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What does the Autumn Statement mean for levelling up?

Avoiding the most dire predictions, the Chancellor still announced a fiscal policy that will only serve to level down.

By Jonny Ball

Jeremy Hunt’s Autumn Statement has set the levelling up project on yet another uncertain path, just weeks after Liz Truss’s government was ignominiously removed from office. Where Truss harboured a libertarian-inspired vision of “Investment Zones”, unfunded tax cuts, cranked up deficits and deregulation, Rishi Sunak and Hunt were expected to chart a more orthodox path. Had Truss not been prematurely ejected from No 10 after spooking the gilt markets, we might know how interested she really was in promoting regional equality. But now we have more of an insight into the intentions of her successors.

The very worst of the predictions have not come to pass. The Chancellor has recommitted to Northern Powerhouse Rail and to the second leg of HS2 to Manchester – even though the press had been warned that they would be likely victims of a capital spending cull prior to the announcement. Everybody will pay more tax due to the stealth rise hidden behind fixed, non-inflation-adjusted thresholds, but it’s the wealthiest who will pay significantly more, and the minimum wage will also rise. Benefits will go up in line with inflation, and significantly looser fiscal rules will now be applied that push the need for budget surpluses further into the future, avoiding even more stringent departmental cuts.

Yet other announcements make for grim reading. The already grossly inadequate budget for levelling up was protected in cash terms, but will not be adjusted to account for inflation, meaning it is subject to a real-terms cut. The Office for National Statistics is predicting a long and painful recession. Living standards are undergoing an unprecedented squeeze and real wages are lower than when the Conservatives took power in 2010. While departmental budgets are protected for now – at least in cash terms – real-terms cuts will be imposed down the line.

As was the case during the previous period of spending cuts under the former chancellor George Osborne, local councils will bear some of the highest costs of the new period of austerity. They have been given the freedom to raise council tax by 5 per cent, but this will further squeeze the incomes of residents, and council leaders have warned that it will not be anywhere near enough to cover the extra costs they are incurring due to sky-high inflation. What’s more, poorer authorities with lower-value housing stock, whose residents pay less council tax, will be less able to bring in the extra cash than areas with larger proportions of higher-band houses. This doesn’t bode well for a government still rhetorically committed to closing geographical divides.

The UK has the worst growth projections of any large industrialised nation except Russia, but the statement included little in the way of a strategy to remedy the country’s anaemic growth rate since the financial crash of 2008. Truss’s Investment Zone proposals were half-baked. The principal beneficiaries would have been companies absolving themselves of the need to pay tax. But Downing Street’s new commitment to producing university-led growth clusters in “left behind” areas offers little to replace them. The economic approach of Kwasi Kwarteng, Truss’s chancellor, was fatally flawed and significantly worsened the UK’s outlook, but it was a strategy nonetheless. The Autumn Statement, meanwhile, serves up nothing that looks like a serious long-term plan for growth and recovery: incentives for business investment in skills, manufacturing plants and research and development in the form of the tax super-deduction were confirmed to be expiring next year; no new long-term public capital investment was announced; the investment zones were watered down; and there was no mention of reform of the planning system, cited almost universally as the major drag on housing and infrastructural development.

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With outlines of the next two years of fiscal policy now set out in black and white, what does it all mean for the future of the levelling-up project? It was meant to be the core transformative vision, the thread running through the 2019 Conservative manifesto that would consolidate the post-Brexit political realignment in which swathes of the Red Wall had turned blue. Instead, the government is serving up policies that will lead to a great levelling down. Inevitably, more vulnerable areas will be hardest hit. Cash transfers to benefit claimants and a rise in the minimum wage will barely begin to paper over the cracks of a record decline in workers’ average purchasing power. The ameliorative measures in the budget only offer sticking plasters, and certainly don’t reveal any long-term vision. Historically, no government survives after presiding over such serious (and partly self-inflicted) economic turmoil and belt-tightening. At the next election the Conservatives will surely be punished.

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[See also: The Autumn Statement was an elegy from a Conservative Party in mourning]