Since the announcement of the Autumn Budget by Philip Hammond on Monday there has been a raft of analysis at the national level regarding what the budget means. In particular, attention has focused on Hammond’s claim that the era of austerity is “finally coming to an end”, the introduction of a £1,000 increase in Universal Credit work allowances which will provide a £630 boost to lower-income families and a one-off £400m “bonus” to help schools buy “the little extras they need“. The Resolution Foundation has produced an interesting briefing response to the budget arguing that it represented “bigger political and economic shifts than many anticipated” and that although it does not end austerity it will “significantly ease” it. The Institute for Public Policy Research contends that “the Chancellor has amended rather than ended austerity” and that “extra funding for Universal Credit and social care are welcome but do not reverse the damaging cuts made to both”. Overall, the Chancellor can be considered to have deliberately chosen to prioritise spending rather than further reducing tax cuts. However, there has been less analysis of what the budget means for regional growth. This blog will consider how the budget is likely to affect economic conditions across the regions, particularly Birmingham and the wider West Midlands area.
Birmingham and the West Midlands
The Birmingham Economic Review 2018 stressed the many strengths of Birmingham’s economy including its high GVA growth rate, its strong track record on foreign direct investment and the highest inward investment outside of London, its strategic location at the heart of major transport networks, its world-class services sector, and its six universities which make it the largest centre of higher education in the country outside London. With the upcoming arrival of HS2, major infrastructure developments around Paradise Circus, Birmingham hosting the 2022 Commonwealth Games, as Paul Faulkner, CEO of the Greater Birmingham Chambers of Commerce puts it in the report “Birmingham is currently electrified by excitement”.
However, Birmingham’s economy and the economy of the West Midlands more generally face important weaknesses and challenges which must be addressed as a priority in the next few years to sustain and develop Birmingham’s national and global economic competitivity. In particular, as is clear in City-REDI’s West Midlands Data Book, the West Midlands Combined Authority has a lower than average employment rate and a higher than average unemployment rate. Another key challenge for the future is addressing job polarisation in the local labour market in relation to occupational groups and skills. The UK’s Industrial Strategy is based on five foundations: ideas, people, infrastructure, business environment and places. What does the recent budget offer to the West Midlands in terms of increasing productivity and earning power in relation to these pillars?
Andy Street Mayor of the West Midlands has welcomed the Chancellor’s Budget, describing it as “a £100 million vote of confidence in the region’s ongoing economic revival”. Which projects are to be funded and are they enough to support sustained economic development in the region?
Ideas
The ideas strand of the Industrial Strategy relates to the Department for Business, Energy and Industrial Strategy’s goal of making the UK the world’s most innovative economy. The budget provides up to £20 million to the West Midlands Combined Authority to create the UK Mobility Data Institute. The research centre, which is a joint venture with Warwick Manufacturing Group will collect, process and analyse huge volumes of transport data generated by new mobility technologies and projects. For example, testing connected and autonomous vehicle (CAV) technology and infrastructure on roads in Coventry, Solihull and Birmingham. Significantly, the Institute will be located within the UK’s first urban 5G network after the Government announced the West Midlands earlier this year as the initial pilot area for the superfast mobile technology. Attracting the Institute is a big coup for the West Midlands building on the region’s strengths in the automotive and IT sectors. This is a good example of universities and industry working together – crucial to successful innovation and enabling R&D to be translated into new commercial projects.
People
The ‘people’ pillar revolves around ensuring good jobs and greater earning power for all. Addressing the skills gap in the West Midlands must be considered central to this. In terms of training, whilst funding for a regional pilot of on-the-job training for young people has gone to Greater Manchester – in view of their greater devolved responsibilities for apprenticeships and oversight of skills – the West Midlands will still benefit from the support for apprenticeships announced in the budget. Among other measures the government will make up to £450 million available to enable levy paying employers to transfer up to 25% of their funds to pay for apprenticeship training in their supply chains and provide up to £240 million, to halve the co-investment rate for apprenticeship training to 5%. The What Works Centre for Local Economic Growth recently reviewed the value of apprenticeships, finding that some evidence exists that apprenticeships improve individual skills levels and stimulate further training and that apprenticeships have a positive impact on subsequent employment. Nonetheless, they point out that in the UK participants on higher apprenticeships benefit from substantially higher lifetime wage gains than those on lower apprenticeships. Therefore for the West Midlands to use increased government funding, to address the skills gap, it is essential that it seeks to create high-quality apprenticeships. The Combined Authority and Local Authorities must engage employers in creating long-term apprenticeships that lead to participants developing transferable skills.
Infrastructure
Infrastructure investment for the West Midlands in this budget comprises of £71.5 million allocated from the Transforming Cities Fund for significant investment in transport initiatives and £20 million to develop and trial the UK’s first Future Mobility Zone. It is positive for the West Midlands that this is the highest amount of any of the 6 metro mayor regions contributing to the region’s ability to modernise its transport infrastructure. The key question though is which projects will be prioritised. According to the West Midlands Combined Authority, the Future Mobility Zone will enable the region to be at the forefront of technological innovation such as self-driving shuttle buses and e-bikes. One aspect of transport infrastructure that it would have been positive to see in the budget, which was not there was a commitment to agreeing stage 2 of HS2 linking Birmingham with Manchester and Leeds. As Professor Simon Collinson, Director of City-REDI argued when interviewed on Radio 4’s Today Programme when interviewed earlier this week, phase 2 is essential for improving regional transport infrastructures and for more balanced regional economic development.
Business Environment
The budget did not offer specific support for improving the business environment in the West Midlands. However, the £675 million for a new national Future High Streets Fund and £900m in business rates relief for small businesses announced are likely to contribute to rejuvenating high streets in the region. Interestingly, only last week the West Midlands Combined Authority launched a project to transform and revitalise town centres across the region through funding, expertise and support from the WMCA and other partners. Only 5 centres are to be supported in the project though, therefore businesses and high streets elsewhere will need to take advantage of national funding and look to examples elsewhere of how to innovate e.g. through the use of technology or better understanding what customers want.
Place
The final strand of the UK’s Industrial Strategy – Place – aims to build prosperous communities across the UK. A major announcement relating to this in the budget is the allocation of £8.5 million to support Coventry to host the UK City of Culture in 2021. It will fund the refurbishment of the Belgrade Theatre auditorium and establish a new creative talent hub and invest in Coventry’s Cathedral Quarter, including the refurbishment of historic venues, the creation of additional exhibition space and a centre for music education and concerts. City of Culture offers Coventry and the wider West Midlands the opportunity to be in the national spotlight. Evidence from Hull which was UK City of Culture in 2017 demonstrates the potential economic and cultural benefits for the city. Nearly 800 new jobs were created in the visitor economy and cultural sector in Hull between 2013 and 2018, as a result of investments totalling £219.5 million in the cultural and visitor economy, fully or partly attributable to Hull being awarded UK City of Culture status.
Conclusion
Overall, this budget must be seen as positive for the West Midlands. It provides investment in connectivity, skills and infrastructure. However, questions exist over the extent to which the levels of funding announced this week will be sufficient to make a substantial impact in terms of addressing long-term gaps in productivity and skills levels. Also, we must not forget that if Brexit is not delivered smoothly – which appears to be a very real possibility at present – we may be discussing a new budget again in 6 months’ time. The key question then would be whether the Chancellor seeks to promote economic growth through using the remaining government reserves to invest in public services and promote spending, or whether the Chancellor would switch to adopting a low-tax Singapore style economy with much reduced public sector spending.
This blog was written by Dr Abigail Taylor, City-REDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.
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