04 Mar 2021 | Budget

Climate change, housing and high streets: does the Budget address real estate’s biggest challenges?

There were a number of positives coming out of this week’s Budget – including the ‘super deductions’ for investment in plant and machinery, the tax incentives for Freeports and the numerous growth deals. Most importantly, government recognised that it was too early to start raising taxes – and the fiscal measures announced were rightly focussed on extending support available for those impacted by the pandemic. However, when we consider three of the biggest challenges facing our sector – the climate crisis, housing supply and high street regeneration – this Budget falls short of what is needed and misses out on huge opportunities to stimulate investment.

Climate crisis

The built environment represents approximately 40% of the UK’s carbon footprint – and as such, reducing carbon emissions is a huge priority for our sector. Retrofitting existing buildings is essential to improving the energy efficiency of our property stock, and is a necessary precondition to overcoming our reliance on fossil fuel energy sources. It is a significant endeavour that will take decades to action and will require coordinated support from government, property owners and occupiers.

While the temporary introduction of ‘super deductions’ and increase to the relief for special rate assets will provide some relief for those retrofitting commercial property, not all typical retrofitting expenses will qualify for this relief – and at only 2 years, this measure does not acknowledge the long-term commitment that the government will need to make to support these retrofitting efforts. For residential property, we did not see any measures to remove the tax barriers to improving the energy efficiency of our homes. We and others have long called for a reduction in the rate of VAT on repairs and maintenance works to homes – bringing it more in line with construction of new homes. This seems eminently sensible in the context of our climate crisis, when we should be recycling and reusing what we have.

Housing

The potential benefits of reducing VAT on repairing and maintaining our homes goes well beyond improvements in energy efficiency standards. The Grenfell tragedy has highlighted a desperate need to repair huge swathes of our housing stock – and tax should not be a barrier to these essential works. Furthermore, reducing VAT on repairs and maintenance would have a significant impact on the viability of build-to-rent housing – a sector which has the potential to contribute significant new housing supply in the UK.

The stamp duty ‘holiday’ will have been welcomed by those who have sought to move over the pandemic, and the short-term extension will be welcomed by those currently trying to get transactions completed. However, the ‘holiday’ has illustrated just how damaging SDLT is to transactions activity, creating barriers to those wishing to move to find the right home for their circumstances.

The mortgage guarantee scheme was another significant housing announcement in the Budget – which will enable people with lower deposits to access mortgages to buy their first homes. While demand side measures can be helpful – it risks simply pushing up house prices, unless similar support can be provided to boost housing supply.

High streets

Saving the worst til last – business rates. The three-month extension to the business rates holiday for retail, leisure and hospitality is of course welcome - although following the announcement of a twelve-month extension in Scotland and Wales, businesses would be forgiven for feeling a little hard done by. While some form of targeting of this relief following June is not surprising, there is a real risk that capping the relief at £2m per business will mean that many businesses will not be able to access the support they need as they start to recover – especially some of our larger chains. It is also disappointing that the relief was not extended to empty properties, leaving property owners footing the bill for properties that have been vacated during the pandemic.

The most frustrating announcement on business rates was made a few weeks before the Budget. Government announced a delay to its final report on the fundamental review of business rates until the Autumn – citing the “ongoing and wide-ranging impacts of the pandemic and economic uncertainty”. Given the main criticism of the business rates system is that it is not able to respond to changes in our economy quickly enough (which leaves businesses paying rates bills that are well in excess of the true value of the property they are occupying), the economic uncertainty brought about by the pandemic makes this fundamental reform even more urgent – and is not a valid excuse to delay the government’s action.

While there is no silver bullet to solve the challenges facing our high streets, if the government is serious about stimulating investment and removing barriers to regeneration, the tax incentives for Freeports provides some helpful inspiration. 

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Rachel Kelly Assistant Director (Finance)