PFI axe as Hammond delivers pre-Brexit Budget

Chancellor Philip Hammond has delivered his 2018 Budget, ruling out any further government private finance initiative contracts.

Hammond began by telling the Commons that the era of austerity is ‘coming to an end’, but that 'discipline will remain'. Whilst echoing the words of Prime Minister May from last month, the choice of words 'coming to an end' suggests pragmatism, and likely foretelling a slowing down of austerity, rather than an immediate end.

As such, Hammond set out a five-year path for additional departmental spending, saying that next year there will be a full spending review, marking a 'new path for public spending'.

Alongside a new 50p coin to commemerate the UK's departure from the EU, the Spring Statement could be upgraded next March to a full Budget if needed.

Here is a breakdown of some of the spending pledges, and what it could mean for local government.

Social care
Building on the additional £240 million for social care winter pressures already announced this year, the government will make available a further £650 million of grant funding for English authorities for 2019-20. Additionally, £84 million will also be invested over next five years to expand programmes for children in care.

Devolution
Discussing devolution to cities, Hammond pledged £950 million for the Scottish Government, including £150 million for a Tay Cities Deal, £550 million for the Welsh Government, including £120 million for North Wales, and £320 million for the Northern Ireland Executive, including £350 million for Belfast. There was no mention of further powers for English cities, despite the recent call from a network of mayors and city leaders, including Mayor of Greater Manchester Andy Burnham and Mayor of Bristol Marvin Rees, for greater local control more broadly.

Lord Jim O’Neill, Northern Powerhouse Partnership vice chair, said: “While extra funding for Northern Powerhouse Rail development plans is welcome, this Government needs to become much more committed to the Northern Powerhouse or stop talking about it. For the Northern Powerhouse the critical investment we need in transport, education, skills, devolution and increasing productivity is not being delivered, despite the consistent and persuasive cases being made by our business and civic leaders.

“All Northern eyes will be on the Chancellor in the coming months to see if the Treasury sign off on Northern Powerhouse Rail, a scheme that will be transformational for economic growth and rebalancing the economy. Without it, the exciting potential for the Northern Powerhouse to boost the national economy’s growth trend won’t be realised.”

Roads and transport
As leaked prior to his speech, Hammond confirmed the £420 million spend, available immediately, to Local Highway Authorities to improve the state of English roads and tackle the rising pothole crisis. There will also be a 30 per cent growth in infrastructure spending.

The budget also revealed that the new 26-30 railcard, first announced last year, will be available across the network by the end of the year 'saving up to 4.4 million young people 1/3 off their fares'.

Howard Robinson, chief executive of the Road Surface Treatments Association, commented: “The reactive additional funding announced by Phillip Hammond shows that he has failed to do the maths and understand the economic folly of spending an average £52 million to repair a pothole against the £2 million to surface dress and maintain a road. The odd additional funding for pothole repairs is welcomed but it is no substitute for the long-term funding of road maintenance programme that would prevent the potholes from forming in the first place.”

Hammond also announced an additional funding for sustainable transport including buses, trams and cycling routes through the government's Transforming Cities Fund.

Claire Haigh, chief executive of Greener Journeys, said: “The extension of the Transforming Cities Fund provides a welcome boost to towns and cities across the UK which are suffering from congested roads and illegal levels of air pollution, both problems which are exacerbated by too many cars on the road. It is gratifying to see thegovernment recognise the value of investment in bus infrastructure. Greener Journeys research has previously shown that investment in bus infrastructure can deliver more than £8 milliom of wider benefit for local economies, and later this week we will publish a new report examining the significant and varied benefits this type of investment can bring."

UK schools
Turning to education, Hammond also detailed a £400 million ‘in-year bonus’ to help schools buy the little extras they need, representing a one-off capital payment directly to schools. The Chancellor says this averages to roughly £10,000 per primary school and £50,000 per secondary school.

The Chancellor also announced a £695 million initiative to help small firms hire apprentices.

Contracts
Following the high profile collapse of Carillion at the start of the year, as well as the controversy at Royal Liverpool Hospital, Hammond says that there is ‘compelling evidence’ that the private finance initiative is flawed. He said that PFI contracts do not deliver value for taxpayers or genuinely transfer risk to the private sector. Stating that he has never signed a PFI contract, Hammond ruled out ever doing so in future.

High streets and housing
Transformation of the high street was also given air time in Commons, but to little substance. Hammond has already introduced business rates relief measures worth £12 billion, and said that business rates will be cut by one third for firms with a rateable value of less than £50,000. A £675 million of co-funding to create a 'Future High Streets Fund' to support councils to draw up plans for the transformation of their High Streets was also mooted.

A £500 million fund has been announced for the Housing Infrastructure Fund, designed to enable a further 650,000 homes to be built. The Chancellor also said that all shared equity purchases of up to £500,000 are to be exempt from stamp duty. As expected, the Housing Revenue Account (HRA) borrowing cap was officially abolished, allowing councils to build up to 10,000 homes a year.

Paul Carter, chairman of the County Councils Network and leader of Kent County Council, said: "The infrastructure investment announced to support high streets is much welcomed, as is the additional funding for the Housing Infrastructure Fund. With counties containing 70 per cent of England’s roads, we must receive a proportionate share of the new resources announced today for improving roads, infrastructure and transport links to enable us to continue to support local economies in our towns and villages."

Finance and wages
As well as saying that the basic rate tax threshold will rise to £12,500 and the higher rate to £50,000 from April 2019, Hammond said that from the same month the National Living Wage will rise by 4.9 per cent, from £7.83 to £8.21. Hammond says that thsi will hand a full-time worker a further £690 annual pay increase.

NHS
The Budget announcement also confirmed the extra £20.5 billion for the NHS over the next five years, as promised by Theresa May earlier this year. Furthermore, Hammond pledged a minimum extra £2 billion a year for mental health services, and new mental health crisis centres, providing support in every accident and emergency unit in the country.

Air ambulance services also received a Budget mention, with the Chancellor making £10 million of funding available to help them continue their expert medical work.

The environment
Hammond claimed he would change the dynamics of recycling but said he is not convinced by a tax on plastic cups would affect behaviour. However, the announcement did include £60 million for planting trees in England and £10 million to deal with abandoned waste sites.

This year, the budget was brought forward from the expected Wednesday 31 October date to Monday 29 October due to Brexit negotiations and planning.

Responding to the Budget announcement, Adam Lent, director of the New Local Government Network thinktank, said: “Local public services have endured more cuts than any other part of the public sector over the last eight years. This has thrust councils into a growing financial crisis. The Chancellor’s long list of one off and relatively small cash boosts are welcome but are really nothing more than sticking plasters. If austerity is genuinely to end then councils need a long-term settlement that delivers financial sustainability. Councils will now look to the Spending Review next year for this but given the Chancellor’s modest prediction for spending growth, they will look forward more in hope than expectation.”