Johannes Read, Senior Policy and Data Analyst at the City-Region Economic Development Institute (City-REDI) outlines that announcements made in the 2025 Budget on 26th November is more about tinkering with the edges, rather than a deeper, and arguably necessary, reform.
Tackling different types of challenges
Football is a big part of my life. As a central defender, I was taught by coaches that you can’t “nice the opposition off the ball”. In other words, to be able to make an effective impact on the game, it is important to focus on the issue and make the challenge fairly and strongly. As I’ve moved into my job working in economic policy and analysis, there are some parallels with my experience playing football. Only this time, there are different kinds of challenges to tackle.
There are many economic problems facing the UK. The OBR’s Economic and Fiscal Outlook report (released, rather embarrassingly, before the start of the Chancellor’s announcement) has revised down medium-term productivity growth by 0.3 percentage points to 1.0%. There is a similarly negative story surrounding GDP. Whilst the previously-forecasted 1.8% growth rate between 2026 and 2029 was not exactly something to write home about, it was still more than the 1.5% growth that is forecasted now.
What these economic analyses don’t often do is look at the distribution of economic development. Economists tend to analyse impacts of the Budget in the aggregate. Which can pose an issue, particularly as inequalities are everywhere. In wealth between generations. In geography and health. In class and education. And many more. A government cannot ignore the unfair distribution of economic growth. Not least one that has lost much of its popularity from its 2024 election win.
Can you “sensible your way” to prosperity?
It’s fair to say I didn’t make it as a professional footballer. I still play regularly now, but my fair-play style did not fit with the aggressive front-foot type of player the academies were looking for. If I was to draw a comparison, I would direct similar criticisms at the 2025 Budget. The choices made in the Budget might seem like “sensible” economic policy, in terms of increasing spending and reducing debt. But, at the same time, fail to make their mark on tackling the challenges that the public want and need.
Faced with a commitment not to return to austerity, the Labour government Budget increases spending every year up to £11bn in 2029-30. This is in line with the choices made in the 2025 Spending Review, which outlined commitments to increase public spending on infrastructure and priority areas such as health and defence, but also reduce budgets in lesser priority areas.
Still, only a small proportion of announcements progressively address the distribution of income, wealth and assets in the UK economy. Analysis from the Resolution Foundation shows that the removal of the two-child cap to benefits is a cost-effective way of reducing child poverty for 480,000 children. The Mansion Tax has garnered plenty of commentary, but this is forecast to raise just £0.4bn. A planned 2% increase in taxes on dividend incomes aims to address wealth inequalities with the Chancellor citing the example of “a landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant with the same salary”. But, like the Mansion Tax, the changes in dividend tax rates are forecast to bring in £1.2bn per year. This is 10 times less than income from freezing tax thresholds which would bring in £12.7bn per year. Whilst these changes address wealth inequalities, the scale is not enough to make a dent in addressing the range of inequalities seen across the UK. The government might try to be “sensible” with economic policy. But, on its own, it is unlikely to be enough.
What does the 2025 Budget mean for the West Midlands?
The Budget makes changes to fiscal policy across the UK. Still, these impacts won’t be the same across the country. Here are some key points and what they could mean for Birmingham and the West Midlands.
| Budget 2025 Announcement | Effect in the West Midlands | Effect in Birmingham |
|
|
|
|
|
|
|
|
|
Announcements for the West Midlands
The 2025 Budget has outlined specific support for the West Midlands. Amongst the announcements include:
- English regional mayors to be given powers to tax overnight stays in hotels and holiday lets. A record 5 million tourists visited the West Midlands in 2024 and could provide another source of revenue for the West Midlands Mayor.
- Reinforced commitment to the Midlands Rail Hub which would help add up to 300 trains into or out of Birmingham, building better connections to Nottingham, Leicester, Bromsgrove, Nuneaton, Worcester, Hereford and Cardiff.
- Launch of 120 new Neighbourhood Health Centresacross the country, with new sites in Birmingham amongst others to be operations by 2030. The aim of the Neighbourhood Health Centres is to co-locate local health services such as GPs and physiotherapists to improve access to care and support a more preventative and sustainable NHS.
- Devolution of £13bn of flexible funding on skills, business support and infrastructure to seven Mayoral Combined Authorities in England. This builds on existing Trailblazer Devolution deal for the West Midlands.
This blog was written by Hannes Read, Policy and Data Analyst, City-REDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the author and not necessarily those of City-REDI or the University of Birmingham.