The Spending Review is going to be a challenge for the Chancellor. He will need to continue with much needed cuts to government expenditure whilst keeping in mind the need to achieve a range of ambitious economic and social goals. There are two obvious examples.
The first I have written about here: if the Government is going to halve the disability employment gap and hit full employment, cuts must come at the same time as significant reform to employment support.
The second is about geography. If plans for the Northern Powerhouse are to become a reality, cuts must come alongside a clear plan of action to support the growth of a stronger, more prosperous economy in the North of England. This is going to present a difficult balancing act. As part of a programme of work on Delivering the Northern Powerhouse, WPI Economics have been talking to businesses in the North of England to understand how the initiative can be a success. There are three key principles the Chancellor should follow:
1) Devolution must be real. Previous experience has shown us that the devolution of power and finances is often simply a cover for cuts to budgets (the devolution of Council Tax Benefit is a key example). If the North is going to become stronger, the Chancellor must resist this temptation at the Spending Review. Any new announcements on devolution must be about quality services and greater control and accountability, not just an exercise in shifting the blame for cuts.
2) National investment decisions need to support the North. Planned investment in the North of England is currently much lower than in the South in many essential areas. For example, the 2014 National Infrastructure Plan shows that total planned investment in transport infrastructure in the Northern Powerhouse regions is some £1,000 per capita lower than in London. Meaning that, compared to a situation where per capita spending rates were matched, transport investment in the North will be billions of pounds lower than it would otherwise have been over this Parliament. Announcements at the Spending Review need to start to address this imbalance and the issue must also be at the forefront of Lord Adonis’ mind as he begins his work with the National Infrastructure Commission.
3) Make the Northern Powerhouse more than a narrative. Businesses that WPI speak to support the principle of the Powerhouse. But many are not clear what it actually means in practice and worry that the Government will lose interest. The instability and uncertainty this creates could seriously impact investment decisions and the future of the Powerhouse. Here the Government must learn lessons from the Corporation Tax Roadmap and use the Spending Review to provide clarity and a firm plan on key areas of Government policy that implant on the North. It must also be clearer of its commitment to co-invest with businesses in the North who are already investing billions in the economy.
Delivering reforms that stick to these principles and that make the Northern Powerhouse a reality would help to show that the Spending Review is about more than just cuts. Alongside reforms to employment support, it is a prime opportunity for the Chancellor to present a more positive side to his plans for the next five years and beyond. Let’s hope that when he stands at 12.30pm on Wednesday, the Chancellor shares our vision.