articles Ratings /ratings/en/research/articles/241105-the-autumn-budget-kicks-off-a-funding-regime-revision-for-u-k-public-sector-entities-13314286.xml content esgSubNav
In This List
COMMENTS

The Autumn Budget Kicks Off A Funding Regime Revision For U.K. Public Sector Entities

COMMENTS

Instant Insights: Key Takeaways From Our Research

COMMENTS

CEE Brief: Growth Will Decelerate, But The Outlook Isn't Bleak

COMMENTS

Credit FAQ: How Would China Fare Under 60% U.S. Tariffs?

COMMENTS

LGFV Brief: China's RMB10 Trillion Debt-Swap Scheme Is A Good Start


The Autumn Budget Kicks Off A Funding Regime Revision For U.K. Public Sector Entities

This report does not constitute a rating action.

For social housing, we view the government's commitment to medium-term certainty on the rent settlement and additional grants as positive.  The proposed five-year indexation of social and affordable rents to the consumer price index plus 1% is consistent with our base-case assumptions. The details of the rent settlement are still under consultation, but we do not think social housing providers will receive compensation for deviations from the settlement in previous years. Additional grants for investments in existing homes should be positive for the sector, but details about scope, availability, and disbursement are currently lacking. The budget also announced a £500 million top up to the existing £11.5 billion Affordable Homes Programme (AHP) 2021-2026. Representing a less than 5% increase, funding for new homes continues to lag rapidly rising construction costs.

Local authorities will see a small increase in grants as an interim solution to underfunding, while the government outlines its broader aspirations for the sector.  The budget statement acknowledged the financial stress local authorities have been experiencing and announced additional grants accounting for about 2% of the sector's total annual revenue. These are being directed to areas with immediate funding pressures, such as schools, special educational needs and disabilities (SEND), homelessness, and adult and social care. The substantial additional funding to the NHS could also help alleviate care costs for local councils.

The statement also alluded to a comprehensive review of local authorities' revenue sources and spending responsibilities, as well as a further devolution of public services during this parliamentary period.  We anticipate reforms will focus on grants allocation arrangements, the business rates system, adult and children's social care, and councils' own revenue flexibility. The latter has some precedent; previously local authorities received ad hoc approval to raise council tax significantly to help bridge fiscal gaps. We also expect that multiyear budgeting will resume in the next one-to-two years. We believe this will provide long-term certainty and increase predictability for the sector.

Outside the autumn budget, on Nov. 4 the government announced the first increase to domestic undergraduate tuition fees for English universities in eight years.  Many institutions have experienced financial pressure in recent years. This is the result of tuition fees having been frozen since 2017, high cost inflation over the past two years, and the prospect of reduced international student numbers. The 3.1% increase in tuition fees should help universities balance their finances, although this will depend on international student numbers. A positive announcement in the autumn budget is the government's commitment to a research and development budget. This includes funding the U.K.'s association with Horizon Europe, the EU's key funding program for research and innovation. We think this will help protect the quality of U.K. higher education research-focused institutions and will reap benefits from closer cooperation with the EU.

The budget set slightly-more-than-expected capital funding for Transport for London (TfL).  The government committed close to £500 million of capital funding in the next fiscal year, which equates to about 25% of TfL's annual capital expenditure plan. We think this provides TfL some leeway to allocate resources to improving the quality of services and rolling stock, after significantly reducing such investments during the pandemic. It further supports our view of the government's sound support of TfL despite uncertainty regarding future long-term capital funding. While we understand this doesn't apply to TfL, other transport companies in England will benefit from an increase in the bus fare cap to £3 from £2. We anticipate the government will also be allocating more resources to transport-related projects across the country.

Funding arrangements for the devolved regions show continued commitment from the U.K. government, with real-term growth in transfers to Scotland, Northern Ireland, and Wales.  We believe rated local authorities and social housing providers operating in the devolved regions will continue to receive adequate funding, in line with our base-case assumptions.

Related Research

  • U.K. Social Housing Providers' Financial Capacity Shrinks On Investment Needs, Nov. 4, 2024
  • Autumn Budget 2024: Looser Policy Will Keep Pressure On The U.K.'s Constrained Public Finances, Oct. 31, 2024
  • Non-U.S. Social Housing Providers Ratings Risk Indicators: Ratings Pressure Has Eased, Oct. 31, 2024
  • Non-U.S. Social Housing Providers Ratings History: October 2024, Oct. 31, 2024
  • U.K. Local Authorities Are Bending, But Adapting, June 6, 2024.
  • Your Three Minutes In The U.K. University Sector: Immigration Restrictions Dent Universities' Finances, May 21, 2024
  • Transport for London Upgraded To 'AA-/A-1+' On Post-Pandemic Recovery; Outlook Stable, May 20, 2024
  • U.K. Social Housing Borrowing 2024: Borrowing capacity remains constrained, March 6, 2024
Primary Credit Analysts:Noa Fux, London + 44 20 7176 0730;
noa.fux@spglobal.com
Felix Ejgel, London + 44 20 7176 6780;
felix.ejgel@spglobal.com
Secondary Contacts:Beatrice de Taisne, CFA, London + 44 20 7176 3938;
beatrice.de.taisne@spglobal.com
Karin Erlander, London + 44 20 7176 3584;
karin.erlander@spglobal.com
Abril A Canizares, London + 44 20 7176 0161;
abril.canizares@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.

 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in