Chancellor of the Exchequer Jeremy Hunt has delivered his Autumn Statement, an emergency intervention aimed at stabilising the UK economy and reducing inflation that was surprisingly rich in significant interventions for UK real estate.
Planting the country's economic woes squarely in the context of a global downturn – "there may be a recession made in Russia, but there is a recovery made in Britain" – Hunt said his three priorities were stability, growth and public services.
His task was to raise taxes to improve confidence in his government's ability to take tough decisions to reduce inflation and interest rates while showing considering those struggling with the cost-of-living crisis. "This is a compassionate Conservative government" he said, in a clear bid to draw a line under perceptions created by his immediate predecessor.
It was a strangely hybrid pre-Christmas budget, treading a path between Santa Claus and Ebenezer Scrooge. Key measures included: increasing the UK minimum wage for people over 23 from £9.50 to £10.42 an hour; changing the tax system so the top 45% additional rate of income tax will be paid on earnings over £125,140; freezing income tax personal allowance and higher rate thresholds for another two years; and cutting tax-free allowances for dividend and capital gains tax next year and in 2024.
Effect on Real Estate Industry
After several "fiscal statements" and Budgets without much in them for UK real estate, this one had big announcements around business rates, stamp duty taxation, levelling up and investment zones.
Will Matthews, head of UK commercial research for Knight Frank, saw two major opportunities for real estate emerging from the Chancellor's attitudes to public spending and investment.
"This was always going to be a statement full of difficult compromises, but it leads to two potential opportunity areas for the real estate sector, one practical and one structural," Matthews said.
"Firstly, as government departments come under even greater financial pressure, there will be an added incentive to release assets or sites for sale or redevelopment. Secondly, although the government recommitted to a number of investment projects and growth in capital spending, there will also be a growing role for the private sector to drive economic, technological and social infrastructure, should it wish to. Is that an attractive proposition? The real estate sector’s contribution to the success of UK life sciences, health care, education, data centres and countless other areas suggests that for the right opportunity, it certainly can be."
Walter Boettcher, head of research and economics at Colliers, said that aside from the business rate mitigation, most of the budget's impacts on commercial property are, as ever, indirect, but in this instance they are "potentially substantial".
“The Chancellor’s infrastructural commitments are especially reassuring alongside the commitment towards further devolution to support ‘civic-led investment’. The Chancellor’s citation of the work done by Andy Street at the West Midlands Combined Authority and Ben Houchen in the Tees Valley is very heartening. It demonstrates that the conceptual apparatus that informed the Northern Powerhouse initiative is alive and well and will continue to be rolled out across the UK as part of the levelling up agenda.
“Furthermore, this civic development could potentially be accelerated exponentially should the proposed Solvency II reforms mentioned by the Chancellor be implemented. Though obscure to many, the Solvency reforms may bring the collective weight of UK institutional capital to work directly on the levelling up agenda, as well as on the expansion and commercialisation of UK’s science industries."
Business Rates in Spotlight
The most eye-catching statement was on business rates, with Hunt unveiling a surprise package worth £13.6 billion to help business rates payers.
The government said it remained committed to introducing new valuations of properties to reflect more recent market conditions from 1 April of next year, but in response to prices rising around the world said it will introduce a package of relief measures now. These are:
- Freezing the business rates multiplier for another year to protect businesses from rising inflation, worth £9.3 billion over the next five years
- An extended and increased relief for retail, hospitality and leisure businesses worth almost £2.1 billion. The government said this is the most generous in year business rates relief in over 30 years, outside of COVID-19 support.
- Reforming Transitional Relief so for businesses seeing lower bills as a result of the revaluation, the government will make sure they benefit from that decrease in full straight away, by abolishing downwards transitional reliefs caps. The government also announced a £1.6 billion scheme to cap bill increases for businesses who will see higher bills as a result of the revaluation.
- Protection for small businesses who lose eligibility for either Small Business or Rural Rate Relief due to new property valuations through a more generous Supporting Small Business scheme worth over £500 million.
This package means that the total increase in business rates bills will be less than 1%, compared to over 20% without intervention, the government said.
Tim Beattie, head of rating at JLL, said there was a clear element of smoke and mirrors: “Whilst we welcome the Chancellors decision to ‘freeze’ the business rate multiplier for 2023-24 and not implement the full 10.1% consumer prices uplift all is not what it seems as he has taken advantage of the increase in values resulting from the revaluation to deploy ‘smoke and mirrors’ tactics and conceal an increase of 3.86% in the amount of rates collected in 2023-24. Implementing the full CPI uplift to the 2023-24 Business Rate multiplier would have seen the multiplier increase from 49.9p to 54.2p whereas a true ‘freeze’ in the tax collected would have seen the multiplier fall from 49.9p to 48p.”
Ryan Jones, head of business rates for Cluttons' northern region, said: "Overall there were some really positive pledges in the Autumn Statement for business rates. It is no surprise that there will be a transitional relief for business rates given there was a consultation earlier this year on the proposal. However, unlike previous transitional relief schemes, there will be no downwards transition which is good news for those ratepayers who will see a reduction in their liability as a result of falling values. There will be an upwards transitional relief scheme which will mitigate against those who will see an uplift in their liabilities as a result of April's revaluation. This is great news for retailers who were expecting the worst. Those who will see increases will be protected so the likes of industrial and life sciences who continue to power the property market are also protected."
But Jones was disappointed that the multiplier has been frozen and not reduced as "we head into a recession that will purportedly last until mid 2024".
"Overall our long-term call remains for a more structural reform to business rates, to make it a fairer system and with this in mind the Online Sales Tax not going ahead is disappointing but expected due to the complexities it presented in its proposed guise."
Melanie Leech, chief executive, British Property Federation said: “Businesses across the UK are facing unprecedented cost pressures and we are pleased the Chancellor has listened to the BPF, frozen the business rates multiplier and introduced further reliefs, to help prevent a tide of insolvencies on the high street. Many high street businesses have been paying artificially high rates bills for years and the Chancellor has recognised this is simply not sustainable.
Vivienne King, Chair of the Shopkeepers Campaign, said: “Retailers in struggling parts of the country will now benefit from the full effect of the revaluation immediately and pay their fair share of rates. This is a welcome first step to the much needed reform in the business rates system”.
Levelling Up and Investment Zones
Hunt made the government's commitment to its Levelling Up policy and to devolution of power out of Westminster a key theme. He also confirmed the government would "refocus" the previous short-lived government's investment zone plans, which offered major tax incentives in selected areas across the country.
The Autumn Statement said the government remains committed to spreading opportunity across all areas of the UK and confirmed that the second round of the Levelling Up Fund will allocate at least £1.7 billion to priority local infrastructure projects with successful bids announced before the end of the year.
The government also said it remains committed to giving more local areas more power to drive local growth and tackle local challenges. This includes delivering the commitment to agree devolution deals with all areas in England that want one by 2030. It has agreed a mayoral devolution deal with Suffolk County Council and is in advanced discussions on deals with local authorities in Cornwall, Norfolk and the North East of England. These will increase the proportion of people living under a directly elected mayor with devolved powers in England to over 50%, it said.
The government said it also will deliver the Levelling Up White Paper commitment to sign new ‘trailblazer’ devolution deals with Greater Manchester and the West Midlands Combined Authorities by early 2023.
On investment zones the government said it will "refocus" the programme and "catalyse a limited number of the highest potential knowledge-intensive growth clusters, including through leveraging local research strengths", it said. Hunt said these would be near leading universities. It added that the Department for Levelling Up, Housing and Communities will work closely with mayors, devolved administrations, local authorities, businesses and other local partners to consider how best to identify and support these clusters, "driving growth while maintaining high environmental standards, with the first clusters to be announced in the coming months". The existing expressions of interest will not be taken forward, it said.
Simon Peacock, head of regions at JLL, said: “Clearly, given the financial crisis caused by the markets’ fear that the UK had lost its sense of fiscal responsibility, there was a need to restore trust today. But with few initiatives to boost growth and a slower rise in capital spending, the public sector is going to find it much harder to play an active role in local regeneration projects. Cuts to budgets force Government departments and local authorities to make really hard decisions that ultimately reduce the people and capacity available to deliver on growth and renewal in our regions."
On investment zones Peacock said: "They may not have delivered what was suggested in the ‘mini-budget’, but they were an idea of some promise and at least worthy of exploration. Many will feel disappointed by their scrapping. As we look ahead, we await details for the university-focused scheme that will replace them and hope it will come to the fore before the next Budget to support local authorities."
Stamp Duty
On 23 September, the Liz Truss government increased the nil rate threshold of Stamp Duty Land Tax from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000.
Hunt today said this will now be a temporary SDLT reduction. The SDLT cut will remain in place until 31 March 2025 to support the "housing market and the hundreds of thousands of jobs and businesses which rely on it". The government will amend the Stamp Duty Land Tax (Reduction) Bill to implement this measure.
Nick Leeming, chairman of Jackson-Stops, said of the decision to reduce the SDLT cut was "unwelcome news for the housing market".
"Perhaps one of the only positives to come from the ill-fated mini Budget, the decision to put a time limit on the tax break is likely to create a bottleneck of transactions in the first quarter of 2025 as buyers rush to lock in the more favourable stamp duty rate. Whilst this rush to get a sale across the line will not be to the same extent seen during the last stamp duty holiday, this time limit will undoubtedly factor into many first-time buyer’s decisions as these savings could be put towards utility bills, solicitors’ fees or upgrades on the home they purchase.
“The priority must be avoiding creating market bubbles and providing a stable environment. We should be looking to encourage fluidity throughout the market and a wider stamp duty reform is needed for this.”
Solvency II
Hunt said the government had today published a consultation response setting out the final reforms of Solvency II, which affects the regulation of insurance companies. It said the reforms will "unlock tens of billions of pounds for investment from UK insurers in long-term productive assets".
It wants to introduce a "simpler, clearer, and much more tailored regime". In particular, it will cut the required risk margin significantly, with a 65% cut for long-term life insurance business, something that could dramatically increase real estate allocations. It said it would also increase investment flexibility by overhauling eligibility rules for the matching adjustments.
The BPF's Leech said the reforms of Solvency II have the potential to unlock further institutional investment but "we need to be bolder in creating new models for public-private partnership and investment if we are to deliver local infrastructure and transform town centres whilst tackling climate change".
No Planning?
There was very little mention of the planning system or of planning reform, one of former Prime Minister Boris Johnson's key focal points for "radical" thinking to unlock growth. The Treasury documents report: "The government will seek to accelerate delivery of projects across its infrastructure portfolio, rather than focus on the list of projects that were flagged for acceleration in the Growth Plan. The government will continue to ensure that all infrastructure is delivered quickly through reforms to the planning system, including through updating National Policy Statements for transport, energy and water resources during 2023, and through sector-specific interventions."
The BPF's Leech described the lack of necessary investment in local authorities and continued uncertainty about planning reform as a "fundamental risk for the Government’s ambitions for levelling up and we hope [Levelling Up Secretary] Michael Gove will address this in his statement later today".
Stuart Law, CEO of the Assetz Group of alternative property lending companies, said: “Balancing the books further stabilises the mortgage market, meaning we will now likely avoid the most severe scenarios for house price depreciation, while some buyers may be able to revive their hunt for a new home with relative security that mortgage rates won’t keep ratcheting up. That being said, with inflation still high, a package of tax rises will further eat into household budgets, and this will take its toll, putting homeownership out of reach for more people and bringing house prices down from the historic highs we’ve see over recent years.
“Housebuilders will have their heads in their hands as Jeremy Hunt failed to afford any time to planning reform, while the retention of the SDLT cut will protect demand over coming years at a time when a huge imbalance in market forces sits at the heart of our national housing crisis. Until we stop kicking the can down the road, we will never build enough homes, or take steps to make housing more accessible and affordable for more people."
Environment and Energy Commitment
Hunt made commitments to the environment and to energy efficiency key elements of his Statement.
The government is announcing a "new long-term" commitment to drive improvements in energy efficiency to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030 against 2021 levels.
Government funding worth £6 billion will be made available from 2025 to 2028, in addition to the £6.6 billion provided in this Parliament. To achieve this target, a task force will be charged with delivering energy efficiency across the economy.
The government also said it will secure the UK’s energy security through delivering new nuclear power, including the massive new nuclear plant at Sizewell C, and the roll-out of cheap, clean renewables, including wind and solar. This will "support the government’s commitment to reduce emissions, decarbonise the power system by 2035 (subject to security of supply) and reach net zero by 2050".
Tor Burrows, executive director, sustainability and innovation, Grosvenor Property UK, welcomed the focus on energy efficiency. "As we have found in rolling out our own £90 million retrofit programme, a comprehensive approach to improving building stock creates jobs, reduces energy costs for households and businesses and is an important part of extending the lifecycle of existing buildings, particularly heritage assets.”
“To fully realise the benefits of any energy efficiency programme, Government must ensure the planning system supports the sensitive adaption of heritage buildings. Only by equipping the nation’s historic assets for the challenges of climate change can we ensure they can continue to be enjoyed by future generations.”
Once again, Colliers' Boettcher saw a likely major opportunity for real estate and the country as a whole emerging: "Given that COP26 and COP27 together suggest that the baton of promoting the green agenda may have already been handed over to businesses, and that business already recognise the enormous values to be released though exploiting and developing new green technologies, there may still be a chance that the UK’s ambitious COP26 commitments for 2030 might still be achieved, despite all the international geopolitical challenges.”