The largest mini-budget ever
We all knew it was going to be a big fiscal event, even though we’ve been calling it a mini-Budget. And a big one it has proven to be, with well over £100bn of support to the economy through help with energy costs and tax changes. It seems astonishing that a government drawn from the same political party as its predecessors of the past twelve years, with many of the same ministers in Cabinet as just three months ago, should have such a fundamentally different philosophy on tax, spend and investment.
But as the Chancellor said, “this is the start of a new era”; a time to for Government to focus on economic growth by “getting out of the way” and “unleashing the private sector”. We’ve heard this rhetoric from previous administrations, but you’d have to go back at least 30 years to find one so openly ideological about supply-side economics.
What does this mean for the property industry? Potentially, quite a lot – though many details remain sketchy. The Government aims to remove barriers to the flow of private capital, accelerate construction of infrastructure projects, get the housing market moving and cut red tape.
One of the widely trailed highlights of the Budget was the creation of new Investment Zones (IZs), areas with simplified planning requirements and more comprehensive devolution to local government. They come with some fairly punchy tax incentives too, including a generous rate of Structures and Buildings Allowance and full SDLT relief on commercial land and buildings. We’ve been calling for Town Centre Investment Zones to stimulate high street regeneration and therefore welcome the Government’s IZ proposals.
Critics of IZs will point to the fact that they tend to merely displace economic activity rather than create genuinely additional activity. But it matters where economic activity takes place and we know that having businesses clustering together can result in something bigger than the sum of its parts. In a town centre context, greater concentration of activity in a smaller area is often exactly what is needed to make a place more interesting and attractive.
Speeding up delivery
To speed up the delivery of new infrastructure, the Government is again turning to the planning system and proposing ways to reduce the bureaucracy involved in Nationally Significant Infrastructure Projects (NSIPs). Given the importance of new or improved transport and digital networks in unlocking property development, we broadly welcome these changes too, though this shouldn’t come at the cost of poorer environmental outcomes.
The reforms to the planning system are also intended to “accelerate housing delivery” and ensure more of the 310,000 homes that got planning consent last year actually get built. Any acceleration in delivery would be welcomed and it is vital that build-to-rent development is fully supported as part of this.
Tax reform is central to the Government’s plans to attract more private sector capital and we would certainly agree that the tax system would be better if it were simpler and clearer. This is especially true for property, which is probably subject to more types of tax and surcharge than any other sector. Fixing the Annual Investment Allowance at £1m will benefit SMEs and the new VAT-free shopping scheme will be a boon to high-end retail destinations. We have mixed views on the abolition of the Office for Tax Simplification: it has carried out valuable work over the past decade, highlighting areas for reform – but too often Governments have ignored its recommendations. Embedding tax simplification into HMT and HMRC sounds positive, but will require a real culture change.
Regulatory change is also on the table, with potential changes to the Solvency II regulations for life insurers and a review of the pensions charge cap to encourage more defined contribution pension investment into illiquid assets. These could benefit property, particularly if the Government takes on board our recommendations for reform of Solvency II.
So, what was missing? It was surprising to hear no mention of business rates (outside of Investment Zones) and the harmful impact they continue to have on towns and cities across the country. The UK has one of the highest rates of property tax in the OECD (competitiveness alarm bells ringing!) largely because of rates and due to the link between rates bills and inflation, businesses could see these surge by around 10% next April if the Government doesn’t intervene. We hope that a “full” - though probably less expensive - Budget in the Autumn will address this urgent issue.
We would also have like to see more acknowledgment that the administrative burdens of the planning process delay not only infrastructure projects but socially and economically useful development of all kinds. We are not suggesting that the planning rules need to be overhauled, but would welcome some serious Government focus on streamlining the process for all users. Greater resource for local planning departments is also desperately needed.
Finally, there was not much on decarbonisation and the property sector’s critical role in helping us achieve our net zero targets. But what little there was focused on the business and jobs opportunities that the transition could provide – we look forward to Chris Skidmore MP’s independent review for more on next steps.
This mini-Budget was a big statement of intent from a government – and a big gamble - with an eye on an election happening in the next couple of years. With Party Conferences and a likely Budget in the Autumn we look forward to seeing what comes next.