What has Rachel Reeves done for London?

Business groups, the boroughs and affordable housing providers have provided a range of responses to the Chancellor's big, bold budget

Below are two articles which also appear at OnLondon.co.uk, my multi-contributor journalism website which paid subscribers to this personal Substack help fund. If you aren’t a paid subscriber (and don’t support OnLondon through a different channel), why not become one today? In return, you will get things for your money that other people won’t. And it only costs a pound or so a week! Thank you. Dave.

One: On HS2, housing and Transport for London

London is to receive government funds to build the tunnel to link the HS2 rail route from Old Oak Common to Euston station and Transport for London will receive £485 million for its capital renewals programme under measures announced by Chancellor Rachel Reeves in the first budget of the new Labour national government.

Reeves’s measures, which will raise a total of £40 billion, also include London’s boroughs, along with every other local council, being able to retain all their receipts from council house sales made under the Right to Buy, along with a five-year, above inflation rent settlement for all social housing providers to help them increase their building programmes.

The budget also commits the government to exploring how the Greater London Authority might receive an “integrated” funding settlement from 2026-27 along the lines of those already confirmed for the West Midlands and Greater Manchester, which would give City Hall far more freedom and flexibility over how it spends central government funding.

Sadiq Khan has welcomed as “fantastic news” what he called the “substantial additional funding” for TfL, nearly double what was received last year, which the budget document says will “cover rolling stock on  the Piccadilly and Elizabeth lines”, and said the HS2 funding means “the capital can finally realise the full economc benefits of the project”.

The government has also said that resulting private investment in the Euston area “will be further supported” through the appointment of Bek Seeley, formerly of development company Lendlease, to chair the Euston Housing Delivery Group “to drive forward an ambitious housing and regeneration initiative for the local area”.

Camden Council leader Richard Olszewski described the government’s commitment as “an opportunity to start a new chapter for Euston” following “years of uncertainty” with residents of the area facing “years of upheaval and lost homes and livelihoods”.

Olszewski expressed hope for a future with “thousands of new jobs, the restoration of lost green spaces, and the building of much needed affordable homes and community facilities – all delivered alongside a new station.” He added: “Investment in Euston will reach far beyond our borough. It is an opportunity to put innovation at the heart of Britain’s new economy and accelerate the growth of London’s Knowledge Quarter – a home to world leading tech and science businesses and one of our country’s biggest economic hubs.”

Responding to the housing measures, Fiona Fletcher-Smith, chair of the G15 group of London housing associations and chief executive of L&Q, said there was “much to appreciate in the budget, particularly its confirmation of the additional £500 million for national Affordable Homes Programme, but said the rent settlement – set at consumer price index inflation plus one per cent – “falls short of what is urgently needed” when a ten-year deal was required.

As well as welcoming measured to boost housebuilding, the cross-party London Councils, which represents all 33 of the capital’s local authorities, praised the budget’s £233 million of additional funding for local government services preventing homelessness and its further investments in special educational needs and social care provision.

However, it stressed again a forecast overall funding gap of £700 million for the capital’s boroughs and a “28 per cent real terms reduction in funding per Londoner since 2010” and still anticipates “a sizeable shortfall”.

London Council chair Claire Holland, also leader of Lambeth Council, said: “While the Budget will help to address some of the immediate pressures we face, the outlook for borough finances remains extremely tough after 14 years of structural underfunding. Next year’s Comprehensive Spending Review will be a crucial opportunity to ensure London boroughs have the resources we need to be an effective partner to national government over the coming years and help to drive growth across the capital.”

Two: Responses of London business groups

Two of London’s leading business groups have reacted with concern to Rachel Reeves’s budget, expressing worries that a combination of higher taxes on employers and a hike in the statutory national minimum wage rate will make it more difficult for firms in the capital to thrive and help produce the government’s desired increase in economic growth.

Reacting yesterday, Karim Fatehi, chief executive of the London Chamber of Commerce and Industry (LCCI) said “London businesses are losing faith in the government’s economic growth strategy”, arguing that they have been left “shouldering the consequences of this Budget with minimal support” having been “promised stability and an operating environment conducive to growth”.

Muniya Barua, deputy chief executive of BusinessLDN, made similar points, saying “a hike in employer national insurance contributions will be difficult for many firms to absorb on top of an above-inflation rise in the minimum wage. This may force employers to think again about hiring at a time when London’s labour market is stalling and unemployment in the capital is at a three-year high.”

The Chancellor said that £40 billion will be raised from taxes, with more than half of that coming from an increase in the rate of National Insurance paid by employers and a lowering of the threshold at which they start having to pay it. The changes are designed to enable more public investment, including such as the National Health Service, as part of an overall increase in annual spending to £70 billion a year, but Reeves has accepted that this is likely to have adverse effects on wages increases, prices and employment.

This is in line with the assessment of the independent Office for Budget Responsibility’s view that more than half of the cost to companies of paying higher taxes will be passed on to workers and consumers and the rest absorbed in the form of reduced profits. The OBR estimates that the employer National Insurance rise will “reduce labour supply by 50,000” but  also anticipates employment rising “by around 200,000 a year on average between 2024 and 2029, owing to population growth”.

Both Barua and Fatehi expressed regret that Reeves did not do away with the so-called “tourist tax” – the ending by the Conservatives of VAT-free shopping for overseas visitors – which, according to Fatehi, is costing Britain as a whole “£11.1 billion in lost GDP every year” due to potential high-spending visitors, many of whom would come to London’s West End in particular, being deterred.

There were welcomes, however, for news that funding will be provided for extending the HS2 rail link from Old Oak to Euston station, with Barua also praising “changes to the fiscal rules to boost infrastructure spending” and Reeves’s focus on housing. She and Fatehi renewed pleas for a new, long-term funding deal for Transport for London as soon as possible, and Fatehi applauded “commitments to transform the Apprenticeship Levy into a more flexible scheme”.

Barua urged the government to put the capital’s devolution deal on a par with those of Greater Manchester and the West Midlands, which were given “trailblazer” settlements under the Tories, allowing those regions’ Mayors far more control over how their funding is spend. The government has committed to exploring how an “integrated settlement” of that kind might apply to London “from 2026/27”.

Photo grabbed from BBC News. PS: Buy my books!