The Chancellor said he wanted to use this Budget to a) support people and businesses through Covid-19, b) fix the public finances, and c) build the future economy.

Extending many of the Covid-19 support measures for another six months or beyond – furlough, business grants and loans, the Universal Credit uplift, business rates relief and VAT reductions for the worst hit sectors – along with new reopening support for business, the Chancellor aimed to portray a sense of reliability from Government beyond the Prime Minister’s roadmap out of lockdown.

Against the backdrop of an improved economic forecast from the OBR, with growth now predicted to return output to 2019 levels by the middle of 2022, the Chancellor hoped his emphasis on levelling with the country would help lay the ground for changes in tax and public spending dropping after Covid-support boosted 2021 levels.

An analysis of the longer-term impacts of Covid-19 – on public services, the economy and the burden of tax changes – and commitments to addressing these weren’t developed in this Budget. This challenge meets the urgency to decarbonise and make our economy sustainable in the year the UK hosts COP26. The Chancellor announced this Budget as one ‘for the moment’, and in this moment our economy is still partially shut down, with a roadmap out but not certainty. But what is the Chancellor’s vision for investing in the future economy and committing to levelling up and decarbonising to net zero?

Investing in some places

For levelling up, there were funding announcements for some specific places.

Launching the Government’s freeport policy, eight places in England were announced to be awarded freeport status. East Midlands Airport, Felixstowe and Harwich, the Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames will have new powers to relax planning and offer new tax relief and customs flexibilities to businesses.

The new Northern campus for Treasury, BEIS, MHCLG and DIT officials will be based in Darlington. The new UK Infrastructure Bank – with initial £12bn capitalisation and £4bn earmarked to lend to local authorities – will be located in Leeds. Its priorities will be in climate change and regional growth, but it is not yet clear where it will focus investment and partnerships.

A further 45 Town Deals in England were announced, bringing the total number of towns so far with agreed Heads of Terms with Government to 53 out of the 100 places eligible to bid.

City and Growth Deals in Scotland – Ayrshire, Argyll and Bute, and Falkirk – will be accelerated, and discussions for three further deals in Wales are underway.

Emphasis on central UK funding

The Chancellor announced this Budget as for the whole of the UK. Long anticipated details of future investment for local economic growth were revealed, with the newly UK-wide Levelling Up Fund and UK Shared Prosperity Fund pilots. Both funds will use the new power – a key initiative pushed during the passage of the UK Internal Markets Act through Parliament – for UK Government to invest directly in places in Scotland, Wales and Northern Ireland, bypassing their devolved governments.

Both funds will run competitive bidding but have signalled priority places through unclear formulae. Both funds have slightly different operating models. Both offer relatively small pots of funding subject to agreements on individual projects between places and Government.

The £4.8bn Levelling Up Fund prospectus confirms capital funding will be available for projects up to £20m (or £50m for transport) in transport, physical regeneration with a focus on town centres, and culture and heritage. Local authorities in England, Scotland and Wales have been filtered into three priority categories, with 123 in the top priority group. Investment priorities appear as close descendants of the Local Growth Fund and Towns Fund.

With the LUF focused on capital infrastructure projects, there was also a partial answer to the question of what will replace EU Structural Funds. The Government launched the UK Community Renewal Fund prospectus which sets out the pilot approach to helping places transition into the UK Shared Prosperity Fund – listing 100 places eligible to bid for a share of £220m funding for projects up to £3m in 2021/22. Pilot funding will be used for skills, local business, communities and regeneration, and employability.

What is our future economy?

The focus on the OBR economic forecast and extending Covid response support was important, and funding for the Union was predictable. However, on the Chancellor’s third stated priority, building the future economy, commitments in this Budget add up more to gradual progress on Spending Review announcements than radical investment in the Chancellor’s first post-Brexit Budget a year on from the onset of the pandemic.

The Treasury published a policy paper on Building Back Better alongside the Budget, setting out a framework for future growth centred around infrastructure, skills and innovation. Priorities set a direction from Government for stimulating investment in places, life sciences and green technology, increasing productivity, decarbonising the economy, upskilling and reskilling people, and innovating for growth and international competitiveness.

How does Government link the direction to committing investment? This could have been the time to update on the Green Industrial Revolution with ambitions on medium-long term Government investment beyond new financial instruments – such as the new Green Bond – and select pots allocated this year, to signal the scale of the challenge and the scale of opportunity for private investors. The Climate Change Committee predicts the cost of decarbonising the economy – from public and private sector – will reach about £50bn per year by 2030.

What is the Government’s scale of ambition and strategic view of the economic geography of the country? Places such as the Tees Valley gain a number of strands of investment in this Budget, but local growth investment pots are allocated by competition. Government is committing to new strategies and reforms on devolution, growth and specific sectors, but could enable and work with local leaders now to understand the assets, talent and potential in growth sectors in different parts of the country, and the enabling support and institutional strength they need to succeed post-Brexit and post-Covid. An approach that is too centralised may lose time to invest in building the future economy as we recover.

Partnership with places, commitment to local and subnational institutions, clear outcomes for levelling up, and ambitious investment commitments for achieving net zero would help kickstart our future economy.

Budget announcements

Investment

New funding for places, as part of the Government’s levelling up agenda, continues to take the form of competitive bid processes. The Chancellor announced 45 new Town Deals from the existing Towns Fund, allocating £1bn. He also announced a £150m Community Ownership Fund targeting empty venues, where community groups will be able to bid directly for up to £250k of matched funding to buy and operate local assets.

Alongside the budget, the Chancellor has launched the prospectus for the new Levelling Up Fund.

£220m has been designated as the UK Community Renewal Fund, which will fill the gap left by EU funding over the next year until the development of the UK Shared Prosperity fund in 2022.

Funding for six City and Growth Deals in Scotland and Wales have been accelerated; Ayrshire, Argyll and Bute, Falkirk, Swansea Bay, Mid-Wales and North-Wales, totalling £84.5m in investment.

Eight new freeports have been announced, East Midlands Airport, Felixstowe, Humberside, the Liverpool City Region, Plymouth, Solent, Thames and Teesside. These freeports will have liberalised planning laws for brownfield development, tax incentives and will be able to import, process and export goods outside of the UK’s customs and tariff administration

A new economic campus in Darlington; this will include officials from the Treasury, BEIS and MHCLG, the principle ministries for economic activity. The Chancellor describes this as action to “rebalance the UK’s economic geography”, although these civil servants will remain part of the national Government. The announcement comes alongside a new UK National Infrastructure Bank headquartered in Leeds, with a £22bn capitalisation (£12bn loans and equity and £10bn in Government guarantees).

The expanded financial Covid support came alongside £1.6bn for Covid vaccine rollout and future preparedness, plans to liberalise immigration laws for high-skill and scientific applicants, and a review into R&D tax relief. The Chancellor outlined his ambition for the UK to become a scientific superpower.

The Chancellor announced a large expansion of the Future Fund with an additional £375m to support the scale-up of innovative and R&D intensive businesses. Equity funding will be distributed in rounds of over £20m by the British Business Bank for co-investment in innovative business.

Two new productivity programmes. The Chancellor announced two new programmes for productivity under the brand Help to Grow, building on the work of Be the Business in targeting mid-level British business in management and digital skills.

The Chancellor welcomed the results of Jonathan Hill’s London Stock Exchange Listing Review, aiming to enhance the UK’s attractiveness for equity listings.

Tax changes

The personal tax allowance and National Insurance Upper Earnings Limit will be frozen, resulting in an additional £8.2bn per year for the Treasury by 2025/2026. The pension lifetime allowance and the inheritance tax thresholds will also be frozen until 2026.

Corporation tax is set to rise: increasing to 25% from 2023, after the bulk of recovery has been projected; however, there will be a new band that maintains the current 19% rate for businesses with profits under £50,000, tapering up to 25% at £250,000.

A new super-deduction to drive investment; businesses will be given incentives to invest over the next two years via a new scheme which allows them to deduct up to 130% of the value of an investment from their taxes.

The Chancellor announced a new Green bond for retail investors, which will see a minimum of £15bn in Green Gilts issued over the next financial year. Meanwhile, the monetary policy remit for the Bank of England has been expanded to cover net-zero goals

The stamp duty holiday will be extended up to the 30 June, with a tapered rate which will see stamp duty return to normal levels only in October. Alongside a new government backed mortgage for 95% deposits.

Covid-19 support

The furlough scheme is to continue until September with employer contributions to increase to up to 20% by the end of the scheme, alongside additional support for the self-employed with further rounds of SEISS grants. The 100% business rates holiday will continue until the end of June, and will continue at 66% until the end of the financial year.

Financial support for reopening takes the form of £5bn in Restart Grants, alongside £425m of additional discretionary business grant funding for local government. These grants will aim to allow non-essential retail and hospitality, leisure and personal care businesses to plan reopen safely, with up to £6,000 per premises for the former and up to £18,000 per premises for the latter. Businesses of any size will be allowed to access up to £10m in loans from the Recovery Loan scheme.

The Chancellor announced a further £300m to extend the Culture Recovery Fund, with a new £300m of support for sports, alongside £90m for museums, and funding for grassroots football.

Budget 2021: what is our future economy?