Budget Break

Normally, ahead of Budgets, I advise not reading too much into the speculation and waiting instead for the actual statement from the Chancellor of the Exchequer. Over the years, I’ve seen many policy kites flown on copious amounts of hot air, only to crash to earth.

But what we’ve seen over the last few months is different.  The working out behind the Budget is on full display. In times past, Chancellors resigned if the Budget leaked in advance. Nowadays, we’re lucky if anything announced on the day is a surprise.

Courtesy of leaks and trailing, we can look with some confidence at what might be in store for London and the built environment. As always with big financial moments, there are winners and losers.

Giveth

Let’s start with the DLR Extension to Thamesmead – great news that this finally gets the go ahead, and a big win for the Mayor, local council leaders, business groups and developers. While relatively modest in scale (and cost!) compared to London’s other big asks like Crossrail 2 or the Bakerloo Line Extension, it signals a vote of confidence in the capital. Crucially, it will help unlock thousands of new homes in southeast London.

We haven’t yet seen how this will be funded – expect a game of smoke and mirrors, a combo of local authority and developer contributions and more TfL borrowing. Ministers, worried about the response from northern political leaders, are reluctant to be seen writing big cheques for London. Their aim will be for it to look as little like a central government funded project as possible (while wanting to claim credit at the same time!).

City Hall will also be pleased with reports that the Mayor of London (along with mayors across the country) will gain the power to levy a modest charge on overnight hotel and Airbnb stays. We may find out tomorrow how exactly this will work and on what the monies – predicted to be around £200m a year – could be spent.

Not everyone is happy – the hospitality sector is particularly upset. Nor do I expect London’s local authorities – particularly those generating most of the income – to be pleased that the Mayor gaining this power, rather than them. Might the consolation be how City Hall involves the boroughs in deciding how to spend the money?

Taketh

London and the wider southeast look likely to be disproportionately impacted by changes to personal, business and property tax. Given that these changes are to levy a ‘wealth tax’ without explicitly calling it so, unsurprisingly the part of the country (London) with the most expensive properties, highest land values and largest number of high earners will bear the brunt. Expect to see new Council Tax bands for high end properties and tax changes for sales of the most expensive homes – the last-minute jockeying will be over the level at which these changes will kick in.

Elsewhere, London’s universities will be watching closely for any more news on the proposed overseas student levy. Umbrella body London Higher estimate the total cost of the levy in the capital alone could be as much as £220m. In a global marketplace for overseas students, passing on the levy in increased fees isn’t that simple, leaving London’s universities to absorb costs elsewhere in budgets. Any fall off in international student numbers could impact the cross-subsidisation of other activities including domestic student costs and would undermine one of our most successful exports.

Wait, Baby, Wait

For the built environment, many will be nervously waiting for the contents of the Budget. The recent announcement from City Hall and the Ministry of Housing, Communities and Local Government of a package of measures to kickstart housebuilding in the capital was welcome insofar as it went. As well as working through the details of what the package means in practice, how many developers will also be holding fire until after tomorrow? Any support with viability challenges could easily be wiped out by other corporate tax and policy changes.

When politics and economic collide

Might the more positive mood music around London be a sign of improved relations between City Hall and Whitehall? Clearly, Steve Reed’s arrival as Housing Secretary – being a London MP and former council leader in the capital – is an additional strong voice for the city at the cabinet table.

Being cynical, perhaps the government learnt their lesson from the Spending Review, when the lack of anything positive for the capital led to red-on-red attacks spilling into the media. This time, to head off criticisms, goodies have been dripped out, setting the narrative and making it harder for London be critical.

Listening closely to the language used by the Chancellor will give us a sense as to the mood – again, the Spending Review included one or two (unnecessary, in my view) barbed comments directed at London. Of course, the Budget itself could still include some nasties for London!

London’s position in the national political debate continues to influence and shape government attitudes towards the capital. Whereas the last government could be accused of neglecting London, the current government could be accused of taking it for granted. No 10 strategists are calculating (rightly or wrongly) that London will vote Labour regardless.

I’d flag two issues with this, which will both be worth watching closely in the coming months. First, whether a prolonged flatlining of the economy prompts ministers to turn to London (and the southeast) for quick growth ahead of the next General Election.

Second, whether London’s voters do indeed continue voting Labour regardless. The polls suggest not – since polling 58% after the 2024 Mayoral contest, Labour has slumped to 25% with the Greens nudging ahead in recent weeks. Next May’s local elections look very tricky indeed for Labour.

Party strategists will be banking on London’s progressive voters turning out for the party at the next General Election when faced with the prospect of Nigel Farage in Downing Street. But it’s quite a risky strategy – more so if London’s voters judge that the city has been undervalued and ignored by the government.

Might London’s voters wake up to those areas which have been savvier in getting the government’s attention by not voting Labour? A deliberate response to Reform UK’s growing strength in the north and the Midlands is more government investment going to those areas. The opposition party leaflets almost write themselves – vote Labour in London and be taken for granted.

End of the Budget as we know it

There’s no point beating around the bush – the run up to tomorrow’s Budget hasn’t been handled well by the government. Just look at the spectacle of the Chancellor summoning the media to a breakfast speech a matter of weeks ago in which precisely nothing was said. Marching the public (and her own MPs) to the top of the hill on income tax increases only to be marched back down again undermined the Chancellor’s political credibility.

Then there is the economic impact. Former Bank of England Chief Economist Andy Haldane criticised the constant speculation – fuelled by deliberate leaks and briefing – about changes to tax, dubbing it a “fiscal fandango” and saying that it is the “single biggest reason why growth has flatlined”. It’s hard to disagree.

We live in uncertain times, and Reeves would give anything to be in the position of Chancellors from the late 1990s and early 2000s. But the government’s actions have worsened that uncertainty, risking a slowdown in the economy – precisely the opposite of what is needed.

Other than for the pure theatre of the occasion – and even this isn’t widely felt by those outside the House of Commons chamber – Budget statements as we know feel redundant. Time for a rethink.