The Chancellor of the Exchequer, Rachel Reeves, has unveiled the first Labour budget in 14 years. A lot has already been written about who are the winners and losers following announcements on National Insurance and other tax measures. Richard Cook and Lucy Shiels consider what the impact of the Budget could be in terms of supporting housebuilding, capital investment, renewable energy, devolution and productivity growth.
Boosting Housing Supply
Put simply, we aren’t building enough homes. Even before the Budget, the Government had published a consultation on changes to the National Planning Policy Framework (NPPF) and committed to building 1.5 million homes over the next five years. Points announced in the Budget to boost housing supply include:
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£500million for the Affordable Homes Programme to build up to 5,000 additional affordable homes. |
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Reducing discounts on the Right to Buy scheme and enabling councils in England to keep all the receipts generated by sales. |
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£3billion of additional support for SMEs and the build to rent sector, in the form of housing guarantee schemes, to support the private housing market. |
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£46million of additional funding to support the recruitment and training of 300 graduates and apprentices into local planning authorities, accelerate large sites that are stuck in the system, and boost and upskill local planning authority capacity to deliver the government’s wider reform agenda. |
If you want to see the scale of the challenge we face when it comes to delivering new homes (both market and affordable), consider Figure 1 which shows housing completions in England over the last 70 years. The Government’s aim of building 1.5 million homes over the next five years averages out at 300,000 per annum. The last time this was achieved was 1969, so over 50 years ago and at a time when local authorities were delivering significantly more houses.
While the announcements on boosting housing supply are welcome, it is unlikely that we will see a significant uplift in housebuilding in the first 12-18 months of the Government being in power. The new NPPF, which should hopefully be adopted by the end of 2024, will be crucial if housing supply is to increase at the levels needed. Alongside this, we need to see more Local Plans coming forward that address the housing shortfall and do not end up being watered down because of political issues. A better working relationship between local authorities and housebuilders is also needed if we are to get anywhere near the 1.5 million target.
Source: Live Table 244, MHCLG & DLUHC
Increasing Capital Investment
The Chancellor announced that the Government will boost capital investment by more than £100billion over the next five years. This will include money for transport, housing and R&D, with an increased focus on value for money and delivery to help unlock long-term growth.
Plans for investment include unlocking schemes such as East West Rail, kickstarting the delivery of 1.5 million homes, supporting new industries and job creation, protecting R&D funding and increases investment in public services. This is all extremely positive, and it will be interesting to see the Government’s more detailed plans for investment as they emerge over the next 12 months.
A boost to capital investment should create a significant number of new jobs, which can help in getting more people back to work. A growing trend in the UK is for more people to be economically inactive due to long-term sickness. As shown in Figure 2 there are now more than 2.5 million people in the UK who are economically inactive because of this reason, an increase of 0.5 million over the last decade.
The Government has said that it wants to grow the UK economy. If you were able to get 0.5 million economically inactive people back into work, in high-level terms this could be worth £100billion in increased economic output over the next five years.
Staying with jobs, the construction sector is likely to be a big beneficiary of the increased capital investment. However, construction is faced with significant recruitment issues and the Construction Industry Training Board (CITB) estimated earlier this year¹ that over the next four years alone, the sector will need 250,000 new workers to account for increased demand in the housing sector, infrastructure and repair & maintenance.
The Government is due to publish its Get Britain Working White Paper and it is hoped that this provides clarity on how we will have the sufficient workforce needed to deliver on the Government’s planned investments.
Source: ONS, Annual Population Survey
Renewable Energy
The Budget saw the announcement that government support will be provided for the first round of electrolytic hydrogen production contracts, which will harness renewable energy to decarbonise industry across the length and breadth of the UK. £134million will be provided to support the delivery of port infrastructure to facilitate floating offshore wind.
To support existing firms to decarbonise and grow, £163million has been confirmed to continue the Industrial Energy Transformation Fund over 2025-26 to 2027-28. As we continue the move towards a low carboneconomy, there will need to be further investment in renewable energy.
Devolution
Devolution agreements are now far more prominent across the country and the concept has come a long way since the first agreement was signed with the Greater Manchester Combined Authority in 2014.
The Chancellor announced in the Budget that the Government will be introducing the first integrated settlements for Greater Manchester and the West Midlands Combined Authorities from 2025-26, with the next Mayoral Combined Authorities eligible to receive them from 2026-27. The aim is to give mayors meaningful local control over funding in a single flexible pot.
The upcoming English Devolution White Paper, announced in the King’s Speech in July this year, will set out more detail on the devolution, including on working with councils to move to simpler structures.
Taking into account agreements likely to begin in 2025, 60% of England’s population will soon be covered by devolution. This represents almost 35 million people, and it is good to see that the new government is fully committed to seeing devolved powers for more parts of the country.
Concluding Thoughts – What does the Budget mean for Productivity Growth?
As with any budget, the Chancellor cannot please everyone. The increase in National Insurance contributions for businesses has already generated a lot of debate inthe media and will continue to do so over the coming months.
In terms of the announcements on housing supply, capital investment, renewable energy and devolution, they should all support growth in the economy. A lack ofworkers could hold back the Government’s ambitions though, which makes its upcoming Get Britain Working White Paper so important.
On housing, successive governments have tried and failed to boost supply to the required levels and until we start to see a consistent rise in housebuilding towards 300,000 dwellings per annum, plenty will continue to be written about our ‘housing crisis’. A revised NPPF is a start in this respect.
So what does this Budget mean for productivity growth?
The Government has said it wants to rebuild Britain and there were a number of announcements that back this statement up. The Office for BudgetResponsibility and Institute for Fiscal Studies have already questioned the extent to which the economy will grow over the next five years. However, given the new government has only been in power since July this year, it is going to take time for their plans to start making a difference.
One thing that is not in doubt, however, is that any productivity growth needs to be far more balanced. As shown in Figure 3, every region lags behind London interms of GDP per head and the South East is the only other region that is above the national average. If the Government’s budget leads to long-term economic growth and helps to solve the so-called ‘productivity puzzle’ at the same time, it will have done something that no other budget in recent memory has done.
Source: ONS
¹ Focusing on the Skills Construction Needs. CITB, May 2024.