2015 Comprehensive Spending Review: Creating a resilient economy

Autumn Statement: ACE's Peter Campbell reviews the highlights of Chancellor George Osborne's latest Comprehensive Spending Review.

Peter Campbell
25 November 2015

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ACE Autumn Statement Review

Following the publication of the Spending Review and Autumn Statement by HM Treasury today, combined with the economic and fiscal outlook by the Office for Budget Responsibility, ACE has analysed the impact of measures revealed today by Chancellor George Osborne and their impact on the UK infrastructure sector.

A summary of the measures is below. The ACE's full report (see attachment to this story) explores the potential impact of the measures announced and will look at their significance both national and regionally.

Autumn Statement and Spending Review: summary

Housing

 The Chancellor unveiled a package of measures, some old, some new, that taken together amount to over £20 billion investment in housing over the Spending Review period.

• Deliver 400,000 affordable housing starts by 2020-21, focussed on low cost home ownership including:

• 200,000 Starter Homes which will be sold at a 20% discount compared to market value to young first time buyers, with a £2.3 billion fund to support the delivery of up to 60,000 of these, in addition to those delivered through reform of the planning system;

• 135,000 Help to Buy: Shared Ownership homes, which will allow more people to buy a share in their home and buy more shares over time, as they can afford to. The scheme will be open to all households earning less than £80,000 outside London and £90,000 in London, and will relax and remove previous restrictions such as local authorities’ rights to set additional eligibility criteria;

• 10,000 homes that will allow a tenant to save for a deposit while they rent. This will be in addition to 50,000 affordable homes from existing commitments;

• at least 8,000 specialist homes for older people and people with disabilities.

Other measures to accelerate housing supply and get more houses built include:

• bringing forward further reforms to the planning system, including establishing a new delivery test on local authorities, to ensure delivery against the number of homes set out in Local Plans;

• supporting the availability of appropriate land for housing, including by releasing public sector land with capacity for 160,000 homes representing a more than 50% increase on the government’s record in the last parliament;

• ensuring the release of unused and previously undeveloped commercial, retail, and industrial land for Starter Homes, and supporting the regeneration of previously developed brownfield sites in the green belt by allowing them to be developed in the same way as other brownfield land, providing it contributes to Starter Homes, and subject to local consultation;

• backing SME house builders, including by amending planning policy to support small sites, extending the £1 billion Builders’ Finance Fund to 2020-21, and halving the length of the planning guarantee for minor developments;

• offering £2.3 billion in loans to help regenerate large council estates and invest in infrastructure needed for major housing developments;

• investing £310 million to deliver the first new garden city in nearly 100 years, at Ebbsfleet. This is part of a wider £700 million programme of regeneration at Barking Riverside, Brent Cross, Northstowe and Bicester Garden Town. Together these will support up to 60,000 new homes;

• Extend the Help to Buy: Equity Loan scheme to 2021 and create a London Help to Buy scheme, offering a 40% equity loan in recognition of the higher housing costs in the capital.The scheme will offer buyers with a 5% deposit a loan of up to 40% of the value of a new build home, interest-free for 5 years. This can be used in conjunction with the new Help to Buy: ISA launching on 1 December. First time buyers that save in a Help to Buy: ISA will receive a 25% government bonus on top of their own savings, up to a maximum government bonus of £3000, which can be put towards the purchase of their first home.

Transport

While trumpeting the already committed Roads Investment Strategy, which will see £15bn of investment over the period to 2019, and the new Roads Fund paid for directly from the revenues raised through Vehicle Excise Duty, the following further announcements were made.

• An extra £250m over the next five years to tackle potholes on our roads.

On rail:

• The Spending Review and Autumn Statement provides £475m over the next five years to fund large local transport projects, such as the Lowestoft Third River Crossing and the North Devon Link Road;

• The Spending Review and Autumn Statement provides £300 million over the next 5 years for a new Transport Development Fund, for the next generation of transport infrastructure projects. This could include providing development funding for projects such as Crossrail 2 and proposals emerging from the Northern Transport Strategy, following advice from the NIC at Budget 2016.

Energy

• The Spending Review and Autumn Statement invests at least £250 million over the next 5 years in an ambitious nuclear research and development programme that will revive the UK’s nuclear expertise and position the UK as a global leader in innovative nuclear technologies. This will include a competition to identify the best value small modular reactor design for the UK.This will pave the way towards building one of the world’s first small modular reactors in the UK in the 2020s. Detailed plans for the competition will be brought forward early next year;

• The government will increase funding for the Renewable Heat Incentive to £1.15 billion by 2020-21, while reforming the scheme to deliver better value for money;

• The government will commit up to 10% of shale gas tax revenues to a Shale Wealth Fund, which could deliver up to £1 billion of investment in local communities hosting shale gas developments, in the north of England and other shale-producing regions.

• A £1bn competition aimed at commericialising carbon capture and storage technology has been halted, however.

Flooding

• The government’s £2.3 billion capital programme will invest in over 1,500 schemes to give 300,000 homes greater security from flooding by 2021. Flood defence maintenance funding will also be protected, and DEFRA will work with the Environment Agency to generate 10% efficiencies by 2019-20 with all savings reinvested to better protect another 4,000 homes.

Devolution

Devolution of powers and responsibilities to the regions and local authorities away from Westminster is one of the key parts of this government’s agenda. There were several measures in this Spending Review and Autumn Statement that built on the work already announced in previous statements.
 
Northern Ireland, Scotland, and Wales

• In Northern Ireland, funding available for infrastructure investment via the block grant through to 2020-21 will rise by 12%, an extra £600 million over the period;

• Devolution of corporation tax powers to the Northern Ireland Assembly will go ahead from April 2018 and a rate of 12.5% has been agreed by the parties concerned;

• In Scotland, funding available for infrastructure investment via the block grant through to 2020-21 will rise by 14%, over £1.9 billion more to the end of the decade;

• City deals for Glasgow and the Clyde Valley is underway, while proposals for Aberden and Inverness have been received and are being considered;

• In Wales, funding available for infrastructure investment via the block grant through to 2020-21 will rise by 16%, more than £900 million extra in the spending round;

• The government has also announced an ‘in principle’ agreement with the Welsh government to contribute to an infrastructure fund for the Cardiff Region.

England

• Previously announced, the Spending Review and Autumn Statement confirmed the intention of the government to devolve control of Business Rates to local authorities. A consultation will be launched by DCLG on changes to the local government finance system to pave the way for the implementation of 100% business rate retention by the end of the Parliament;

• This will give them control of £13 billion of additional local tax revenues, and £26 billion in total business rate revenues, while redistributive measures between local authorities will be retained;

• The chancellor also restated that metropolitan areas like Sheffield, Liverpool, the Tees Valley, the North East and the West Midlands have joined Greater Manchester in agreeing to create elected mayors in return for far-reaching new powers over transport, skills and the local economy;

• On devolution to Manchester, the Spending Review and Autumn Statement also announced that the government is working with the authorities to give the Greater Manchester Mayor the power to introduce a Community Infrastructure Levy.

Northern Powerhouse and local growth

A further key aspect of this government’s agenda is the Northern Powerhouse initiative, designed to empower the cities of the North of England and provide a counterbalancing force to the strength of London. This Spending Review and Autumn Statement announced a number of things in this area.

• £13bn will be spent on transport in the North over this parliament, including on:
• smart and integrated ticketing (£150m);
• further commitment to fund the operation of Transport for the North (£50m);
• supporting new air routes through the Regional Air Connectivity Fund (£7m);Backing science and innovation through:
• £400m of investment in smaller businesses;
• doubling the size of the Enterprise Zones programme, creating seven new Zones;
• By 2017 the government hopes to have at least five Northern mayors, covering 54% of the population of the North, backed by £4bn of funding from central government.

In addition, measures designed to encourage local growth through the rest of England were also unveiled.

• The government is creating 26 new Enterprise Zones, including expanding 8 Zones on the current programme. These include 15 Zones in smaller towns and rural areas, spreading Enterprise Zone benefits to 108 sites across the country;

• The Autumn Statement and Spending Review supports local HS2 Growth Strategies to ensure that areas benefit as much as possible from HS2, enabling regeneration around stations and the improvement of connections to HS2 stations. This includes support for development around the new HS2 stations at Old Oak Common and Birmingham Curzon Street;

• Finally, the government confirmed it was bringing together multiple sources of funding into one Local Growth Fund that will deliver £12bn between now and 2020-21. This will be under the direct control of business-led Local Enterprise Partnerships.

Skills and apprenticeships

• The government announced that its Apprenticeship Levy will, as expected, be set at 0.5% of an employer’s paybill, with an allowance of £15,000 to offset against their levy payment. This means the levy will only paid on any paybill in excess of £3m and that less than 2% of UK employers will pay it. It is expected to raise £3bn to fund the 3m apprenticeships the government hopes to deliver by 2019-20;

• A new independent employer-led body will be established to set standards and ensure quality. It will also advise on the level of levy funding each apprenticeship should receive;

• Additionally, the government will protect core adult skills participation budgets in cash terms at £1.5bn. It will also create five new national colleges to train students in industries that are crucial to the government’s productivity agenda.