In launching into his Budget, Chancellor Rishi Sunak explained that whilst it didn’t draw a line under Covid, it did begin the work of building a post-pandemic economy.
According to Sunak, the budget delivers stronger growth, public finances and employment, giving people the support they need with the cost of living and the so-called ‘levelling up’.
The Chancellor claims “our plan is working” – but what is the plan?
A stronger than expected economic recovery gave the Chancellor the opportunity to announce a £150 billion spending increase – the largest increase this century.
Extra money was announced for schools, there were tax cuts for businesses and a cut to air duties for flights within the UK, more investment into the NHS, a rise in the National Living Wage and public sector pay rises, as well as investment in key infrastructure.
We explore some of the key outcomes in more detail, and their potential impact for occupiers, investors, developers and landlords.
Business rates
As expected, there were some business rates concessions designed to “ease [the] burden and create stronger high streets.”
The hospitality and retail sectors will get a 50% discount (up to a maximum of £110,000) on business rates for one year, which is worth about £1.7 billion. However, for those businesses based in Central London, the £110,000 cap on the 50 per cent discount would mean very little in real terms.
A change in the business rates multiplier was also announced, freezing it for a second year which will lower business rates bills by just under £1 billion a year, and save £4.6 billion over the next five years. Meanwhile, as expected, revaluation will now take place every three years, rather than every five years.
Another welcome move has been the announcement of the new Business Rates Improvement Relief for property owners who carry out improvement works or install equipment to improve a building’s energy.
This new Business Rates Improvement Relief will come into effect in 2023 and will encourage investment by business, landlords and developers. However, it is a shame that this has been pushed out to 2023.
Sunak called the changes “the biggest single year tax cut to business rates in over 30 years”. However, commenting on the announcement, head of business rates, Danny George, said:
“Whilst the changes are welcome, ratepayers who do not qualify for relief but have been financially impacted by the pandemic remain in the dark, despite having been promised access to a £1.5 billion fund in March.
“Meanwhile, the findings of the Business Rates Review are welcome, but we believe this still falls short of the Government’s manifesto commitment to reduce the burden of business rates on businesses.”
Good news for investors
Buried in the Budget was an extension of the annual investment allowance – the deduction that you can claim when you add plant and machinery to your properties of £1 million.
This is aligned with the super-deduction capital allowance of 130% on qualifying plant and machinery investments, which will allow companies to cut their tax bill by up to 25p for every £1 they invest.
“Extending the annual investment allowance from December 2021 to March 2023, is a positive move which will give the owners of office buildings, for example, much more time to invest in the refurbishment and refitting of their premises, to make them fit for the post-pandemic occupier,” explains investment expert, Richard Dawtrey.
Planning
As expected, additional investment was announced to improve the planning regime through new digital systems. The £65 million pound investment is intended to ensure more certainty and better outcomes for environment growth and quality design. However, there is a lack of clarity around how the money will be spent.
“Investment in the digitisation of planning systems could provide efficiencies, but we will have to wait and see whether it actually improves determination times for planning applications in practice,” said planning expert, Iain Williams.
Housing & Infrastructure
An significant investment in housing was announced, with £24 billion available up to 2025-2026.
Of this, there will be a £11.5 billion investment through the Affordable Homes Programmes to deliver 180,000 affordable homes by 2028-29, with 65% of this funding for homes outside of London.
Additional spending of £1.8 billion was allocated for housing supply to unlock 1 million homes over the budget period, including an allocation of £300 million in local grant funding via Local Authorities and Mayoral Combined Authorities.
To unlock a further 160,000 homes, the Chancellor also announced £1.5 billion to regenerate underused land and deliver associated transport links.
“This investment in home building and affordable homes is both significant and welcome, but it remains unclear how the money will be spent. As ever, the devil will be in the detail,” added Iain.
Meanwhile, the government announced £21 billion of investment on our roads and £46 billion on railways to help improve journey times between cities, to support what the Chancellor called “London-style transport” across the regions.
Cladding
A £5 billion cladding grant will be set aside to pay to remove unsafe cladding, but only from the highest-risk buildings across the UK.
Given the significant number of buildings found to be unsafe, limiting this just to ‘higher risk buildings’ overlooks the rest of the unsafe buildings that fall outside these parameters.
“This grant is welcome, but is not likely to be enough to address the issue on a wider scale. The Residential Property Developer Tax (RPDT) is expected to raise £2 billion, but even this is unlikely to contribute enough to addressing the issue. What the budget does not address is the issue of how leaseholders can be supported with the costs of making buildings sage, and this needs to be addressed as a matter of urgency,” explained valuation associate, Richard Sumner.
The government’s Impact Assessment estimates that the cost of complying with the Building Safety Bill/Act will be £3 billion.
“This, together with the additional costs for developers from the RPDT and the Gateway 2 Levy, is likely to result in costs being passed on to leaseholders and the purchasers of new buildings,” explains development partner Gary Jeffries.
Wider Economy
The chancellor says inflationary pressures are affecting the UK economy, with the Office for Budget Responsibility (OBR) forecasting that inflation will average 4% next year.
It will take until the start of 2022 for the economy to return to its pre-pandemic size, with OBR forecasting the economy to grow by 6% next year, 2.1% in 2023, 1.3% in 2024, 1.6% in 2025.
“With pressure on inflation, all eyes will be on the Bank of England’s next decision on Interest Rates on 4 November,” concluded partner David Thomas.
This summary represents a snapshot of what was announced on 27 October by the Chancellor and, as ever with the budget, the devil will be very much in the detail as we wait to see what the announcements translate into practically.
