Spring Budget: key policies for property development and investment

The Chancellor presented the Spring Budget on Wednesday 11 March. It contains significant commitments to spending in a number of sectors. Chancellor of the Exchequer Rishi Sunak said: “Over the past decade, the government has taken action to restore public finances to health, reducing the deficit by four fifths. This, and the historically low cost of borrowing, mean that the government can support the economy in the short term, [referring to the potential fallout from coronavirus] whilst providing significantly more investment in public services and infrastructure to support growth in the long term.”

You can access the BBC’s summary of the key announcements here and, for the intrepid, the Budget Report can be accessed here.

We set out below the announcements from the Budget Report which are most immediately relevant to large scale property investment and development, and we will be tracking these policies as greater detail emerges. As ever please do not hesitate to contact us at Macfarlanes should you wish to explore how these policy announcements may impact on your business.

Grenfell/fire safety/cladding

• £20m for Fire and Rescue Services “…to enable them to increase fire inspection and enforcement capability and to build capacity to respond to the Grenfell Tower Inquiry’s findings.”
• An additional £1bn to remove unsafe cladding from high rise residential buildings above 18m.

Housing

• The Government reconfirmed its commitment to the creation of at least 1m new homes in England by the end of this Parliament and committed to an average of 300,000 homes a year by the mid-2020s. That’s an ambitious target - new home completions over the last couple of years are significantly fewer than this (163,940 (2015-2016); 183,570 (2016-2017); 195,290 (2017-2018) and 213,860 (2018-19) (ONS figures)).
• An additional £9.5bn for the Affordable Homes Programme (and plans to allocate £12.2bn in total for the programme from 2021-22). The programme is a joint funding exercise between Government and private investors which aims to increase the supply of shared ownership and affordable housing in England.
• £400m for the Mayoral Combined Authorities and local areas to establish housing on brownfield land across the country.
• A new long-term Single Housing Infrastructure Fund will be launched at the Comprehensive Spending Review – the plan is to “unlock new homes in areas of high demand across the country by funding the provision of strategic infrastructure and assembling land for development”.
• The Government intends to legislate to ensure new build homes are built with gigabit-capable broadband.
• The Government reconfirmed its commitment to improve the standards of new built homes and to introduce the Future Homes Standard.
• The Government will consult on changing the rules of the Public Works Loan Board (PWLB) lending to encourage local authorities to use that money to invest in housing, infrastructure and front line services. Local authorities invest in their local communities which is supported by the Government with low cost loans through the PWLB. Recently councils have been using this to buy significant amounts of commercial property for rental income which the Government has not looked on favourably.

Planning changes

• The Secretary of State for Housing, Communities and Local Government will “shortly” set out comprehensive reforms “to bring the planning system into the 21st century” followed by a White Paper in the spring.
• Reforms will include (i) creating a simpler planning system; (ii) improving the capacity, capability and performance of LPAs; (iii) greater sanctions if LPAs do not perform.

Business rates

• There is to be a fundamental review of business rates which will consider further reforms to the business rates system and will report in the autumn. In the interim, companies with a rateable value of less than £51,000 will not pay any business rates in the coming year. The measure applies to firms including shops, cinemas, restaurants and hotels and is anticipated to assist tens of thousands of England's retail, leisure and hospitality firms who may be experiencing a downturn in business due to fears over Coronavirus.

Town centre regeneration

• A new £3.6bn Towns Fund to support the regeneration of high streets, town centres and local economies.

PFI

• The Government wants to make sure the 600 existing PFI contracts “are well managed and represent value for money” and during 2020-21 £2m will be allocated to carry out “targeted contract reviews”.

National Infrastructure Strategy 

• The National Infrastructure Strategy, a “landmark” document setting “out plans for a once in a generation transformation of the UK’s economic infrastructure” will be published in the spring.

Low carbon heat 

Relevant as an increasing number of schemes have combined heat & power (CHP) networks:

• There will be a new Low Carbon Heat Support Scheme to support the installation of heat pumps and biomass boilers.
• The Heat Network Investment Project (which supports innovation and investment in CHP) will be funded (£96m) for a further year (to 2022).
• £270m new funding to enable new and existing heat networks to adopt low carbon sources.

Capital allowances 

• Structures and buildings allowance (SBA) rate: the annual rate of capital allowances available for qualifying investments to construct new, or renovate old, non-residential structures and buildings to increase from 2% to 3%.

National Living Wage 

The issue may affect construction prices on future projects. The Government announced:

• A new target for the National Living Wage (NLW) to reach two thirds of median earnings and to be extended to workers aged 21 and over by 2024 (as long as economic conditions allow). Based on forecasts this would mean a NLW of over £10.50 in 2024. The NLW is being increased to £8.72 per hour with effect from this April.

Prompt payment 

Prompt payment is a perennial problem for parts of the construction supply chain:

• There will be a consultation on strengthening the powers of the Small Business Commissioner to help improve small businesses' chances of being paid promptly.

Tax

• The changes to IR35 will not be delayed and will come into force as planned on 6 April 2020.
• There be a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.
• Confirmation that the VAT domestic reverse charge for building and construction services will come into force on 1 October 2020 (delayed from October last year).
• There will be new legislation to prevent businesses subject to the Construction Industry Scheme (CIS) from claiming refunds they are not entitled to and a consultation on how to promote supply chain due diligence for CIS purposes.
• Alongside the Budget, a consultation was announced to address the barriers to establishing UK asset holding companies. From a real estate perspective, the Government is aware of the difficulties real estate funds with a mixed investor profile face with accessing the UK’s Substantial Shareholding Exemption (“SSE”). The government is interested in whether the SSE could be broadened or even create a more comprehensive participation exemption. The consultation also raises the prospect of broadening the REIT regime to a wider class of UK property holding companies. Our tax team will be responding to the consultation.

Retail Price Index 

Relevant as rents and other sums are sometimes drafted by reference to it. The Government announced:

• A consultation on the RPI measure of inflation, announced by the Chancellor in September 2019, launched today. Any agreed changes may be implemented at some stage between 2025 and 2030.

Land Registry

• HM Land Registry will be given funding to assist with the transition into central government and the project to digitise land registration in England and Wales.