Ros Rowe, subject matter expert for the Construction and Real Estate Community, shares her views on the Autumn Statement for the sector.
The Chancellor has settled the markets’ concerns about September's mini-Budget. Gone is the idea that cutting taxes generates growth; instead, "difficult decisions have been taken". There will be spending cuts and increased taxation to reduce national debt and deliver the government’s priorities of "stability, growth and public services".
Owner-occupied and social housing sectors will benefit, to some extent, in the short term. With demand in the owner-occupied market slowing due to rising inflation and interest rates, the Chancellor has not reversed the stamp duty reliefs introduced in September by Kwasi Kwarteng - well, not immediately. The increased stamp duty nil-rate band (up £250,000 up from £125,000) and the extension of the first-time buyer regime to properties costing up to £625,000 (was £500,000) with a nil-rate band of £425,000 (up from £300,000) remain in place until 31 March 2025. While the Office for Budget Responsibility (OBR) is forecasting the start of economic recovery at that time, it also expects house prices to fall by 9% by Autumn 2024, which is helpful. However, if the recovery starts later and interest rates remain high, it will be harder to save for a deposit. Further incentives may be needed to attract first-time buyers if the long-term goal is increased owner-occupation.
A balance has been drawn in the social housing sector. The standard formula for increases in social rents is CPI plus 1% (currently 11.1%), but rents will now be capped at 7% in 2023/24. This was no surprise following a consultation with social housing providers in the late summer, unlike the 1% annual reduction introduced, without warning, by George Osborne in 2015. The 7% cap assists tenants by reducing accommodation costs ( about £200 per annum) while also cutting the government’s housing benefit bill (£630m over five years). Reports indicate that housing associations expect to manage their long-term financial commitments including the provision of new housing, which in turn will support housebuilders.
The position for 2023/24 is sorted but what about the year after? The government is expected to call for evidence for a ‘rent convergence’ policy in 2023, where social landlords could increase rents over time beyond the standard formula of CPI + 1%. The effect would be that rents could eventually be at the same level as if the rent cap had not applied, subject to affordability limits if inflation rises.
While no relief was given by government to tenants in shared ownership properties (they own a percentage of the property and pay rent on the balance), it is reported that housing associations, which are responsible for 80% of shared ownership homes, are expected to cap rents at 7% (Inside Housing, 17 November 2022).
There are winners and losers when it comes to business rates. The multiplier – the proportion of rateable value that is paid to the government as business rates - has been frozen for 2023/24. In addition, retailers on the high street, pubs and restaurants are likely to benefit from the rebasing of values to 2021, as their property values fell during the pandemic. In addition, they can also claim retail, hospitality and leisure relief, raised from 50% for the year to 31 March 2023, to 75% up to 31 March 2024 (subject to a cap of £110,000 per business). In contrast, companies that thrived during the pandemic (eg, online sales) will face a higher rates bill as their properties are likely to have risen in value.
Net zero target
The government has confirmed it is still focused on reaching net zero by 2050 (remember Net Zero Strategy: Build Back Greener, HM Government October 2021?) through delivery of Sizewell C and the ‘rollout’ of an increased supply of renewable energy, including wind and solar, with £1.7bn on the table in the Levelling Up Fund. There are some inconsistencies in the tax regime – Vehicle Excise Duty will be levied on electric cars, vans and motorcycles from April 2025, while the first-year allowance of 100% for car charge points will be extended to April 2025. But what further incentives will apply between 2025 and 2050 to help the UK meet the net-zero target?
The commitment to "levelling up" continues, slowly – it is at the conceptual, pre-design stage. Devolution of skills, transport and housing is to be made to some local authorities. A pilot programme ("trailblazer deal") aimed at delivering funding is under discussion with Greater Manchester and West Midlands Combined Authority – some deals are expected in early 2023. The Investment Zone proposition (an area with specific tax and regulations aimed at bringing investment to an area) has been paused for a rethink between the Department for Levelling Up, Housing and Communities and potential stakeholders (including local authorities and businesses); expressions of interest will not be taken forward.
Infrastructure projects are to continue for the next five years until 2027/28 with a recommitment to the plans for delivery of East West Rail, core Northern Powerhouse Rail and High Speed 2 to Manchester. There is to be further investment in the NHS, social care and schools – although the construction element is not clear.
The government also undertakes to accelerate delivery of infrastructure projects beyond those on its Growth Plan list. The focus is on reforming the planning system as well as updating National Policy Statements for transport, energy and water resources. The recognition of the difficulties is to be welcomed, but how will the government deliver these changes?
While immigration is recognised as a partial answer to the skills gap, the government goal is the development of homegrown, skilled workers. Further investment is promised in skills reforms with reference to T levels, Higher Technical Qualifications, skills bootcamps and apprenticeships, plus a Lifelong Loan Entitlement from 2025 to provide finance for study. Sir Michael Barber has been appointed to advise the Chancellor and Secretary of State for Education. But when and how will this lead to the development of suitably trained people, in sufficient numbers, to fill the skills gap in construction, planning and other sectors of the property industry?
The Chancellor has said that he "can’t do everything", but he must convert aspirations into action. Resolving the skills gap would be a good place to start.*The views expressed are the author’s and not ICAEW’s