Comprehensive cutbacks

With the comprehensive spending review set to change the landscape for planning, development and the green economy, Huw Morris runs a slide rule over the thoughts of leading commentators on its implications.

Government moves to reduce the largest peacetime deficit in history contain several bombshells for the planning profession - and they will keep exploding for the next five years. Last week's comprehensive spending review identifies planning as a key area for structural reform.

The first bombshell concerns planning's ineradicable link with housing. A significant casualty in the spending cuts is the affordable house building budget, which will fall by 60 per cent.

Chancellor George Osborne is looking to new social housing tenants to pay higher rents - up to 80 per cent of the market rate - to fund future construction.

The budget will fall from £8.4 billion over the previous three years to £4.4 billion in the next four. Osborne argues that the new homes bonus, which aims to give local authorities incentives to encourage development, will come to the industry's rescue.

A total of £196 million has been allocated for the bonus in 2011-12, rising to £250 million for each of the ensuing three years.

But ministers' belief that 150,000 new affordable homes can still be built in England between 2011 and 2015 has not won over the critics.

The target was denounced by Shelter chief executive Campbell Robb as representing "less than a third of what this country urgently requires to bring the housing system off its knees".

The National Housing Federation says that with average rents for a three-bedroom social home at £85 a week, planned increases could triple that figure to £250 for some households. It warns that many new tenants will depend heavily on housing benefit to cover the extra costs. Those gaining work would see their payments fall, acting as a powerful disincentive to getting a job.

"The harsh reality is that social homes can now only be built by dramatically increasing rents for some of the most vulnerable in our society," says chief executive David Orr. "It will be more difficult than ever for people to escape the poverty trap and benefits dependency that the government has repeatedly said it wants to tackle."

Many in the planning, development and housing sectors believe that the government has constrained house building rather than encouraged it. Others warn that the proposals run the risk of creating urban ghettoes. Low-income renters will be driven from wealthier areas, a trend expected to be felt most strongly in London and the South East.

House builders insist that the government must urgently unveil final details and clear guidance on the reformed planning system.

Without them, they warn that Whitehall's spending package will see house building levels - already at an 80-year low - fall further. Local authorities facing their own budget disaster will desperately need the income generated by the bonus, so they need the details to plan.

"Not only have the goalposts moved, we are on a completely different pitch," says GVA Grimley executive director Gerry Hughes.

"There will be clear losers economically, where communities are supported by public sector jobs and little investment is viable without public sector support."

Home Builders Federation executive chairman Stewart Baseley says: "We knew cuts in budgets were coming to all areas and it would have been naive to think housing was any different. However, the government needs to act decisively to cut red tape and regulation. In such austere times, house building can simply no longer support the wish lists of central and local government."

Hughes sees little recognition of the economic realities affecting different parts of the country in the chancellor's proposals. "While cutting affordable housing grant may be less of an issue in the south, it will be hazardous in the north coupled with other proposals. The impact in Surrey will be a lot different to the impact on Wearside."

Social housing finance reforms urged

Charles Seaford, head of the New Economics Foundation's centre for well-being, comments: "The government could slash the housing budget and have one million affordable homes built in the next five years if it stopped giving away the value created by the planning system to land speculators and reformed social housing finance to make it more efficient. At the moment, housing associations are paying high rates to banks and the losers are vulnerable people."

PricewaterhouseCoopers (PWC) head of housing Richard Parker thinks that 37,500 homes a year should be achievable if the £4.4 billion of grant funding is better aligned with other capital contributions. "The cuts only take us back to the 2004-07 spending levels.

"The challenge facing the government is how best to work housing grants harder to maintain supply at a reasonable level - particularly when there will be less cross-subsidy from sales and planning gain."

Since grants are handed out in stages, some commentators are concerned that allocations for new schemes will be limited for at least two years because existing commitments will take up available capacity. This will at least give local authorities breathing space to review what they are doing and plan realistically. "It's one of the few good things to come out of this," says one source.

British Property Federation chief executive Liz Peace says that if the government really wants its ideas to fly, it needs to consider giving more flexibility over affordable housing requirements and restoring direct payments to private sector landlords. "Delivering 150,000 new units in the current climate will be challenging but might be possible with such reforms," she adds.

Grainger property director Nick Jopling suggests that charging 80 per cent of market rent could boost private rented housing as a stepping stone between social housing and ownership. "Planning authorities must recognise this tenure as effectively affordable housing so landlords can be given credit where it is due. To date, the government has done little to promote it."

A further dimension comes with the review's conclusions on local government. The DCLG is the biggest loser in departmental cuts (see panel). Its administrative budget will be slashed by 33 per cent. It is also devolving more than £1.6 billion to local government, putting the cut in its resources at 51 per cent in real terms by 2014-15. The department will see a 74 per cent drop in capital investment - a loss of £17.8 billion.

In turn, funding for councils is slashed by more than seven per cent a year. The Local Government Association estimates that councils could shed 100,000 jobs. Communities secretary Eric Pickles has effectively tossed them a hand grenade by removing ring-fencing. They will need to make hard choices on frontline services, including planning, and bear the opprobrium for inevitably unpopular decisions.

"There is a paradox in the cuts suggested for some local government departments and the coalition's localism agenda," says CB Richard Ellis head of national planning Ian Anderson. "We could be faced with planning departments cut to the bone without the resources or training needed to embrace a new localism toolkit. This could result in poor planning decisions and the hijacking of the process by local pressure groups."

The implications may not be revealed for many months, BNP Paribas Real Estate head of planning Andrew Thomson points out. "The forthcoming job cuts in local government will affect service provision and result in the loss of experienced people," he argues.

"In addition to increasing the time spent negotiating the planning system, budget cuts will inevitably make the process more expensive," Thomson believes. "The planning gains demanded by local authorities will also rise as the money to fund infrastructure, housing and education projects themselves will be limited."

Colliers International head of public sector Richard Grass fears that the cuts will threaten the higher aspirations of local authorities towards environmental sustainability, especially on projects with long payback periods. "If the choice is between keeping a local service and investing in biomass boilers, members are going to make the decision that gets them re-elected," he argues.

Regeneration future points to partnership

In the private sector, construction and business services look set to be hit hardest hit. But some experts argue that the cuts need not thwart regeneration plans. "Many private investors are both willing and able to partner councils to deliver significant projects, although capacity is not unlimited.

"Councils that act swiftly and use their assets to secure private investment will be able to pursue many of their regeneration ambitions," says Gerald Eve partner Bruce Owen.

Much will depend on the regional growth fund, which is being extended from two to three years. However, even with an increase in its total budget from £1 billion to £1.4 billion, it will go nowhere near replacing the sums available to the departing regional development agencies. The review confirms that local enterprise partnerships will be able to draw on this new funding pocket.

As with housing, a pronounced regional differential is evident in economic prospects. On the government's own figures, almost half a million public sector jobs will go. Before the review, PWC estimated that the knock-on effect in other sectors will bring the total closer to a million, with the largest proportional losses in the north, Scotland, Wales and Northern Ireland (see table). Since the review is in line with this spring's emergency budget, PWC says these figures remain robust.

Elsewhere, Osborne has delivered a larger than expected capital spending programme, with cuts £2 billion lower than previously assumed. Confirmation that a wave of major transport infrastructure projects will go ahead, including Crossrail and the Mersey Gateway Bridge, will bring some relief to the construction industry.

Support for infrastructure over the spending review period has been confirmed at largely similar levels to those previously announced, involving a cut in overall capital expenditure from £59.5 billion in 2010-11 to £45.6 billion in 2013-14. "It is clear that investment in sectors supporting growth, such as transport and the low-carbon economy, are favoured at the expense of housing and other social infrastructure," says Grant Thornton infrastructure partner Neil Rutledge.

The review aims to put substance behind prime minister David Cameron's pledge to be "the greenest government ever". DECC's budget cut is one of the smallest and the government can point to commitments to support offshore wind technology and manufacturing. The relative protection offered to the science budget, frozen at £4.6 billion a year, is another source of optimism.

The government's view of the low-carbon agenda as a stimulus to growth is confirmed with the injection of £1 billion to establish a green investment bank (GIB) by 2014 and a renewable heat incentive (RHI) with £860 million of new funding. Wardell Armstrong energy director Mark Bedford sees confirmation that the RHI is on track to start next April as welcome news.

The coalition has also given support to uptake of anaerobic digestion. "We know from getting eight of the 30-odd large-scale plants through the planning system how essential the RHI is to stimulating this market," says Bedford, who chairs the Anaerobic Digestion and Biomass Association planning and permitting working group.

However, the government's hopes for carbon capture and storage (CCS) technology received a blow less than 24 hours after the review's publication when energy company E.ON pulled out of the competition to build a power station with CCS at Kingsnorth in Kent. E.ON blamed market conditions for the move.

Energy companies may be disappointed by the initial funding for the GIB. "£1 billion is a tiny sum compared to the spending required for new infrastructure, so they will be looking to market reform to drive investment," says PWC sustainability and climate change partner Richard Gledhill. "Discouraging investment in high-carbon infrastructure is as important as encouraging investment in renewables and green technology."

The landscape for planning, housing, development and infrastructure will look very different next year. There is a sense of resignation and in some areas pessimism. RICS sums up the impression that the cumulative impact will be enormous. "The property and construction sector will certainly feel its share of the pain, and when this sector hurts the whole economy hurts more," says external affairs director Mark Goodwin.

"This comes on top of a 60 per cent reduction in spending on construction and refurbishment of schools. Cuts like this risk endangering the hugely important construction sector - every £1 spent on building projects generates around £3 for the wider economy. Cutting spending will have serious negative impacts including long-term unemployment, loss of skills and outdated infrastructure preventing economic growth."

SPENDING REVIEW - HOW THE CUTS WILL BITE

Programme and administration budgets 2010-15 (pounds billion)

Department 2010-11 2011-12 2012-13 2013-14 2014-15 Chng
(1)

DCLG 2.2 2.0 1.7 1.6 1.2 -51%
DEFRA 2.3 2.2 2.1 2.0 1.8 -29%
DBIS 16.7 16.5 15.6 14.7 13.7 -25%
DCMS 1.4 1.4 1.3 1.2 1.1 -24%
DfT 5.1 5.3 5.0 5.0 4.4 -21%
DECC 1.2 1.5 1.4 1.3 1.0 -18%
Devolved nations
Scotland 24.8 24.8 25.1 25.3 25.4 -6.8%
Wales 13.3 13.3 13.3 13.5 13.5 -7.5%
Northern Ireland 9.3 9.4 9.4 9.5 9.5 -6.9%
Local government
Central contribution 29.7 27.5 26.3 25.5 24.2 -26%
Council spending 51.8 49.8 49.5 49.5 49.1 -14%
Specific programmes
Olympics 0.1 0.6
Green investment bank 1.0
Regional growth fund 0.5 0.5 0.4

(1) Cumulative reduction in real terms
Source: HM Treasury

TRANSPORT CAPITAL PROJECTS - THE SURVIVORS

The DfT is expected to realise overall resource savings of 21 per cent by 2014-15 through a rigorous focus on efficiency, cutting waste, stopping lower value spend and improving governance and accountability. The spending review confirms support for a limited number of major capital projects.

Railways

- Network Rail gets £14 billion for maintenance and investment.

- Crossrail funding confirmed along with £6 billion in investment for London Underground.

- Major improvements to East Coast Main Line.

- Network improvements in Yorkshire, Manchester and Cardiff areas.

- Route extension and capacity increases on Midland Metro and upgrades on Tyne and Wear Metro.

- Private finance initiative support for two new Nottingham Express Transit lines.

- Birmingham New Street station upgrade.

- Legislation for High Speed 2 during the current parliament.

Roads

- Mersey Gateway suspension bridge.

- A11 dualling between Norwich and the M11.

- M4-M5 junction improvements.

- M1 congestion relief between junctions 28-31.

REGIONS PROJECTED JOB LOSSES

Region Job losses Proportion
(1) (2)

London 122,000 3.1%
South East 112,000 3.1%
East of England 74,000 3.2%
East Midlands 58,000 3.2%
South West 81,000 3.5%
West Midlands 80,000 3.6%
North West 108,000 3.7%

Region Job losses Proportion
(1) (2)

Yorkshire and Humberside 82,000 3.7%
Scotland 95,000 4.1%
North East 43,000 4.1%
Wales 52,000 4.3%
Northern Ireland 36,000 5.2%
UK 943,000 3.4%

(1) Estimated public and private sector job losses arising from spending
review (2) Job losses as proportion of all jobs in region
Source: Pricewaterhousecoopers


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