Autumn Statement 2022: There most definitely was a rabbit!
Ion Fletcher, Director of Policy at the British Property Federation explains why the business rate and Solvency II announcements are a real win and could potentially unlock billions of pounds of investment to transform town centres across the country.
Billed as a “difficult decisions” Autumn Statement, we were told there was a “fiscal black hole” that needed filling, and that the UK’s reputation for sound financial management was in urgent need of repair. We were all prepared for the worst, with the Chancellor categorically denying the existence of any cute fluffy animals at this fiscal event and the pitch firmly rolled for what many are calling Austerity 2.0.
So how did it turn out? If you take a five year view, then pretty much as predicted – the measures announced today (putting the energy schemes to one side for a moment) are predicted to net the Treasury a staggering £130bn by the end of 2028. But drill down a bit deeper and you can see that much of the pain has been pushed back beyond 2025 on both the tax and spending side of things - 40% of the squeeze comes in the last year of the forecast. Conveniently after the next election, says the cynic in me.
Political timing aside, there is also a strong economic rationale for pushing tax increases and spending cuts as far into the future as possible. The economy is fragile and expected to remain so for the near future. Energy prices continue to be way above long-term averages and inflation always takes longer to tame than people think. So, this Autumn Statement is the Government trying to lean in to reality at the economic coal face.
In that context, I was genuinely and pleasantly surprised by the Chancellor’s announcements on business rates. For so long we’ve been used to disappointment on this front (eg the “fundamental review” that was anything but, delays to revaluations etc), but if there was one rabbit today then for me this was it: a freezing of the multiplier so that rates bills don’t go up with inflation alongside a government-funded transition scheme that means those with big increases in their bills after next April’s revaluation have them phased in over three years and those with large falls see immediate benefits. Add in a 75% rates relief for retail, leisure and hospitality businesses (although with a cap of £110k per business, this won’t touch the sides for big multiple occupiers) and it’s a package worth about £14bn over the next five years. A real win for the BPF and for the UK’s town centres.
It’s also pleasing to see the Government committing to press ahead with reform of Solvency II to reduce the risk margin that long-term life insurance businesses face and allow a wider range of long-term investments (and we’d argue this should include property) to qualify for the matching adjustment. Done right, and with a bit more focus on property-specific issues, this could potentially unlock billions of pounds of investment to transform UK town centres and spur the decarbonisation of buildings.
Confirmation of more devolution deals and of the next round of Levelling-Up Fund are also wins, as we are firm believers that many economic growth-related initiatives are best led by those with an intimate knowledge of local circumstances. There was also an important acknowledgement of the need for the UK’s buildings to become more energy efficient – a fact that many in the property industry already take as a home truth and are working hard to achieve.
We continue to believe that investment zones can and should play a major role in delivering levelling up and it’s good to see that rumours of their death were unfounded even if they are taken forward in what seems to be a fairly limited way in supporting existing and potential new knowledge-intensive growth clusters.
It's also uncertain what support businesses are likely to get on energy costs from April next year. Where the Government lands on this will be of particular interest to property owners that are in effect offering domestic supply through a non-domestic contract (eg student accommodation or other communal heating systems) and businesses with high energy usage that could impact on their viability, such as small builders.
The only property tax change announced beyond business rates was a reversal of the increase in the SDLT nil-rate bands announced by Kwasi Kwarteng two months ago. This was probably inevitable and doesn’t kick in for another three years. Government infrastructure investment will fall over time, but still remains above levels of the last decade.
Depending on how things go over the next few months, the Chancellor may feel a further squeeze is needed. There is always another fiscal event just around the corner.
