Rob Anderson delves into the impacts of Labour’s first budget on the capital.
A declaration of interest – in a past life, I worked at HM Treasury. And, like most people with a passing interest in how our government works (or doesn’t), I agree that it has a lot of issues. It can be short-termist, insular, and instinctively cautious, acting as a blocker to Governments’ ability to think creatively and make decisions for the long-term.
That said, one thing HMT is very good at indeed is fiscal events. Budgets and Spending Reviews are monumental works of policymaking, requiring complex analysis, tough negotiations with multiple powerful stakeholders, and juggling innumerable difficult trade-offs. Get it right and people’s lives get better, usually over the long-run but – as was the case with the fiscal action taken during Covid – sometimes overnight. Get it wrong – as exemplified painfully by the Truss-Kwarteng shocker – and people’s lives get a lot worse, and quickly.
That’s why every Budget is a big moment for the country. But yesterday’s was particularly significant. While not a fundamental break from fiscal convention, this was a policy-heavy budget with a clear narrative, sizeable increases in spending and borrowing, and some big bets for the future to deliver on Labour’s vision for the country.
It’s a shame, therefore, that London – as the capital of the UK, home to 10 million people, producing 25% of economic output, providing 6.5 million jobs and contributing £1 of every £4 to UK tax revenue – was hard to find in this year’s Autumn statement.
To break it down, we’ve delved into the detail, to understand what this year’s Budget means for London and Londoners.
First, the good (ish) – infrastructure and local government
Transport
An extra half a billion for Transport for London to upgrade ageing infrastructure is to be welcomed. Much as I am fond of the Bakerloo Line’s vintage-feeling rolling stock, upgrades are sorely needed to remove the UK’s oldest passenger trains from the Line.
The confirmation that HS2 will (after all) be terminating at Euston gives London’s local authorities and businesses some certainty on the terminus which could help drive investment and economic growth. However, there are lots of questions unanswered, not least when Londoners can expect to see trains on tracks.
Social Housing
Nowhere is the housing crisis more dire than in London. 323,000 London households are waiting for social housing, more than double the population of Cambridge, so it’s good to see a £500m boost to the Affordable Homes Programme to deliver more social housing. This brings funding to £3.1bn next year; a step up, but well short of the £15bn a year our analysis suggests is needed to turn the housing crisis around.
Also positive was explicit acknowledge of the Grenfell Tower tragedy and building safety. Too many of London’s high-rise buildings remain unsafe, making the additional £1bn for building remediation very welcome.
Local Government Finances
London’s local authorities are under enormous financial strain, spending £4m a day on the temporary accommodation crisis alone, so it was good to see some specific commitments on two of the big pressures they face – £230m for homelessness and rough sleeping, and £600m for social care nationally. A £1.3bn increase to the local government grant settlement will also give council leaders some room to breathe next year, but in the context of the 40% real-term reduction to central grants between 2010 and 2020 and no action to increase councils’ ability to raise revenue beyond retention of Right to Buy receipts, this is arguably a drop in the ocean.
The ‘we’ll have to wait and see’ – the economy and health
Growth and London’s economy
This was billed as a Budget for growth, with the Government frontloading considerable additional investment into 2025/26 in the hope that growth will follow.
The measures announced could undeniably benefit London as the heart of the UK’s economy, with a new industrial strategy and sizeable investment in some of London’s well-established growth sectors – innovation districts from White City to Canary Wharf stand to benefit from £2.3bn investment in life sciences, and tax relief for visual effect costs should bolster West London’s thriving TV and film industry.
However, these are big bets in the hope that sustainable increases in output follow. Indeed, the OBR’s independent growth forecast point to a “short-term sugar rush”, turning into a modestly negative impact by the end of the parliament.
London’s Small Businesses
The picture for London’s smaller businesses is more mixed. The greatest share of the headline-grabbing £40bn increase in tax take comes from a hike in employers national insurance contributions, which will hit smaller businesses hardest, especially thanks to a substantial drop in the threshold at which employers have to begin contributions. While the Budget does include relief for smaller hospitality, retail and leisure businesses, the increased tax burden will undeniably hurt at the margins, with businesses either struggling to absorb the costs or passing them on to employees through stifled wage rises – neither of which are directly good for growth, or for London’s communities.
Increases to the national Living Wage are very welcome for the millions of Londoners on low-pay, but combined with additional tax pressures on employers, this could have net negative effects on working Londoners if businesses struggle to balance the books.
Health
A £22.6bn boost to the day-to-day spending of the NHS, the largest budget increase since 2010, should see shorter waiting times and much-needed expanded capacity in London’s health services which in turn could reduce London’s deep health inequalities. However, any such benefits will take time to materialise and be contingent on the success of the Governments’ planned reforms.
The disappointing – welfare, renters and devolution.
Welfare, poverty and renting
While the Chancellor’s commitment to uprate working age benefits in line with inflation is a welcome break from more than a decade of hard squeezes to the welfare bill, the picture for London’s poorest residents remains tough.
Expansions to the Household Support Fund and Discretionary Housing Payments will equip councils with cash to support households in crisis, but beyond that there is little direct additional support. The child benefit cap, which affects 27,000 of London’s poorest families, remains in place. London’s 3m renters continue to face a harsh environment with the Local Housing Allowance remaining frozen at 2021 levels, which currently only covers 5% of private rentals in the city.
Devolution
Finally, while the West Midlands and Greater Manchester saw firm commitments to move towards modernised integrated financial settlements fit for meaningful devolution, any reference to a much-needed update to London’s devolved powers and funding was buried in the long grass end of the Autumn Statement publication, with a vague commitment to “explore how an integrated settlement could apply for the Greater London Authority from 2026-27″.
So what?
In sum, while it seems that the ‘levelling up agenda’ is officially dead, this Budget featured an increasingly familiar reluctance from central government to champion the capital of the UK or articulate a clear role for London in the UK’s wider economic and social future.
Worryingly, this seems to be becoming habitual. If the Government is serious about “fixing the foundations” and tackling the UK’s social and economic challenges, neglecting the capital is a habit that will have to change.