Does the Chancellor’s Spending Review help us Build Back Better?

On Wednesday, 25^th November, the Chancellor delivered his Spending Review for the 2021/22 financial year, (SR20). It was always going to be a sombre affair, with many parts of our economy still in the eye of the Covid-19 storm, the economic consequences of which are still unfolding. However, there was clearly a determination to put some of the ‘build back better’ building blocks in place, and there were a number of welcome decisions about infrastructure funding and measures intended to stimulate housing, growth and the levelling up of the economy.

If you have been following the avalanche of policy proposals emerging from Government over the last few week, it is clear that SR20 cannot be evaluated in isolation. It needs to be read alongside: the Ten Point Plan for a Green Industrial Revolution; the ‘Planning for the Future’ White Paper; the new National Infrastructure Strategy and Green Book review both published last week. Even today’s launch of the post Brexit ‘Path to Sustainable Farming’ will have a major bearing on our approach to biodiversity, flooding and food production that could influence our approach to community development.

This is one a many commendable intentions put forward throughout these policies, but we believe that it will be the effectiveness of the integration between the SR20 and these other initiatives that will determine our success in building back better. As further details emerge, we will be exploring themes where we consider the integration of spending with policy to be most critical, and reflecting upon how we and our clients can contribute.

We start by putting a spotlight on three of these – delivery of better housing; supporting radical changes in our economy and how the public and private sectors can work together to deliver clean growth, social value and levelling up commitments. We will also explore the common themes that will be critical to effective investment – collaboration between public bodies; place-based decision making and sustainable building for the future.

Can the Spending Review support the delivery of more and better housing?

The Government’s long-term housing strategy and its intention to invest in infrastructure to unlock development is well-documented, but what is really different this time around? What will make these latest proposals more effective in supporting the delivery of enough new homes; of a suitable diverse mix and tenure; in places where people want to live and support the goal of building better communities?

It is [broadly] accepted that insufficient new homes have been built in the UK for generations and the latest SR provides some key initiatives to address this. Announcements of a new National Home Building Fund, extension to the Affordable Housing Programme and changes to the Green Book – in particular the commitment to no longer accept ‘place blind’ - should support the Government’s ability to intervene and support those areas which historically have had less success in delivering homes where they are needed.

However, this agenda should not all be about the numbers of homes built. The scale and immediacy of the country’s housing crisis is acute but it must also balance the need for speed of delivery with an equally compelling need to focus on placemaking. Output without quality risks replicating common mistakes, which lead to unsustainable developments that are poorly designed and lack identity.

Overall, the measures announced by the Chancellor seem to be a move in the right direction. The devil, as always, will be in the detail. Central Government inter-departmental governance and decision-making will prove pivotal in their ability to identify, prioritise and support the array of interventions it has at its disposal to make a step-change to the housing agenda - for example, driving integration of the Government’s Green Industrial Revolution with decisions concerning spatial planning and design to transform the quality of life outcomes of our new communities, particularly when, for example, the Planning White Paper makes no substantive reference to the levelling up agenda.

How can local authorities, developers and investors work together to transform our economy?

The Department for Business, Energy and Industrial Strategy is a significant beneficiary of the 2020 Spending Review. The combination of the Government’s 10 Point Plan for Green Industrial Revolution and the National Infrastructure Strategy (NIS) has resulted in a series of new short-term funding pots aimed at bolstering transport, energy and digital communication infrastructure. The hosting of the UN Climate Change Conference (COP26) next year, provides an immediate incentive for the Government to be seen to be investing in decarbonisation, low carbon technologies and carbon capture; however, while a figure of £3bn of new money is touted, the timescales for spending go well beyond the next financial year.

One aspect of the NIS is proposed investment in digital communications. As well as the significant investment in enabling 5G and the creation of a platform for smart cities and mobility solutions, there is also a plan to rollout 4G to the hardest to reach parts of the UK, making a clear link to the Levelling Up agenda. A read across to SR20 suggests that no new money has been committed to this initiative for next year, indicating again that timing of spend might be an issue for those harder to reach places hoping to be the beneficiary of better connectivity

The NIS sets out a vision for a new UK Infrastructure Bank to be headquartered in the north of England to provide a vehicle for the Government to ‘co-invest’ alongside the private sector in infrastructure.  However, while the new Infrastructure Bank is referred to in SR20, there is no indication that it will come forward in the next year, so for now, the pathways for private sector investment are likely to remain at the local level, linked to individual projects. The focus is clearly on stimulating immediate recovery so SR20 directs £557.5m towards the British Business Bank aimed primarily at giving small businesses access to finance to support their growth.

SR20 also confirms the intention to establish 10 Freeports across the UK, grandly explaining that they will become ‘national hubs for global trade and investment across the UK, promoting regeneration and job creation and creating hot beds for innovation’.  Freeports are clearly seen by Government as a key plank of the commitment to sustaining post-Brexit trade, but while some funding has been announced, it appears to relate to England only and has at least partially been allocated out of already announced Towns Fund monies.

So what does this all mean for local authorities, developers and investors? While a raft of measures have been announced, there is going to be a need for further clarity on how any new money is to be allocated across the difference schemes and programmes. Place based funds, such as the Levelling Up fund, appear the likely route for locally focussed public sector investment, but there are important questions about how investment decisions are to be aligned with place. For example, the larger than local geography of energy and digital communication schemes means that it is possible that investments may be made in Freeports or other areas of innovation, with little or no understanding of other local projects being delivered through existing programmes such as the Towns Fund or Future High Street Fund.

Local authorities will need greater capacity, capability and support to navigate this complexity to successfully access funding allocated as a result of competitive bidding, and co-ordinate with developers and investors to establish the integrated, place-based approach that appears now to be a pre-requisite.

For investors, the failure of the SR to kick-start the NIS’s Infrastructure Bank appears disappointing. In the short term, developers are more likely to focus on the economically viable places for investment. Transformative, levelling-up, is not the likely outcome.

Local government and the development industry need to work together to deliver growth as well as Government’s climate change, social value and levelling up commitments.

The £4bn Levelling Up Fund (with another £0.8bn earmarked for Scotland, Wales and N Ireland) will result in funding for next year of £600 million. This is similar in scale to that already committed through the Towns Fund and similar initiatives (£621million). It aims to increase funding available to less prosperous communities to help improve their places.

Funding allocation decisions will continue to be made in line with the Treasury Green Book. Welcome changes published yesterday aim to ensure that spending on place, housing and infrastructure is more closely linked to wider Governmental objectives including Net Zero. This increased prominence to environmental objectives widens the range of measures, which alongside benefit cost-ratios, are taken into account in establishing value for money to the public purse.

The experience of the Future High Streets and Towns Funds suggests Government is increasingly recognising that, as well as local authority capacity, towns and communities need to have additional resources available if they are to make effective bids and critically, deliver much needed change. Helpfully, the revised Green Book also responds to this, indicating availability of ongoing guidance for supporting business case development. This is going to be critical, especially providing support for decision makers and their officials, to make sure that the intended rebalancing of investment actually takes place.

As indicated above, with the UK hosting COP26 in Glasgow next year, measures to reinforce the move to Net Zero are broadly cast throughout the Spending Review. In the transport sector, we have £2bn earmarked for investment in EV charging points, and support for quieter, cleaner buses, including the UK’s first All Electric Bus Town; and in the energy sector we have the £3 billion BEIS funding to support new carbon capture and storage plants by 2030, increased investment in building efficiency, and support for the further transition to offshore wind, hydrogen and other fuels, and large scale electric battery production.

Critical though, will be the co-ordination of transport, energy and the built environment, to ensure each of the measure independently act effectively for communities and the environment.

Our preliminary review raises a number of issues, and some common themes which will have an impact on the success of the spending review delivering a smart, clean recovery.

According to the Institute for Fiscal Studies (IFS) the Chancellor has left his plans for capital spending largely unchanged – there was little in the way of new funding. Instead, what we largely saw was a distribution or reallocation of the large sums already previously announced. Nevertheless, public sector net investment is set to average 2.9% between 2021-22 and 2025-26, more than twice the 1.4% average seen over the past 40 years. It is therefore critical that this once in a generation investment is spent wisely and effectively.

We suggest three common themes that will be critical to this:

1. There is a need to maximise cross public sector coordination and collaboration between departments and across public bodies: Our initial review suggests that there is work to be done in this area, to ensure that the objectives of the 10 Point Plan for a Green Industrial Revolution are aligned with Treasury’s spending plans and MHCLG’s reform of planning. There are also a number of multi-departmental programmes, such as the Shared Prosperity Fund, (ERDF and other EU replacement funds), and the Troubled Families programme, both of which are joint BEIS and MHCLG programmes; or the Levelling Up Fund which is sitting within the control of the Treasury to be allocated between Department for Transport and MHCLG. Cross-departmental collaboration is likely to be central to effective delivery
2. Delivering better outcomes for places will need co-ordination of funding at the national level with place-based decision making at the local level to ensure our cities and towns have the modern infrastructure needed to achieve Net Zero while encouraging growth across the country. Most importantly, departmental spending plans, transport in particular, will need to be fully aligned with local needs for growth and community development, for example by repurposing infrastructure to support new forms of mobility or energy generation and adapt to the emerging smart growth agenda so that  healthier more sustainable and resilient communities can be delivered.
3. Speed of action is clearly important, but the long-term challenges of climate change, and the health and wellbeing of our communities are now not so long term, and we need to build back better, not just build back. Whether it is tunnel vision on housing delivery rather than a focus on quality of place, or a pre-occupation about the cost rather than the value we derive from our national infrastructure, the risk of poor social and environmental outcomes from this investment is a real and present danger which needs to be guarded against. There is a continuing risk of creating communities that are unfit for the future. Investors, developers and local authorities are ready to engage, but need the right signals and support from government to drive progress.

A feature of major policy announcements is, understandably, the alignment of the narrative around key political messages. However, a recent YouGov survey of 100 MPs, suggested that over half of our elected politicians feel that government and other promoters have failed to communicate the importance of major infrastructure programmes, that local communities do not really understand the benefits that infrastructure can bring, and do not believe that local impacts justify wider national and global benefits. 

One hope at the time of the formation of the National Infrastructure Commission was that the national infrastructure debate could focus on the evidence of need, thus enabling greater engagement of local communities in understanding the wider narrative for infrastructure delivery. This has partially worked, but there is much more to do to if the high ambitions, spending and power of Government is to succeed in delivering the smart, clean growth future we are all hoping for.

There is therefore a real need for a national conversation about the importance of achieving net zero, and the steps we are all going to have to make to get there. This will need closer links with and between industry, local government and community stakeholders who will be central to driving change.