British Property Federation Budget 2021 response: Government needs to unlock private sector investment, or ambitions to ‘level up’ will fail
Melanie Leech, Chief Executive, British Property Federation comments:
- “While Covid-19 has taken a devastating toll on public health, the economic scars will no doubt also run deep. Recovery will require the Government to be bolder over the next year, particularly to meet its ambitions in relation to decarbonisation, but today’s Budget will have provided confidence to hard-pressed businesses on our high streets that government support is far from over, and that they won’t be left to fall at this final hurdle as we emerge out of lockdown.”
Retail, leisure, hospitality: Government has had long enough to fix business rates
- “The extension of the furlough scheme, £5bn of re-start grants and the business rates relief extension will bring many retail, hospitality and leisure businesses back from the cliff edge, providing them with much-needed breathing space as they prepare to re-open their doors to the public.
- “Longer-term town centre recovery, however, will require root and branch business rates reform. This can has yet again been kicked down the road, but fixing business rates is fundamental to any ambition that wants our high street businesses to start planning for their futures beyond the next few months.
- “The business rates system is clearly broken. Business rates should be responsive in real time to market changes – rather than based on historic, out-of-date rental values – so that they are fair and sustainable. Government has had long enough to reflect on how business rates could be improved. When temporary relief ends, the Government must be ready with a new regime which best future-proofs the system as our economy continues to evolve.
- “The Chancellor has provided a significant package of additional support for retail, hospitality and leisure which should give the minority of businesses who have not yet engaged with their property owners a platform to do so. Property owners – local authorities, pensions and savings funds – are owed more than £5bn and have had no direct support from Government. That cannot continue and those funds are urgently needed to invest in the recovery of our town centres.
- “Everyone agrees the majority of tenants and property owners are working well together – with tenants being transparent about their finances, and property owners supporting those in distress with emergency relief and new, longer-term rent payment arrangements. New, stronger relationships have been built through this process. Nevertheless, there is a minority where relationships have broken down and become toxic, and the moratorium must end to unlock the stalemate and allow the market to re-set and recover.
- “With further rates relief and new grants, high streets businesses should be confident in approaching their property owners today to forge an economic partnership in which they can agree how to manage rental debt fairly. Rational property owners will not want to evict – empty properties generate no income and are a blight on our high streets.
- “Those well-capitalised businesses, who can pay rent but have chosen not to, must now meet their legal obligations. Their behaviour has raided our nation’s pensions and savings invested in commercial property, and has been a heavy blow for already stretched local authority landlords and public finances.”
Stamp duty holiday will keep housing market moving
- “The stamp duty holiday has kept the residential sector moving throughout 2020 and, with recovery still insecure, an extension is the right decision. The current ‘holiday’ has illustrated what a damaging tax stamp duty is – it stops people from moving home. Our tax system should focus on where value is created and that should mean working towards low or no stamp duty.”
95% mortgages: Increasing demand must go hand-in-hand with new housing supply
- “Mortgage guarantees have a mixed history. They can inflate house prices, which was the experience of the Help to Buy mortgage guarantee scheme that ended in 2016. We support government efforts to help more people on to the housing ladder, but this will require supporting housing supply as well as demand. Getting that balance right is key, and fit-for-purpose planning reforms will make or break this ambition.”
Chancellor builds back, but doesn’t go far enough to build back better
- “As the Chancellor keeps one eye on short-term interventions to provide a crutch to those hardest hit, he is also clearly attempting to look ahead and invest for recovery.”
- “While we are still in lockdown, now might not seem like the best time to hike taxes – but, with government borrowing having already reached record-breaking amounts, it’s inevitable the Chancellor will need to find ways to raise revenue. A rise in corporation tax is a reasonable option, given it’s a tax on profits and so will predominantly target those businesses that have fared better. Plus, the UK’s corporation tax has been relatively competitive since it was lowered from 26% to 19% in 2015, and today’s rise will bring the UK closer in line with countries such as the US.
- “It is however disappointing the new super reduction does not apply to new investment in the structure of buildings, which will be much-needed for town centre regeneration and to support our net zero carbon goals for the built environment.
- “It’s positive that the Chancellor has provided more flexibility to make use of losses and claim tax relief on those more quickly, but we continue to have concerns in relation to how corporation tax profits are calculated. In particular, large-scale real estate and infrastructure projects depend on large volumes of debt, and interest payments on this debt should receive full relief as has traditionally been the case in the UK. Restricting this relief to 30% of a business’ earnings will put at risk the sort of investment that will regenerate our towns and cities, and underpin recovery. It is important that these corporation tax rules are reviewed to ensure that only those businesses making genuine economic profits are footing the bills for higher corporation tax bills.”
UK Infrastructure Bank
- “With £12bn of capital and £10bn of government guarantees for the UK Infrastructure Bank, the Chancellor is clearly committed to building back – but he needed to go much further to ensure we can build back better.”
To support net zero goal, Government needs to zero rate VAT for home repairs
- “The existing Green Homes Grant Scheme is failing to deliver the impact that the Government had promised, with as little as 6.3% of the £1.5bn budget having been spent, and so the Chancellor has missed a trick by ignoring calls to zero rate VAT on repairs and maintenance of residential buildings, which is currently set at 20%. This could have been the most impactful tax change to support the improvement of both the energy efficiency and health and safety standards of our homes.”
Positive step: new sovereign green bond
- “Despite the lack of ambition to retrofit the residential sector, the new sovereign green bond, which will provide UK savers with the opportunity to buy bonds that help support green projects, is a positive step in the right direction to support greener finance and investment practices.”
Empty business rates is blocking new investment in town centres
- “The Chancellor has equally ignored calls to abolish empty business rates. It is fundamentally unfair that after having supported businesses so extensively and for so long, property owners are then left footing the business rates bill when stores are left empty. Our tax system must not penalise property owners for having empty stores, when their support has been critical to saving as many businesses and their stores as possible throughout this pandemic.
- “Of course despite government and property owner support, stores are still closing. But, with over 16,000 store closures in 2020, charging empty rates takes investment capital from the very stakeholders that want to invest in repurposing and reimagining our high streets.
- “The Government needs to unleash the power of the private sector. This is crucial to the success of the levelling up agenda and the reinvigoration of town centres, for unless ministers are prepared to think radically around the mechanisms that will unlock private sector investment, the government’s ambitions will fail.”