George Osborne announces plans to scrap Advantage West Midlands
George Osborne launched a revolution in local government as he abolished the regional development agency and placed local councils in charge of boosting the West Midlands economy, in an emergency budget that slashed spending and drove up taxes.
The Chancellor ended months of confusion by confirming controversial plans to scrap Advantage West Midlands, the £200 million body which supports employers.
Instead, council leaders will be put in charge of supporting industry and overseeing spending on transport, housing and skills.
The Budget also raised VAT to 20 per cent, as part of efforts to cut Britain’s annual borrowing from £149 billion this year to £20 billion in just five years.
But Mr Osborne increased the personal allowance for income tax by £1,000, to £7475, so that people on average salaries save £170 a year and 880,000 low-paid workers pay no income tax at all.
Mr Osborne took the axe to public spending and warned Government departments other than health and international development will have to reduce budgets by a quarter.
He blamed Labour for the dramatic measures, claiming: “We’ve had to pay the bills of past irresponsibility.”
But the death of Advantage West Midlands, which provides services such as training to local firms, will be a bitter blow to many business leaders in the region, who have urged ministers to spare it while other quangos are abolished.
Birmingham Chamber of Commerce has warned of “chaos” if regional development agencies are scrapped, claiming councils will compete with each other rather than working together.
However, the Chamber said last night that it would work with the new structures. Jerry Blackett, chief executive of Birmingham Chamber of Commerce said: “We hope to retain the best elements of Advantage West Midlands to provide regional strategic leadership as part of the eventual governance mix in the West Midlands.”
Full budget documents revealed the Government was to introduce new laws abolishing the regional development agencies.
They said: “The Government will enable locally-elected leaders, working with business, to lead local economic development. As part of this change, Regional Development Agencies will be abolished through the Public Bodies Bill.”
Instead, economic development will become the responsibility of “strong local enterprise partnership, particularly those based around England’s major cities and other natural economic areas.”
Councils will also gain the freedom to raise more money locally, for example by keeping some of the extra business tax they raise from successfully attracting new employers to an area.
The Budget contained specific help for West Midlands firms with a National Insurance reduction for businesses outside London, the South East and the East of England. They will be excused the first £5,000 in NI payments for each of the next ten people they hire.
But there was also disappointment as Mr Osborne appeared to rule out full government funding for a range of major building buildings that are currently “suspended” pending review, such as a £94 million new magistrates’ court in Birmingham city centre.
Instead, he announced the creation of a new “regional growth fund” to find money for capital projects from the private sector.
Bizarrely, Mr Osborne said the Government had decide to commit to the rebuild of New Street station in Birmingham - one of the few major projects in the region which was not known to be under threat.
At the same time, the Chancellor announced changes to business taxes that could hit West Midlands manufacturers.
A cut in capital allowances - tax breaks on new plants or machinery - will cost industry £1.8 billion a year.
And a cut in a similar tax break called the annual investment allowance will cost industry £1 billion a year.
Employers will benefit from a range of tax cuts, including reducing corporation tax from 28 per cent now to 24 per cent in 2014-15 and cutting their National Insurance payments.
But the overall effect will be to ensure manufacturers pay a higher share of the tax burden.
Labour’s Shadow Business Secretary Pat McFadden (Wolverhampton North East) said: “What we have here is a shift in tax support from manufacturing to the services sector, worth three billion a year.
“This is the last thing manufacturing needs.”