Commercial Property Blog
All posts tagged: budget
The theory behind today’s Budget was a trade off between the Chancellor’s promised “Budget for growth” and the troubling backdrop of rising inflation, weakening tax revenues and flat economic output.
The Office for Budget Responsibility (OBR) has revised its November forecast for economic growth from 2.1% for this year to 1.7%, closer in line with independent forecasts, but its medium term forecasts have increased.
This confident outlook, combined with the OBR forecasts on debt indicating the Government will hit its fiscal mandate by 2015, is what has given the Chancellor breathing room to argue that £1bn raised from a clampdown on tax avoidance and the previously announced £800m additional tax on banks enables him to fund populist measures such as the cut in fuel duty and the £250m move to help first-time buyers, alongside business-friendly moves such as increasing the cuts in corporation tax.
Aside from the economic story, key issues for property today included planning. The theory of encouraging growth through a relaxation the planning regime has so far only stalled things, as local government continues to wait for clear guidance to materialise before committing itself.
Imposing time limits on planning applications, and reforms regarding land use and use class changes will do little to encourage development if local councils remain reluctant to take decisions. Meanwhile, the lowering of the threshold at which empty rates kick in was discouraging, if expected, news.
The Chancellor did a good job of selling the Budget as a business friendly plan for growth but most of the stated aims or reforms, such as the increase in the number of new Enterprise Zones from 10 to 21, will not materialise for several years.
So, in the main, it will continue to be the economic story which will have the most direct influence on property’s near term performance. Let’s not forget that the previously announced, and therefore not reiterated, spending cuts have yet to bite.
The coming year is going to remain extremely challenging but is a necessary evil if the UK is to rebalance its books. Rising inflation in the face of global difficulties, and the Monetary Policy Committee’s response to it, is likely to prove to be the biggest story this year regardless of today’s Budget.
The sight of Harriet Harperson jangling around like a coathangered scarecrow in a storm, accusing everyone of being ‘fig leaves’ was highly comical.
Her budget response, combined with Ed Balls telling the BBC he would never have raised VAT, underlined that politics - and the schoolboy nature of opposition for opposition's sake - hasn't changed.
Thankfully, George Osborne's budget has given Britain back the certainty and stature craved by the markets. It has helped erode the volatility of recent months and allows Britain now to move on. The bond markets have reacted well, the pound has strengthened and while the FTSE has lost a bit of ground amid worries over growth, the City has reacted quite warmly.
Others of course have said we now face a double-dip recession as a result of the cuts, but if we – like Harriet yesterday – were honest about the size of the mess, then few could deny Osborne was left with few choices. In that respect, it was an unavoidable budget, but make no mistake, it was still a highly political act. Indeed, we had been promised it even before anyone had seen the books.
The whole thing was a PR masterstroke. Controlled leaks to the press meant everyone expected a far harsher set of proposals. It's that old adage of under promise and over deliver, in reverse. On reflection though, for the most part there were equal measures of austerity and social justice in Osborne's words. The government had clearly sought good advice on most tax rises - and what we saw with CGT for example, was a no nonsense rise below what many expected and a suitable widening of relief for entrepreneurs – extending this to £5 million.
Of course the VAT issue is the big talking point and it’s true that it is a regressive tax that does disproportionately hurt the poor. Figures suggest that the poorest pay £1 in every £7 of VAT, while the richest pay just £1 in every £25. But if we are to reduce debt then reduced consumption may be the bitter pill that retailers have to swallow.
And as we hit quarter day tomorrow, there’s no doubting that old arguments over rents and service charges will come back out of the ground as retailers continue to push back on their suppliers as they face a consumer spending dip.
However, the full effects won’t be known for a while though. The VAT change comes into effect at the start of 2011 and the real public spending cuts are unlikely to be fully known until the comprehensive spending review on 20 October. The argument for cuts over taxes is that they are more gradual, but for some, this could mean that the recession is indeed ore long and drawn out.
While the property industry will lament the lack of any empty rates reform or any firm introduction of tax increment financing, it could have been a lot worse. There was no 5 percent stamp duty rate introduced for commercial and Reits were finally awarded their stock dividends amendment – be it two years too late or not. Much of this is down to the excellent job we have done raising the profile of the industry and ensuring that ministers and their advisers better understand the laws of unintended consequences.
We are widely quoted in today’s papers around moves to shake up the housing benefits system and this is one area where housing minister Grant Shapps could step in to improve things by reversing the system which sees payments made directly to tenants. Landlords of homes where the tenants splash their money away on ‘other things’ have little recourse through the courts and it means they then take their properties off the market. The cap on spending, and the pledge to means test those on DLA are sensible measures, but they need to not undermine the supply of housing to these groups.
On a slightly lighter note, my favourite quip of the day yesterday came from the banking community who, as you would expect, described the £2 billion banking levy as ‘nothing more than a rounding error’. Some things it seems, haven’t changed at all.
As the police escort peeled away from Gordon Brown leaving Buckingham Palace at sunset, it was the final sad scene of New Labour’s epilogue which has lasted pretty much three years.
Ironically, it was property that became Brown’s first big broken promise.
Just as it brought down RBS and Lloyds, so the promise of three million new homes quickly turned to parody.
But after five days of chaos with the bond markets holding a blunt knife to the UK economy’s jugular we at least have some certainty.
George Osborne as chancellor is likely to settle nerves, as is the news that Vince Cable in a supporting role in charge of banks and business has agreed to scrapping the NI rise and to make £6m of cuts this year.
Some may also recall that Vince Cable was one of the many supporters of our Empty Rates campaign. There’s a video of him saying so at www.emptyrates.com
Some will question how, having come third, the Liberal Democrats now hold such sway in Cabinet with five positions and ministers in every department.
On balance though, the overwhelming majority of Tory MPs are first timers, rendering inexperience and irrelevance.
It’s not different to Labour in 1997. And if the whole thing works, the elected dictatorships that made Tony Blair so unpopular, and that has left Thatcher so hated by so many of my generation, could be a thing of the past.
Although in City land, many of course prefer straight decisions. Without Maggie overruling the corruption of Tower Hamlets council, Canary Wharf would never have been built.
We stare into a similar abyss with the Crossrail, Battersea Power Station and Elephant & Castle projects hanging in the balance. But a consensus around the economy, as with everything else, could be what works best.
Of course Clegg could never have dreamed in a million years that he’d be in Downing Street. Is he likely to be out of his depth? No more so than anyone.
Osborne – the subject (unfairly in my opinion) of much of this kind of comment will deliver his first budget in little over six weeks. It will be the most important for 30 years and it’s this that hangs in the air over the markets.
Gone is the euphoria and elation of 1997. There’s no sign of champagne or Noel Gallagher and the general feel is one of work to be done.
And in terms of getting on with business it will be a case now of ensuring that this new government understands the part property has to play in things.
The next De Montfort study is published next week and will, in all likeliness, show a stagnation of debt – something that could well come back to bite the publicly owned banks if they don’t start actively managing it properly, taking lease expiry into account and putting some of it out to market.
The aforementioned housing crisis won’t go away and of course the much discussed debates around planning will continue.
While the housing and planning jobs have not been confirmed, we should recognise that the Tories have always been open to discussion and this brave new world of fairness could well be as kind to the industry as the last 13 years of Labour.
‘Vote for change,’ scream the Tory banners, with airbrushed-Dave peering down creepily like the ghost of Gareth Gates.
‘The choice,’ we’re told, is of ‘five more years of the same pants, or queuing up in M&S to buy some new ones.’ And you know how long the queues are in Marks since they brought in the self-service tills.
Change though, is what we got in yesterday’s Budget.
‘I’m gonna change the definition of strong cider,’ Darling proclaimed, like Moses bellowing out the six commandment. Expect it to be like when the chancellor changed the definition of ‘ATM’ and ‘public toilet’ to become an ‘empty property’ when offering rate relief in response to the award-winning campaign I jointly coordinated with Property Week.
Apart from much electioneering and some light fiddling of the figures, there was Scrumpy Jack in this Budget of any real substance. In truth, the whole thing was Tab Clear (Coke’s filthy clear cola). Remember that?
And as so many have done in times of despair, let’s turn to the Smiths for our Budget analysis as we apply the title of one of their early hits, What Difference Does It Make?, to some of the key announcements.
‘We have been through hell and high tied,’ Morrissey moans throughout. And he’s right, but things are getting better though: the national deficit is ONLY £167bn down from £178bn. Get in! I don’t know about you, but any number where the noughts resemble using an x-ray to peer into a tube of Smarties means nothing.
So let’s try some other figures and see what other Smiths song titles fit the order of play.
A Rush And A Push And The Land Is Ours
Inheritance tax is to be capped at the current threshold of £325,000, or rather, it will be pegged to September’s inflation rate like so many other bits of the economy. It was one of several deep political dividing lines drawn yesterday, but given you only pay it when you die, what difference does it make?
William, It Was Really Nothing
The look on Hague’s face when the crackdown on Belize was announced was priceless. It is a shame though that this was probably the highlight of Darling’s career. I’m of course referring to the three new tax treaties announced yesterday which will probably raise a few quid to pay for Liam Byrne’s latte’s and head polish. But given that most people don’t invest in a fund in some hard-to-find country, what difference will it make?
Sweet And Tender Hooligan
Official figures claim there’s around 1.8m people not working, compared to 4m last time around. Clearly they’ve not counted all the RBS and Lloyds property guys sitting on their hands, although a few dozen of them were out ‘working’ at Mipim. Lazy teenagers will now be ‘guaanteed’ training or ‘work’, according to Darling, in a statement that has strangely slipped by the media’s stupid filter. As the recent BBC documentary by Evan Davis (‘The Day The Immigrants Left’) showed, British people are, on the whole, lazy and stupid, leading one to ask of this measure – what difference will it make?
Barbarism Begins At Home
Hosing benefit will be capped at £1,100 to stop poor people living in posh areas apparently saving £50m a year by 2014-15. Of course this ignore the fact that the people who own their homes in these plush neighbourhoods will still want cleaners, and other low-paid jobs will still need to be filled. If people who have lived there on benefits for years are forced out, who will do these jobs? Benefit in this country is over £17.4bn – but what measures are being taken to kick off those people who don’t deserve it? And in the grand scheme of things, this will only save £50m from a debt of £170bn. What difference will it make?
Shoplifters Of The World Unite
The empty rates holiday is being extended in further admission that Mandelson was talking Nick Brown when he said it was “good for business” and there is also a general business rates cut for firms in cheap premises. But as we know, London is the world, and how many shops in London will have a rateable value under £12,000? The ones near me I Holloway might, but few others. As with all of these figures, the Treasury cleverly rig the figures so that they get a maximum claim of help for minimum cost. They call it politics while normal people call it lying.
Stop Me If You Think You've Heard This One Before
And then there was the Daily Mail card. The stamp duty cut for first time buyers. For two years. Meaning it’s a political move that the Tories (if they get in) would be forced to either repeal and risk looking silly or continue with when it runs out. Of course there are two very obvious points here. Firstly, it does nothing to help one obtain the massive deposit you now need to buy a house. And secondly, there’s nothing to stop the partner of someone who already owns a house buying another for investment purposes and saving money. In truth, the inheritance tax cap will probably do more good for the housing market given that first time buyers make up such a tiny proportion of the market. And if 1% is the difference between a house being affordable or not, then one should arguably steer clear.
Still, the main reason why it helps the Daily Mail readership is the large proportion of mums and dads funding their kids’ home buys. Which reminds me, when is mother’s day again?
So give or take a few script-dividends amendments, a few green funds designed to play catch up to the rest of Europe (even Portugal have had subsidised green technologies for years), there’s little here to change the world. But Labour has at least given us one important benchmark that can be carried forward to Cannes next year to help you all judge the really swish boat parties.
They won’t have champers, they’ll have premium cider.
For property the reaction to the Pre-Budget report will be pretty lukewarm.
Congratulations first to the business centres lobby for winning an extension to empty rates relief for another year for premises with a rateable value below £18,000.
Housebuilders, too, have won a desperately needed promise to reduce the `impact of regulation on the house building sector’.
On the Private Rented sector, it is, however, a promise of jam tomorrow.
It’s better than nothing, but the promise of a new consultation document early in 2010 hardly sets the pulse racing.
A vow to look at `any barriers’ to investment in private rented homes, examining how stamp duty and REIT regulation impede the regime, is good news, though.
On Tax Increment Financing there is also a promise to `continue to examine the framework needed’ and to look at what new laws would be needed to introduce TIFs.
I wonder if we will ever see TIFs given that they effectively mean more borrowing by the state.
And the biggest disappointment of all? The cuts in quangoes and state property sell-offs promised will barely touch the UK budget deficit’s sides.
Finally, we are promised a new quango, Infrastructure UK.
It will `bring together TIFU, HM Treasury’s Public-Private Partnership policy team and the capabilities within Partnerships UK’…also working with the OGC, BIS, DFT and DECC.
So much for rolling back the state…