The Autumn Statement sets out the government’s spending plans and departmental budgets. This briefing provides an overview of the recent funding announcement and London Councils’ initial response.

Introduction

The Chancellor of the Exchequer, Jeremy Hunt, delivered the 2023 Autumn Statement on 22^nd November 2023. As well as the usual updates on the state of public finances and the performance of the economy, the Chancellor organised his policies into five key areas: reducing debt; cutting tax and rewarding hard work; backing British business; building domestic and sustainable energy; and delivering world-class education.

Key Headlines

• There was no new funding for adult or children’s social care or any general local government funding for 2024-25, beyond what was announced last year.
• Resource Departmental Expenditure Limit (DEL) budgets will increase by 1.0% in real terms over the medium term to 2028-29, which actually implies real-terms cuts for ‘unprotected departments’ like the Local Government DEL.
• Local Housing Allowance rates will be raised to a level covering 30% of local market rents.
• Local Authority Housing Fund to be extended with a third round worth £450m to deliver new housing units and temporary accommodation for Afghan refugees.
• Local planning authorities to receive £32m to tackle planning backlogs.
• There are plans to allow local authorities to be able to fully recover the cost of planning fees for major planning applications if decisions are made within certain timelines.
• Additional UK-wide funding of £120m for homelessness prevention in 2024-25.
• The standard business rate multiplier will be increased by September CPI (6.7%) and the small business rate multiplier will be frozen for a fourth consecutive year.
• The 75% Retail, Hospitality and Leisure (RHL) business rates relief scheme will be extended to 2024-25.
• Local authorities will be fully compensated for the loss of income because of these two measures and will receive new burdens funding for administrative and IT costs.
• Reforms to the Local Government Pension Scheme (LGPS), including confirmation of guidance that will implement a 10% allocation ambition for investments in private equity, and establish a March 2025 deadline for the accelerated consolidation of LGPS assets into pools.
• A Memorandum of Understanding has been published for the approach to single settlements for the devolution trailblazers (i.e. West Midlands and Greater Manchester combined authorities).

Economic and Fiscal Outlook

• The Chancellor set out the Autumn Statement for 2023 with a lookback to three of the Prime Minister’s five priorities which were explicitly economic: halving inflation, growing the economy and reducing debt—his assessment is all three of these promises have been met.
• On halving inflation, CPI fell from its 11% peak in October 2022 to 4.6% in October 2023. This is predicted to reach the government’s target of 2% CPI by the second quarter 2025.
• On growing the economy, the Office for Budget Responsibility assumed the UK economy would be 1.1% smaller by summer 2023 than its pre-pandemic level; however, Office for National Statistics figures showed the economy was actually 1.8% larger.
• On reducing debt, the government is predicted to hit its self-imposed fiscal targets across the forecast period, namely for public sector net debt to have fallen in the final year of the forecast (2028-29) and for public sector net borrowing to not exceed 3% of GDP by 2028-29.

Table 1 – Key Economic & Fiscal Indicators

Source: Office for Budget Responsibility - Economic & Fiscal Outlook, November 2023, Tables TA1 and TA9

Public Spending

• The Autumn Statement updated the overall envelope for public spending to 2028-29. Total departmental spending will grow in real terms at 2.6% per year on average over this period.
• Planned departmental resource spending will continue to grow at 1% per year on average in real terms, excluding the funding provided to local authorities in 2024-25 as part of the one-year RHL business rates relief scheme.

Key Announcements

Business Rates

• The small business rate multiplier will be frozen for another year at 49.9p whilst the standard rate multiplier will be uprated with September CPI (6.7%) to 54.6p.
• The 75% Retail, Hospitality and Leisure (RHL) business rates relief scheme will be extended to 2024-25 with a £110,000 cash cap per business.
• For both the rate freeze and RHL relief measures, local authorities will be compensated for the loss of income and for new burdens related to administrative and IT costs.

Housing

• From April 2024, the government will raise Local Housing Allowance (LHA) rates to the 30^th percentile of local market rates. This is intended to relieve housing cost pressures for those on low incomes and living in the private rented sector.
• Housing supply measures were announced for specific local areas, including London, which, subject to business case approval, is to receive £23m in bus network funding to support housing in the Docklands 2.0 scheme.
• Additional planning funds were also announced, including £5m for DLUHC’s Planning Skills Delivery Fund for local planning authorities to improve capacity, and £110m for a Local Nutrient Mitigation Fund to deliver schemes to offset nutrient pollution.
• There are plans to guarantee accelerated delivery decisions for major developments in exchange for a fee paid to local authorities. If accelerated timelines are not met, developers will receive a refund of these fees.
• There will be a new consultation early in 2024 on a new permitted development right to convert one house into two flats without changing the façade.

Homelessness, Asylum, & Refugees

• Local authorities will receive £120m to invest in homelessness prevention. DLUHC subsequently confirmed this is new money for 2024-25, but the share for England is yet to be confirmed.
• A third round of funding of £450m from the Local Authority Housing Fund to deliver 2,400 new housing units and temporary accommodation for Afghan refugees.
• ‘Thank you’ payments for ‘Homes for Ukraine’ sponsors will be extended another year (and continue at £500).

Cost of Living

• From 1 April 2024, the National Living Wage will increase by 9.8% to £11.44 an hour with the age threshold lowered from 23 to 21 years old.
• Beginning in January 2024, the employee National Insurance Contribution (NIC) rates will decrease from 12% to 10% for Class 1 employees along with other reductions for the self-employed.

Education & Skills

• To stimulate training and address barriers to entry, £50m is committed for a two-year pilot on apprenticeships in growth sectors.

Welfare

• The triple-lock for pensions will be “honoured in full” (an increase of 8.5%).
• Working age benefits are increasing by 6.7% (in line with the September CPI) although the Universal Credit (UC) surplus earnings threshold will be maintained at £2,500 until April 2025.
• The Restart Scheme is being extended another two years from 2024 and the previous nine months intensive work search requirement is to be reduced to six months. UC claimants who have completed the Restart Scheme and remain unemployed after 18 months will undergo a compulsory review which can mandate work placements.
• Access to Individual Placement and Support is to be expanded to an additional 100,000 people suffering from severe mental illness over the next five years.
• NHS Talking Therapy services will also be increased with the aim of reaching an additional 384,000 people over the next five years.
• The Universal Support employment programme for the disabled is to be expanded to 100,000 available places supported by roughly an additional £140m per year from 2025.

Infrastructure and Net Zero

• There will be £8.3bn over 11 years for roads resurfacing across England with £2.8bn to be divided between the East of England, South East, South West and London.
• Beginning in 2025-26, manufacturing sectors will receive £4.5bn over five years, targeted to several green industries including: £2bn to the automotive sector for zero emission vehicles; £975m to the aerospace sector for energy efficient and zero carbon aircraft; and £960m to the Green Industries Growth Accelerator for clean energy sectors.
• The government will consult on amending the National Planning Policy Framework to ensure the planning system prioritises the rollout of electric vehicle (EV) chargepoints, including EV charging hubs. It will also consult on introducing new permitted development rights in England to end the blanket restriction on heat pumps one metre from a property boundary.

Business and Innovation

• The existing full expensing business tax deduction is to be made permanent, allowing businesses to deduct the full cost of qualifying plant and machinery investments.
• Additionally, there will be programmes to simplify existing R&D tax credits, promote technology adaption in manufacturing, establish new research fellowships and provide £145m through Innovate UK to support decarbonisation, battery innovation and other critical technologies.

Devolution

• A new Memorandum of Understanding with the devolution trailblazers, Greater Manchester and West Midlands combined authorities, outlining the approach to the single funding settlements to be implemented at the next Spending Review.
• The Statement indicated the previously announced “Funding Simplification Doctrine” for local authorities, which aims to assess suitable distribution methodologies for new funding streams, would come into force from January 2024.

Commentary

The 2023 Autumn Statement did little to inspire confidence for local authorities facing financial difficulty or provide hope for those who rely on local government services. Demand for ever-more costly services is growing, but the resources to provide them continue to shrink.

Today, London boroughs’ overall resources remain about 18% lower than 2010-11 in real terms. Over that same period, London’s population has grown by almost 800,000–equivalent to a city the size of Leeds.

Adult and children’s social care, a key driver of boroughs’ overall demand pressures, was hardly mentioned in the Autumn Statement, and there was no new funding for social care services or any general local government funding beyond what was announced last year.

Based on initial analysis of the statement, London boroughs will still need to make over £500 million of savings in 2024-25, as part of an estimated £2 billion funding gap over the next four years. They have worked hard to protect their budgets, but there is no painless way to make savings on the scale required. Any low hanging fruit and general efficiencies are long gone. Boroughs plan to use a quarter of their reserves to balance budgets over the next four years. This is not sustainable.

Regarding local taxes, London Councils continues to argue that neither council tax (still reliant on property values from 1991) nor business rates (an increasingly burdensome tax for bricks and mortar business) are fit for purpose. Unfortunately, the Autumn Statement made no reference to potential reforms.

Despite the overall disappointing news on funding, the government  is delivering some additional support for housing and homelessness services.

London Councils asked the government to uprate Local Housing Allowance (LHA) rates to cover at least the bottom 30% of market rents. Ahead of the Autumn Statement, we published independent research showing 60,000 private renters in London were set to become homeless in the coming years if the freeze on LHA rates continued. We therefore welcome the decision to increase LHA rates, which will take effect from April 2024. However, rates will be frozen again from 2025-26.

The government announced several new funding allocations related to housing, including £110 million through the Local Nutrient Mitigation Fund to help mitigate nutrient neutrality rules to support housing development and £32 million aimed at reducing the planning system backlog in local planning authorities. We will seek funding distribution details to determine what, if any, funding will be designated for London.

The government also indicated it will provide £23 million of funding for a rapid bus network to support housing in the envisioned Docklands 2.0 project in London, subject to business case approval.

Additionally, London Councils called for an increase to the Homelessness Prevention Grant to support temporary accommodation pressures. While exact details are to be confirmed, there will be additional UK-wide funding of £120 million available in some form for homeless prevention.

The various measures set out to support with the cost of living—decreasing the employee National Insurance tax rate, increasing the National Living Wage, and honouring the triple-lock for pensions—will provide support for many Londoners. However, real household disposable income is predicted to worsen over the next couple of years and will be 3.5% lower in 2024-25 than it was pre-pandemic. Therefore, we anticipate demand for local authority services from residents in financial crisis is set to continue.

Growth remains the Treasury’s goal, and the Chancellor’s strategy in the Autumn Statement relies on tax cuts to deliver. However, if growth is the goal, the government would be wise to consider the benefits of fiscal devolution to local authorities, a solution supported by London Councils alongside a growing chorus of voices in the sector. Giving councils greater powers and resource flexibilities are crucial for sustaining services and investing in local growth.

Local government is collectively warning of potential financial failures as a result of structural underfunding of local services, and yet, looking ahead over the medium term to 2028-29, Resource Departmental Expenditure Limit budgets will increase by 1.0% in real terms, which actually implies real-terms cuts for ‘unprotected departments’ like the Local Government DEL.

That said, London Councils will continue to lobby for sufficient resources for London local government and develop and promote new ideas to improve the lives of Londoners.