and to support the move to a low carbon economy.

 

The creation of a low carbon economy is seen as being important as both a means to tackle climate change, but also an area where the UK needs to develop its expertise in order to compete internationally. This includes supporting business to change business processes as well as a shift to ensuring that renewable energy flows from off shore wind.

 

The Local Growth White Paper includes a number of specific infrastructure commitments.

 

·         The first ever UK national plan to "update and modernise" Britain's infrastructure by unlocking £200bn of public and private investment. This includes £8.6bn in capital spending over the next four years on Crossrail in London, the Thames Gateway Bridge and the high-speed rail link from London to Birmingham following the passage of the Hybrid Bill in 2015.

 

·         A £200m investment over the next four years in "technology and innovation centres". Based on the German Fraunhofer Institutes, which have been instrumental in developing the MP3 license, these are designed to improve links between universities and business.

 

·         A boost to competition by merging the competition functions of the Office of Fair Trading and the Competition Commission to create a "much tougher and streamlined competition regime".

 

·         A £69m package to encourage private sector investment in offshore wind projects. Launching the White Paper Mr. Cameron said: "We need thousands of offshore turbines in the next decade and beyond – each one as tall as the Gherkin. Manufacturing these needs large factories which have to be on the coast. Yet neither the factories nor these large port sites currently exist."

 

The White Paper also records that the proposed permanent cap on non-EU immigration, to be introduced from next April, will be designed to ensure that businesses will not be blocked from recruiting highly skilled staff. "As we control our borders and bring immigration to a manageable level, we will not impede you from attracting the best talent from around the world," the Prime Minister has said.

 

It also commits to establishing a system of lorry road user charging, introducing a local sustainable transport fund and Tax Increment Financing, which will allow local authorities to borrow against predicted growth in their locally raised business rates to fund key infrastructure projects.

 

The White Paper’s sets out the details of the proposals is a commitment to ensuring that local areas are able to take a lead in developing economic growth through Local Enterprise Partnerships, decentralising decisions on investment and an expansion of the financial options open to councils with plans for Tax Increment Finance and outline proposals for greater discretion over business rates.

 

 

3. For further information

 

SNC set out its analysis of the needs of the Districts economy in its Economic Development Strategy adopted in March 2010. The 5 themes for action are

·         Employment

·         Business Growth

·         Market Towns

·         Rural Economy

·         Tourism.

 

Visit – http://www.southnorthants.gov.uk/46.htm for more information.

 

Adrian Colwell, Head of Strategic Policy, South Northamptonshire Council

October 2010.