Chancellor of the Exchequer Jeremy Hunt said the UK economy is "on the right track" again and will not now enter a technical recession this year in today's Budget address.
The real estate sector will have found few standout measures in the government's key economic and policy announcement with talk at the Mipim conference in Cannes focused far more on the implications of the growing banking crisis.
The Budget did little to shore up confidence in financial markets as the fallout from the collapse of the US's Silion Valley Bank has spread to European banks, with Credit Suisse's share price falling after main investor Saudi National Bank said it would not supply more capital.
In his Budget speech, Hunt said the government is on track to halve inflation, reduce debt and get the economy growing. He added that following "difficult decisions" to deliver stability in the Autumn, government borrowing costs have fallen, mortgage rates are down and inflation has peaked.
The rate of price rises, or inflation, is forecast to fall to 2.9% by the end of 2023, according to the Office for Budget Responsibility.
So What Was in it for Real Estate?
For many in the sector, the most welcome was the focus on stability given the shock prompted by last September's "mini Budget", which led to rising rates and falling real estate values.
Mary-Anne Bowring, Group MD of Ringley Group, said: "Though thin on the ground when it comes to housing commitments, the stability signalled today is a positive development for real estate investors targeting the UK, who will be relieved there were no rabbits out of the hat. The reality is that we are still recovering from the Kwarteng and Truss car crash but investors and lenders, especially in the living sectors, are increasingly seeing the UK through a lens of optimism."
There was broad appreciation among real estate industry professionals of moves to encourage business investment and growth and, in particular, to speed up the government's flagship "Levelling Up" agenda, which aims to bring regions in the UK a greater share of the country's economic prosperity in comparison with London and the South East.
Hunt said the government is launching a "refocused" investment zones programme to catalyse 12 growth clusters across the UK, including four across Scotland, Wales and Northern Ireland. Each cluster will drive the growth of at least one of its key future sectors – green industries, digital industries, life sciences, creative industries and advanced manufacturing – aiming to invest into areas which have underperformed economically.
Each English investment zone will have access to "interventions", such as tax reliefs, worth £80 million over five years. They will have access to a single five-year tax offer matching that in the already-created freeports, which will include enhanced rates of capital allowance, structures and buildings allowance, so taxation will kick in at a higher level. They will also receive relief from stamp duty land tax, business rates and employer national insurance contributions. Local partners will be able to choose the number and size of tax sites, within the £80 million envelope, up to a maximum of 3 sites totalling 600 hectares. The amount of grant funding will depend on the number and size of tax sites.
Melanie Leech, chief executive, British Property Federation, said the Chancellor was right to have used the Budget to remove obstacles that prevent businesses investing and to set out a plan to deliver on growth.
She highlighted the deals that will give the areas of Greater Manchester and West Midlands more power over their own transport, housing and net-zero work, among others.
"The announcement of ‘trailblazer’ deals with Greater Manchester and the West Midlands is welcome. Both regions understand the critical importance of real estate to delivering better outcomes for communities and we look forward to working with them to unlock new opportunities for investment. Taken together with the Chancellor’s announcement for 12 new ‘Canary Wharf’ inspired investment zones and further levelling-up funding, towns and cities across the country will move towards a more strategic and targeted framework of interventions."
Leech added that changes to capital allowances introduced are much needed as a counter-balance to the increase in corporation tax, which lifted from 19% to 25%, and the ending of the "super-deduction".
"By providing full tax relief in one year, called for by the British Property Federation, it will better support businesses and encourage long-term investment into carbon reduction and energy efficiency measures.”
In response to the announcement to devolve funding to local governments Mark Allan, CEO, Landsec, said: “Growing the economy will only be possible if we invest in our cities and give them the tools to succeed. City and local governments need to be better funded and empowered through a meaningful devolutionary settlement. This is why I was pleased to see today’s announcement of further devolution for the West Midlands and Greater Manchester – it is something we have campaigned for through our Cities Manifesto. But we can and should be much more ambitious in supporting our city regions in driving economic growth. Cities across the UK will continue to lag behind their European counterparts and communities risk being left behind if similar funding deals aren’t prioritised for the rest of the country."
Nicola Gooch, planning partner at Irwin Mitchell saw little new in the investment zones announcement: "The Budget has set out yet another re-invention of 'Investment Zones', a policy that has been widely trailed over the last few days. The proposals are significantly scaled back, when compared to last year’s iteration of the policy, but would still provide additional investment and resources to 12 ‘investment zones’ across the UK including eight mayoral authorities in the Midlands and the North of England. The main purpose of the new investment zones, appears to be to act as incubators for new industries or start-ups – as they are largely centred on universities.
"We also have the promise of more funding for new infrastructure projects and regeneration schemes across the country, again in service of the Levelling-Up Agenda. We have also had promises of new levelling-up partnerships and greater devolution, with consultations promised on how best to give local authorities greater power and also – for the first time – to allow mayors outside of London to set the strategic direction of their own affordable housing programmes. This is a long overdue acknowledgement that centrally set targets for affordable housing products, such as first homes, simply do not work for all parts of the country.
Gooch said the biggest news in the budget for planning, however, was not investment zones, but the promise of additional help in tackling nutrient neutrality issues throughout England and, in particular, to provide funding for local nutrient neutrality schemes. These govern the amount of phosphates and nitrates allowed in the water.
"Whether local nutrient neutrality schemes will be able to help, will in part depend on how quickly Councils are able to get them up and running - but given that the House Builders Federation estimates that nutrient neutrality rules are currently holding up the development of at least 120,000 new homes, anything that can help ease the situation is to be welcomed."
Joshua Bond, founder and managing director at Bond Land, said while the Budget speaks to growth the lack of movement on planning reform would continue to hold this back.
"Any prospect of [growth] and the investment zones the Government has set out is practically impossible without taking a sledgehammer to the planning system. The broader needs of the nation rely on changes to regulations, which allow for more land to be made available and for what we build and deliver to flex to meet the requirements of a modern society.”
On the industry's bete noire, business rates, there was little more announced.
Hunt said the government, as part of its commitment to transfer more power to local administrations, would expand the local retention of the taxes business pay to their own councils.
John Webber, head of business rates at Colliers said, “The Government’s lack of comment on business rates in its Budget today is desperately disappointing with no reassurance that it has engaged with the industry –despite the fact the new 2023 Revaluation list becomes live in two weeks’ time.” The revaluation list will govern how much businesses pay.
Colliers has long been campaigning for business rates reform on the grounds that the current system which provides £28 billion (net) for local authority funding is not fit for purpose, overall penalises the retail sector and deters businesses from expanding and investing.
Although the Chancellor announced today that some local authorities would be able to retain their business rates to decide their use and that there would be reliefs in the new investment zones, Webber brands these measures as irrelevant.
“Business rates retentions are often a hospital pass – the local authorities are given more authority to spend funds raised – but the amount of money raised never fills the gap between what is raised and what is needed. Sometimes retention can be a real negative to the local authority with the impact of appeals and the risk of losses.”
Josh Myerson, partner and head of rating advisory at Montagu Evans, said: “As anticipated, there was little reference to business rates in this year’s Spring Budget, with the big announcements already made in the Autumn Statement. These changes, which come into effect from April this year, have provided much-needed stability and certainty to the majority of ratepayers. However, we would encourage ratepayers to start taking the necessary steps now to ensure their new rateable values are fair and reasonable. Looking ahead, we welcome further engagement with the Valuation Office Agency regarding the forthcoming updates to the appeal and compliance regime.”