Osborne recommits to Northern Powerhouse and investment in tidal power

Budget 2015 focuses on economic successes and commitment to pay down the deficit rather than investment in growth boosting infrastructure 

Antony Oliver
18 March 2015

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ACE 2015 Budget analysis

Austerity is set to end in 2019, a year earlier than originally planned, Chancellor George Osborne promised in his 2105 Budget speech today. 

Infrastructure didn’t get a big build up in Osborne’s Commons speech which focused on economic successes and commitment to pay down the deficit.

“Budget 2015 sets out a significant package of measures for a truly national recovery by investing in infrastructure, housing, science and innovation across the whole of the UK, and building a Northern Powerhouse,” HM Treasury

But he did commit to investment in the Northern Powerhouse with a strategy from Transport for the North – the TransNorth vision which is due to be published this week.

“Budget 2015 sets out a significant package of measures for a truly national recovery by investing in infrastructure, housing, science and innovation across the whole of the UK, and building a Northern Powerhouse,” say the Treasury document. 

The government’s aim is to keep the long term economic recovery programme on track with a further £30bn of cuts - £13bn from government spending, £12bn from welfare savings and £5bn from the results of a crack down on tax evasion and avoidance.

Also highlighted was investment in transport and regeneration in London, a renewed  commitment to “opening negotiations” on the Swansea Bay Barrage, something welcomed by renewable energy industry, and to boosting skills and productivity.

Osborne’s central infrastructure project remains the Northern Powerhouse and the Chancellor committed to Manchester being able to keep 100% of its business rate as it grows because of investment in the north.

There is “provisional agreement to allow Greater Manchester to keep 100% of the additional growth in local business rates as we build up the Northern Powerhouse,” he said. 

And Cambridge and the surrounding councils will also benefit from the same arrangement. “My door is open other areas too,” he added. 

“This government is committed to rebalancing growth across the regions and nations of the UK and is committed to the creation of a Northern Powerhouse,” said the Budget report. “The latest data shows that output per head in the North West, North East, West Midlands and Wales all grew faster than London in 2013. In addition, in the year to the end of 2014, employment in the North East, North West and the East Midlands all grew faster than in London.”

Transport for the North will publish an interim report building on the concept of HS3 to develop a network of high quality rail conections across the north – the TransNorth vision; bring the benefits of HS2 to the north sooner than planned and work towards smart, integrated ticketing across the region.

Osborne reiterated his commitment to investing in infrastructure to drive growth into the economy and claimed success to date.

“The OBR has revised up its forecast for UK growth in 2015 from 2.4% to 2.5% and in 2016 from 2.2% to 2.3%. The OBR forecasts growth of 2.3% in 2017, rising to 2.4% in 2019. The OBR forecasts business investment growth of 5.1% in 2015 and 7.5% in 2016,” said the Treasurey.

But in terms of delivering long term infrastructure Osborne announced commitment to tidal lagoons as an option for energy generation. 

“By enabling this project to go ahead, the Government will also unlock the potential for other, larger tidal lagoons to be developed. Swansea Bay will generate the confidence needed to attract investors into those future schemes in the UK." Budget 2015

“The government has decided to enter in to the first phase of negotiations on a Contract for Difference for Swansea Bay Tidal Lagoon (without prejudice to the planning decision on the project) to determine whether the project is affordable and value for money for consumers, and whether it will drive down costs for tidal lagoon energy in the UK,” Treasury said. 

According to RenewableUK’s wave and tidal development manager Dee Nunn: “This is a significant step forward towards building the first tidal lagoon of its kind in the world. This pioneering project would ensure that Wales and the UK stay at the forefront of marine energy, providing clean electricity for 120 years and creating 2,000 jobs in the construction phase alone.

She added: “By enabling this project to go ahead, the Government will also unlock the potential for other, larger tidal lagoons to be developed. Swansea Bay will generate the confidence needed to attract investors into those future schemes in the UK. So a negotiated strike price is needed for this first project as it’s the trailblazer which will generate momentum to kick-start the full commercialisation of this part of the marine energy sector. “

The government will also bring forward proposals for legislation in the next Parliament for competitive tendering of onshore electricity transmission infrastructure. 

“This could significantly reduce the cost of building this infrastructure. Competition in the offshore regime has worked well, having already saved consumers between £200M and £400M and helping to lower electricity bills,” Treasury said.

A package of reforms to ensure that the North Sea continues to attract investment and to safeguard the future of this vital national asset including a £20M investment in seismic surveys to boost offshore exploration. 

Other measures in the Budget included:

• Government to proceed with the electrification of the Hull-Selby line.
• Government to fund a High Speed Rail Investment Summit in Birmingham to attract overseas investment into regeneration projects in the region.
• £16M for Transport for London for the development of the Croxley rail link to extend the Metropolitan Line on the London Underground to Watford Junction on the West Coast Main Line., 
• £4 million for further development of the Wet Dock Crossing in Ipswich, and Lowestoft Third River Crossing.

Budget 2015 also announced £97M of funding and ring fencing of the local 50% share of business rate growth to support the London Borough of Barnet and the Greater London Authority’s (GLA) plans for the regeneration of Brent Cross. This will unlock 7,500 new homes and create 4.9 million square feet of new commercial development with space for up to 27,000 jobs.

Government is opening negotiations with local partners and the Scottish and Welsh Governments for City Deals for Cardiff, Aberdeen and Inverness. In Inverness, the government is making funding available in 2015-16 to help progress the deal.

Other highlights:

• Broadband investment : “The government is supporting long-term investment in the UK’s digital communications infrastructure, including by setting out a new ambition that ultrafast broadband of at least 100 Megabits per second should be available to nearly all UK premises.”
• Skills: “The government is developing a more highly-skilled UK labour market by strengthening support for postgraduate research and apprenticeships, and setting out plans for further investment in the UK’s world-leading science and innovation base.”
• Productivity: “Poor productivity growth has been a long-term issue affecting the UK economy. Since the financial crisis UK productivity performance has been weak. Factors related to the nature of the financial crisis are likely to be having a persistent impact on the level of productivity. The latest data has been mixed and shows output per hour productivity grew by 0.6% and output per worker productivity grew by 0.4% in Q3 2014 on the previous quarter. Productivity in the public sector has been increasing steadily since the financial crisis. Between 2010 and 2012 public sector productivity increased by a total of 3.7%. The OBR forecasts productivity growth picking up to 0.9% in 2015, 2.1% in 2016 and 2.5% in 2017.”
• Housing: “There continue to be signs of normalisation in the housing market with indicators suggesting continued increases in house building and moderating house price growth. Housing starts were up 10% in England in 2014 and house prices grew by 9.8% in the year to December 2014, down from 12.1% in the year to September 2014. Effective mortgage rates fell to 2.8% in January 2015, the lowest rate on record. Lower effective mortgage rates should make it easier to service a mortgage and support housing demand. Budget 2015 announces the Help to Buy: ISA to help first-time buyers realise their aspirations of homeownership.”
• Sale of national assets: “In March 2015, the Treasury signed a binding agreement to sell its entire holding in Eurostar International Limited for £757M. Other asset sales include those of shares in Greencoat UK Wind for £52M, ConstructionLine for £35M, Food and Environment Research Agency for £20M and Defence Support Group for £140M.”
• On devolution: “The Scottish and Welsh governments’ sources of borrowing are also being extended to include bond issuance for capital investment. These powers will be within existing borrowing limits, and subject to a number of conditions, including that the Scottish and Welsh governments will be solely responsible for meeting their liabilities and that the UK government will provide no guarantee on any bonds issued.”
• R&D: “The government wants to ensure that R&D tax credits remain effective in helping small businesses grow. Following consultation, the government will implement a package of measures to improve the accessibility of R&D tax credits for smaller businesses including producing new guidance aimed at smaller firms and setting out a roadmap for further improvements over the next 2 years.

For a full analysis of the Budget 2015 by the ACE economics team visit www.acenet.co.uk