The Pre-Budget Report 2009: what will it do for economic recovery?

Transcription

1 The Pre-Budget Reprt 2009: what will it d fr ecnmic recvery? December 2009 Authr: Adrian Nlan, Senir Plicy Cnsultant, CLES, , adriannlan@cles.rg.uk The Pre-Budget Reprt (PBR) was published by HM Treasury n the 9 th December The reprt essentially has been cnstructed with reference t tw key aims: t ensure effective stimulus t embed recvery within the ecnmy, and t set ut a plausible plan t cut the budget deficit. The reprt presents an assessment f the state f the ecnmy and frecasts fr bth ecnmic utput and public finances. It utlines hw the Gvernment has respnded t the ecnmic dwnturn in delivering supprt t the ecnmy, businesses and individuals. This briefing prvides an verview f sme f the key messages frm the PBR, including sme f the key annuncements which culd ptentially affect lcal ecnmic develpment and regeneratin, and public service delivery. The briefing then ges n t present CLES thughts n the PBR. Ecnmic utlk and frecasts The frecast fr the UK ecnmy is that utput will decrease by 4.75% in Grss Dmestic Prduct (GDP) grwth is frecast t pick up by 1.25% in 2010 and t abve trend rates f 3.5% in 2011 and Key assumptins are that there is cnsiderable ecnmic rebalancing, away frm cnsumptin t investment and exprts, which are less tax rich; and that the financial sectr expands and prfits return t average by 2014/15. Brrwing is prjected t mre than halve frm 12.6% f GDP in 2009/10 t 5.5% in 2013/14, befre falling t 4.4% in 2014/15. The Public Sectr Net Debt (PSND) is frecast t increase ver the frecast perid t 77.7% f GDP by 2014/15. It is therefre very much a similar stry t the Budget earlier this year, with the need t cut brrwing likely t have a majr impact n lcal ecnmic develpment and public service delivery. 1 HM Treasury (2009) Pre-Budget Reprt 2009: Securing the recvery: grwth and pprtunity 1

2 Helping t supprt businesses and grwth during the recvery perid Business payment supprt service, which has enabled 160,000 businesses t spread ver 4bn f tax, will cntinue; there will be an extensin f the temprary increase in the threshld fr empty prperty rate relief, with a further deferral f the increase in the Small Cmpanies Rate f crpratin tax. There are a number f measures fr helping businesses access capital including: making 500m f lending available t Small and Medium Enterprises (SMEs) thrugh a 12 mnth extensin f the Enterprise Finance Guarantee; thrugh the 325m UK Innvatin Investment Fund; creating a new Grwth Capital Fund. The Gvernment is wrking with a number f UK and glbal banks t prvide a new channel t attract private sectr investment int UK SMEs, seeking 2m t 10m. The creatin f Infrastructure UK will help facilitate private sectr investment in infrastructure, and help ensure that publicly funded infrastructure is effectively priritised and delivered (this is partly t help the transitin twards a lw carbn ecnmy). Infrastructure UK s strategy fr the UK s infrastructure ver the next 5-50 years will be published in the Budget The intrductin f a Patent Bx t drive innvatin which includes a reduced rate f crpratin tax t incme frm patents frm 2013; there will als be additinal funding f 200m fr the Strategic Investment Fund (includes 150m fr supprt t lw carbn investment) - an extensin t the 750m fund annunced in the Budget Gvernment will cntinue t examine the framewrk required fr implementatin f Tax Increment Financing (TiF), a tl which uses future gains in taxes t finance current imprvements (such as infrastructure) that are expected t generate thse increased revenues. It will cnsider the primary legislatin required if TiF is intrduced. The Gvernment is t prduce a Plicy thrugh Prcurement Actin Plan, which will demnstrate hw the Gvernment will use prcurement t deliver plicy pririties f apprenticeships, skills and yuth emplyment, small businesses, and lw carbn resurce efficiency t stimulate ecnmic grwth. Additinally: nline training aimed at increasing SME understanding f public prcurement is being enhanced and will becme free f charge when re-launched n the Learn Direct website in January; Gvernment will increase the transparency f spend and will publish next summer the level f central gvernment spend with SMEs; all public sectr cntracts abve 20,000 will be able t be viewed in ne place by the end f 2010 thrugh a free HMRC nline prtal. Opprtunity fr all Thrugh 300m investment, the Gvernment is bringing frward the Yung Persns Guarantee, s that 18-24s claiming Jb Seekers Allwance (JSA) fr six mnths will nw be guaranteed a jb, wrk placement r wrk-related skills training. This Guarantee includes 100,000 new Future Jbs Fund jbs (lcal authrity led) fr yung peple as well as adults, in areas mst affected during the dwnturn. The Gvernment is als making additinal supprt available thrugh bth Jbcentre Plus and specialist prviders t ensure ver 50 s get back int wrk quickly. 2

3 A Better Off in Wrk credit is t be intrduced, ensuring that all claimants wh have been receiving benefits fr six mnths will be entitled t a tp up payment s that their in wrk incme is greater than their benefit incme. Spending n participatin is t rise by 0.9% per year, and n frnt line schls by 0.7% per year; spending n Sure Start centres will be in line with inflatin. Extending free schl meals fr up t 500,000 primary schl pupils in lw incme wrking families will be implemented frm September T prvide husehld supprt during the recvery, the basic state pensin will be increased by 2.5%, the child element f the Child Tax Credit by 20 abve earnings indexatin, and ther benefits and tax credits linked t Retail Prices Index (RPI) by 1.5%. VAT, which was temprarily at 15% fllwing the 2009 Budget, has, as expected, returned t 17.5% effective frm January Similarly, the Stamp Duty hliday n prperties up t 175,000 in value, in place since September 2008, has nw ended. The 2009 Budget utlined the cmmitment twards a Scial Investment Whlesale Bank, and the PBR has reinfrced the cmmitment t take this frward. This will aim t leverage in investment fr rganisatins with scial impact frm a wide range f surces and imprve their access t finance. The Bank, independent frm Gvernment, will als aim t increase financial inclusin by supprting Cmmunity Develpment Finance Institutins and credit unins. The Budget 2010 will finalise the mdel fr the Bank setting ut hw it will grw ver time. Gvernment will cmmit up t 75m f the funds, expected t be released thrugh the Drmant Accunts Scheme in England. Gvernment has stated within the PBR that banks have a vital rle t play in supprting cmmunities and tackling financial exclusin, and that it is imprtant t understand hw banks supprt brader cmmunity regeneratin wrk. The Gvernment will explre ptins with banks t imprve the infrmatin available n services delivered in deprived cmmunities. In rder t meet the target f 240,000 hmes per year by 2016, the Gvernment are assessing a number f supprt measures ne f these invlves wrking with the Department fr Cmmunities and Lcal Gvernment (CLG) t explre mechanisms t bring frward surplus public sectr land, including expanding the Public Land Initiative. This is designed t bring new cnstructin partners t the husing market by using land in public wnership instead f selling the land utright t develpers, public landwners take deferred payment instead, which acts t bring publicly wned husing sites frward. Gvernment savings in ecnmic develpment and regeneratin Highly targeted and priritised spending will ensure 5bn f public sectr savings by 2012/ m in savings will be made arund regeneratin, ending the New Deal fr Cmmunities prgramme (already planned), and imprving targeting f regeneratin and husing grwth funding and priritising regeneratin and grwth prgrammes t maximise value fr mney as the ecnmy recvers. The Gvernment will als be assessing the efficiency and effectiveness acrss Gvernment f interventins t tackle wrklessness and prmte grwth and inclusin in deprived areas (there is n detail yet n which schemes will be reviewed). 1.4 billin will be saved thrugh an end t temprary emplyment schemes which were intrduced during the dwnturn. 600m f savings will cme frm science and research and higher educatin, with anther 350m frm the Department fr Children, Schls and Families. 3

4 One f the ther key annuncements fr bringing in mney t the Treasury, (perhaps the mst cntentius annuncement frm the PBR) will be thrugh increasing Natinal Insurance rates by 0.5% frm April 2011 fr emplyees, emplyers and the self emplyed. Supprting Lw Carbn Grwth An additinal 400m will be invested t supprt business investment in lw carbn grwth and help husehlds reduce energy csts. This, tgether with the plicies annunced since 2008, culd supprt ver 15bn f additinal public and private investment in lw carbn and energy sectrs ver the next three years (much f this thugh wuld seem likely t depend n private sectr mmentum and stimulus). Sme specific annuncements include the 120m fr lw carbn industries in the UK, including new manufacturing activities and testing facilities fr ffshre wind, a large scale trial f smart grid technlgies, and supprt t imprve energy use in the chemicals industry; 200m t imprve energy efficiency and tackling fuel pverty thrugh upgrading ld bilers and prviding extra resurces t help vulnerable areas; increasing supprt fr lw carbn vehicles, including 30m fr lw carbn transprt prjects and exempting electric cars frm cmpany car tax frm Manchester City Regin has been designated as the UK s furth lw carbn ecnmic area, specialising in the built envirnment. It is expected t save 6 millin tnnes f carbn, pump an additinal 650m int the ecnmy, and supprt up t 35,000 jbs. CLES thughts A vague PBR lacking in detail The PBR held little in the way f surprises, is lacking in new ideas, and has generally dne little t tackle the prvisin f shrt term stimulus fr the ecnmy r t utline a detailed verview f hw the budget deficit will be clsed in the medium t lng term. It appears n the surface t be a plitical, rather than ecnmic, PBR with the upcming electin at the frefrnt f the Treasury s thughts, hence the lack f detail. The frecasts fr ecnmic grwth, whilst realistic in the shrt term, appear t ptimistic frm 2011 nwards, certainly when cmpared with independent frecasters. 2 The frecasts rely upn strng grwth in cnsumer spending, investment and business cnfidence, which despite certain imprvements in recent mnths is still weak and likely t remain s fr sme time. This als assumes that the financial sectr will revert t the nrm this hwever is unlikely fllwing the damage caused by the recessin. There remains a cncern that the Chancellr has nt laid ut a plan fr full ecnmic recvery and imprving the state f the public finances, with the budget cntaining a small number f pre-electin measures being put in place which are ultimately unlikely t have much effect n ecnmic recvery (the tax n bnuses being ne bvius example f a ppulist mve which will bring very little in the way f revenue). Implicatins fr businesses and individuals The extra 3bn per year which will cme frm bth emplyers and emplyees thrugh an increase in Natinal Insurance cntributins frm April 2011, runs the risk f curtailing grwth as businesses see their verheads further increase. This culd have a further lng term knck-n effect n innvatin and wider prductivity within the ecnmy. 2 HM Treasury (Nvember 2009): Frecast fr the UK Ecnmy 4

5 What the PBR means fr lcal ecnmic develpment practitiners The savings arund regeneratin and sme lwer pririty skills prvisin were partly t be expected and cnfirm the squeeze n resurces within ecnmic develpment and regeneratin which will clearly negatively affect lcal authrities and ther rganisatins wrking within the field. Gvernment has t ensure that areas (and individuals) f mst need are receiving the resurces required t lay the fundatins fr, and t prmte, future grwth. Gvernment must wrk clsely with lcal authrities in effective priritising fr highly targeted and fcused use f resurce. Regeneratin need nt, and shuld nt, becme an after-thught fr Gvernment plicy; this wuld result in reinfrcing the effects f deprivatin, further increase plarisatin in sciety, and ultimately hld back ecnmic grwth during a perid where the recvery will already be slw and painful. There are sme psitives t emerge frm the PBR. Fr example the Gvernment s intentins regarding the Plicy thrugh Prcurement Actin Plan, and ther assciated prcurement activity, is a step in the right directin - effectively using the cnsiderable pwer f the public purse t stimulate ecnmic grwth and help bth small businesses and individuals. The cmmitment t cmmunity investment activities thrugh the prpsal t take frward the Scial Investment Whlesale Bank, with the Budget 2010 firming up plans fr this, is anther psitive mve which will be welcmed within cmmunity based rganisatins, as will the annuncement that Gvernment will explre ptins with banks t decrease financial exclusin within deprived areas (althugh this is a vague statement). There are als a range f business supprt measures in place, which is encuraging, althugh rather ffset by the increase that businesses face in Natinal Insurance payments. Opprtunities t innvate This reductin in spend can als be viewed as an pprtunity innvatin is becming increasingly imprtant within public services and ding mre with less will be a necessity in future. Being able t ensure effective, innvative frntline delivery services are in place will be crucial, and is a chance fr practitiners t wrk in different, creative ways. A key part f this may include wrking clser with cmmunities, wh may in future have a greater rle in the delivery f services, and als increasing levels f wrking with the Third Sectr and ther scial enterprises, wh may be in an increasingly prminent psitin t act as a brker between lcal authrities and cmmunities. This increased cllabratin may act as a key driver f innvatin. Briefing is ne f a series f regular plicy reprts prduced by the Centre fr Lcal Ecnmic Strategies (CLES). CLES is a nt-fr-prfit think-ding rganisatin, cnsultancy and netwrk f subscribing rganisatins specialising in regeneratin, ecnmic develpment and lcal gvernance. CLES als publishes Lcal Wrk, Bulletin and Rapid Research n a range f issues. All publicatins are available as part f CLES membership services. T find ut mre abut membership visit the CLES website r cntact CLES t request a membership leaflet. Centre fr Lcal Ecnmic Strategies & CLES Cnsulting Express Netwrks 1 Gerge Leigh Street Manchester M4 5DL tel fax inf@cles.rg.uk 5