On 23rd September 2022, the Chancellor of the Exchequer, Kwasi Kwarteng, set out details of a Growth Plan, widely referred to as a “Mini-Budget“, to Parliament. This announcement outlined a suite of measures to tackle the energy and cost of living crises currently facing the UK and put forward a range of policies and tax cuts aimed at stimulating economic growth. The Office for Budget Responsibility (OBR) did not publish economic or fiscal forecasts alongside the event as is usual in a full Budget or Spring Statement. These will now be set out alongside the Government’s Medium Term Fiscal Plan on 23rd November 2022. This briefing provides a summary of the main headlines for London local government.
London Councils priorities
London Councils wrote to the Chancellor in advance of the “mini-budget” with a two-page submission setting out priorities in 5 areas: 1) Financial support for London’s boroughs; 2) Supporting residents through the cost-of-living crisis; 3) Supporting London’s businesses with rising costs; 4) Delivering net zero; and 5) Devolution.1
- To support boroughs financially, the submission asked government to:
- Provide immediate emergency funding for adult social care to support the NHS through the winter.
- Confirm details of a 2-year local government finance settlement as soon as possible.
- Increase local government funding in line with inflation next year for all funding streams, other than council tax.
- Provide compensation for any capping of social rents
- Pause the planned reforms to the Homelessness Prevention Grant
- Double the £350 thank you payment to Homes for Ukraine Sponsors and clarify funding for years 2 and 3 of the scheme
- Extend the statutory override ringfence on the DSG beyond this year
- Lower PLWB borrowing rates to bolster councils’ capital programmes.
- To support residents through the cost-of-living crisis – the submission asked for:
- The Household Support Fund to be doubled
- Local Housing Allowance rates to be increased to reflect the bottom 30% of local market rents
- Discretionary Housing Payments to be increased to help with rising homelessness pressures.
- To support London’s businesses with rising costs – the submission called for:
- Targeted business rates reliefs for business worst affected (with appropriate council compensation)
- Reform of the Apprenticeship Levy to support recruitment and retention
- Any unspent Covid Additional Relief Funds to be repurposed towards supporting businesses struggling most.
- To deliver Net Zero – the submission sought:
- £60m for the next phase of the work of 3CI’s Cities Commission for Climate Investment
- An increase funding for domestic retrofit
- The joining up of the National Skills Fund, National Retraining Scheme and Apprenticeship Levy at the local level to accelerate low carbon skills development.
- On devolution – the submission asked the Government to:
- Work with London Councils to unlock the potential benefits of deepening devolution in London
- Broaden the balance of revenue raising powers available to councils in the longer term to improve financial resilience and reduce reliance on any one funding stream
Mini-Budget - Key Headlines
The key headline announcements of relevance for London local government included:
- The 1.25% increase in National Insurance Contributions will be reversed (effective 6th November 2022) and the Health and Social Care Levy planned from April 2023 will be cancelled.
- The £13bn of funding for health and adult social care these taxes would have raised still be provided.
- Public sector organisations - including councils - will qualify for the unit price cap for electricity and gas via the Energy Bill Relief Scheme.
- A Planning and Infrastructure Bill was announced aimed at accelerating delivery of vital infrastructure projects, such as the A13 London Safer Road Scheme.
- A series of Investment Zones offering low-tax and low-regulation benefits, will be launched across the UK in a bid to incentivise economic growth – discussions are underway with 38 areas including London.
- A series of tax reductions were announced, including:
- Reducing the basic rate of income tax from 20% to 19%
- Abolishing the additional income tax rate of 45%
- Increasing the stamp duty exemption threshold from £125,000 to £250,000, and the first-time buyer exemption threshold from £300,000 to £425,000.
- Public sector organisations, including local authorities, will now be eligible for a government-supported price set at £211 per megawatt hour (MWh) for electricity and £75 per MWh for gas.
- The government will publish a review into the operation of the scheme in three months’ time to inform decisions on future support after March 2023.
- Separate to the announcement of this fiscal event from the Chancellor, the Secretary of State for Health and Social Care announced the creation of a £500m Adult Social Care Support Fund on 22nd September.
- The fund will be used to support discharge from hospital into the community, strengthen the social care workforce, and free up hospital beds. However, it is currently unclear how much of the fund will be allocated to local authorities.
- From 6th November, the previously introduced 1.25% increase in national insurance contributions (NICs) for both the employed and self-employed will be reversed, and the Health and Social Care Levy has been cancelled. This cancellation affects both individual and employer NICs.
- The Government has committed to maintaining the levels of funding for health and social care as if the levy were in place and they estimate this funding at £13bn. There have been no new announcements of the source of this funding.
- A network of Investment Zones, offering low-tax and low-regulation benefits, will be launched across the UK in a bid to incentivise economic growth.
- The Government is in discussion with 38 local authorities, including the Greater London Authority, to potentially establish an Investment Zone in their area.
- A Planning and Infrastructure Bill will be introduced to accelerate the development of vital infrastructure projects across England.
- The Treasury have published a list of 138 projects expected to benefit from the bill, such as the A13 London Safer Road Scheme.
- The Chancellor’s announcement confirms the EPG for households as detailed by the Business Secretary on 21st September.
- This will reduce the unit cost of electricity and gas so a typical household pays, on average, no more than £2,500 per year on their energy bills for the next two years beginning October 2022.
- The scheme is in addition to the existing £400 Energy Bills Support Scheme
- From April 2023, rates of income tax will be decreased and simplified.
- The basic rate of income tax will decrease from 20% to 19% and there will be a single higher rate of 40%.
- The existing additional rate of 45% will be abolished.
- The stamp duty exemption threshold will increase from £125,000 to £250,000.
- The first-time buyer stamp duty exemption threshold will increase from £300,000 to £425,000.
The “Mini-budget” on 23 September 2022 represented a huge change in direction for economic policy for the newly established government. The tax cuts – worth £45bn funded by borrowing – and wider policies were aimed at tackling the UK’s low growth and productivity levels seen over the last decade or so. They followed the announcement of the Energy Relief Scheme, earlier in September, also funded by borrowing estimated at approximately £150bn.
Within the policy announcements on 22 and 23 September, there were some welcome lobbying successes. While not officially part of the Growth Plan, the £500m ASC Discharge Fund to help people get out of hospitals and into social care support is very welcome, given the pressures facing adult social care. The distribution of funding is still to be confirmed, but the intention for it to be used flexibly by local health and care systems to improve pathways for people to leave hospital, is very welcome. The statement that this was a “first step” and will inform further action from next year to rebalance funding across health and care, is also positive.
The confirmation that London boroughs’ energy bills will be protected as part of the Energy Bill Relief scheme is also welcome, as is the promised review into the operation of the scheme in three months’ time to inform decisions on future support after March 2023. It is highly likely this will need to be extended, not only for councils but for businesses, beyond the initial 6 months indicated.
It is positive that London has been included in the 38 areas earmarked for discussions over Investment Zones. The process will be led by the GLA, but boroughs and sub-regional partnerships have been engaged in the identification of potential sites. However, the timescales for putting bids together are very tight with little detail available, which raises concerns about being able to identify optimal locations. It will be for boroughs individually to decide whether they want a site in their area to be put forward and what flexibilities they would wish to consider.
Overall, however, the Mini-Budget failed to address London Councils’ concerns about funding certainty for councils, or the other service funding pressures raised in our submission regarding homelessness prevention, measures to help with DSG deficits, and funding to support the costs of refugees and asylum seekers.
The wider economic fallout from the announcements has led to a rise in PWLB borrowing rates to 5% - the exact opposite of what London Councils called for – putting further pressure on capital programmes already at significant risk of being scaled back because of the rising costs of materials, labour and general inflation.
Of even greater concern, the subsequent reaction by financial markets, and the fall in the value of the pound, could potentially have wider consequences for public spending if the Government sticks to its primary fiscal rule for debt to be falling as a share of GDP and to eliminate borrowing for day-to-spending over the medium term.
It is too soon to tell what the direct impact might be for local government funding; however, the fact the Chief Secretary to the Treasury has written to Government Departments to look for efficiencies will be concerning for London boroughs already facing huge funding pressures. Further details might emerge when the Government sets out its Medium-Term Fiscal Plan on 23 November.
London Councils will continue to make the case for London boroughs to be adequately funded to continue to deliver services and support Londoners through the uncertain period ahead and will make further representations to Government in the autumn.