In today's Costar bulletin they look at the key takeaways from the 2017 Budget.
"Chancellor Philip Hammond delivered a "last Spring Budget" today that was short on news for the UK property industry, something that was a relief and a disappointment in equal measure. Moves to tackle some of the concerns about the upcoming business rates revaluation were welcomed but seen as a "damp squib" at best by many while he was notably silent on stamp duty and housing. CoStar News talks to industry experts about the key takeaways.
The Chancellor made creating a truly global UK economy in a post-Brexit world his key theme.
Introducing the 2017 Budget he said the economy continued to confound the commentators with "robust growth" revealing OBR forecasts for GDP growth revised upwards in the near term. Hammond said: "We are building the foundations of a stronger, fairer more global Britain."
Hammond said in 2016 the UK was the second-fastest growing economy in the G7 after Germany.
Today's OBR growth forecast for 2017 has been upgraded from 1.4% to 2%. But GDP has been downgraded to 1.6%, 1.7%, 1.9% in subsequent years, then 2% in 2021-22.
Inflation is forecast to rise to 2.4% in 2017-18 before falling to 2.3% and 2.0% in subsequent years. A further 750,000 people are expected to be in employment by 2020.
Responding to the overall content of the Budget Walter Boettcher, chief economist at Colliers International said: “Despite great expectations, the Chancellor looks to have lived up to his reputation as ‘Spreadsheet Phil’. There was much attention to mathematical detail, but no obvious Osborne style ‘rabbits out of hats’. Despite a great opportunity to redress the rating issue, ‘in due course’ was the mantra; that is, not anytime soon. As far as we are concerned, it was too little, too late.
“The most worrying element of the Budget was the OBR assumptions upon which it is based, I think they look overly optimistic. The OBR forecast of relatively benign inflation and robust real wage growth is hard to fathom especially given the likelihood US rate hikes and further sterling weakness. In December, real wage growth fell to a 0.2% year-on-year rate. Given recent weakness in retail sales, several observers have feared that imported inflation is weakening wage growth and household spending potential. Household spending is the foundation of the UK economy.
“Despite these fears and the role that house prices play in supporting spending, it is surprising that no new initiatives were announced to support the housing market. This is despite evidence that the present SDLT regime is inhibiting market movement and that tax revenues in the top tax bands are falling. If the OBR forecasts do not unfold as foreseen and the housing market falters, the Autumn budget in 2017 could be a more earnest affair.
“Regional development appears to still be on the agenda, although the approach may be changing, especially since the original proponents Osborne and Heseltine have now both been side lined. The idea of a central government Midlands Engine strategy seems at odds with devolution and local determination of economic policies. There is evidence that devolved funding will continue as well as support for infrastructural linkages as well as commitments to several technical and educational funding initiatives. Let’s see what the local mayoral elections in May bring and especially the extent of local input into the Midlands Engine document.”
Melanie Leech, Chief Executive of the British Property Federation, said: “This was possibly one of the least eventful Budgets in recent memory, and we are thankful for that. The government had nothing to prove after two months of White Papers and Strategies, and the real estate industry will welcome the stability the Budget signals.
"We anticipated the government’s short-term relief for businesses hardest hit by the increases in business rates, but we urge the Chancellor to understand the unfairness prevailing in the appeals system. The Chancellor has two Budgets this year and he should use his second in the Autumn to also have a stock-take of some of the recent SDLT measures and whether they are having unintended consequences or inhibiting investment.”
Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC), summed up a general sense that it was at best a reassuringly steady Budget for business: “Businesses had been advised to expect minimal change, rather than a blockbuster Budget, and Philip Hammond did not disappoint.
“Short-term support for firms hardest-hit by business rates rises will be welcomed, along with commitments to technical education, digital connectivity, easier R&D tax credits, and a one-year delay to digital tax reporting for the very smallest firms. Conversely, hikes to dividend taxes and national insurance for the self-employed will be viewed far less positively by entrepreneurs.
“While business people appreciate a steady hand on the tiller, the government is sending mixed signals by holding investment largely steady at precisely the time that it is exhorting British businesses to double down. More needs to be done in the coming months to improve infrastructure and encourage lagging business investment to ensure the UK is Brexit-ready.”
James Roberts, Chief Economist at Knight Frank, was able to see positives in the commitment to science and technology for commercial property despite disappointment around business rates: “From a property industry perspective, the limited action on business rates is a disappointment, although the Chancellor probably did not have the money to do anything more. At least the debate on long overdue reform is underway.
“Measures to boost the UK as a scientific and technology driven economy are welcome, and will help future proof commercial property in the digital age. Across the country we have seen a surge in demand for business space from technology and creative industries – particularly in London where they have been the largest acquirers of offices for the last six years. Also, e-commerce has turned logistics property from real estate’s Cinderella sector into one of the best performing markets.
“This investment in science and technology should support demand for commercial property from industries that the UK will increasingly rely upon for growth after leaving the European Union. Property investors are targeting buildings in tech districts in cities, and landlords and property owners will welcome these measures from the Chancellor.”
As expected the most significant new announcements focused on business rates and April's revaluations.
Hammond announced a further £435m of relief for firms "hit the hardest by business rates" as part of a three-point package of reforms.
Hammond said the government will provide a £1,000 discount for all pubs with a rateable value of less than £100,000 - comprising 90% of pubs in the UK, The government will also provide local councils with a £300m fund to offer discretionary relief for hard-hit cases.
Meanwhile any business coming out of small business rate relief will benefit from an additional cap and will not see their bill increase by more than £50 a month. Hammond said that he and the communities secretary Sajid Javid had listened to concerns and will look at finding a better way of levelling the playing field
Together, these three measures will provide a further £435m cut in business rates for small businesses facing the biggest increases, he said.
This is on top of a £9bn package of business rates cuts already announced by the Treasury, including the doubling of the rate of Small Business Rate Relief to 100%.
Businesses and lobby groups have been urging the government to further ease the burden of business rates ahead of the rise next month as a result of the 2017 rates revaluation.
Hammond said that while he and communities secretary Sajid Javid had listened to concerns about the latest revaluation, the tax brings £25bn each year to the Treasury and cannot be abolished, as some have suggest.
However he conceded that there needed to be a better way of taxing the digital part of the economy and leveling the playing field with bricks and mortar businesses. He also committed to a further review of the system before the next revaluation.
"We will set out our preferred approach in due course and will consult on it before the next reavaluation is due," he said.
Reacting to the statement, Paul Easton, national head of Business Rates at Lambert Smith Hampton, said the rates measures announced were a "bit of a damp squib".
“These measures are certainly welcome but there’s no help for many businesses facing big increases in their business rates. Nor any help for those who were hoping for reduced rates bills over and above what we already know. The pain will continue,” Easton said.
Jerry Schurder, head of business rates at property consultancy Gerald Eve, said: “This Budget showed a spectacular lack of ambition from the Chancellor, who has missed a gilt-edged opportunity to grasp the nettle of business rates reform, and it is UK plc that will suffer as result.
“New reliefs will be welcomed by the lucky few, but in truth the £435 million of new assistance was no more than knee-jerk tinkering designed to take the edge of the worst rises and secure some positive headlines. The measures give the impression of a Government that is listening to business, but are actually a pathetic attempt to kick the issue into the long grass.
“Yet another consultation into more frequent revaluations is timewasting of the highest order, condemning UK plc to an inflexible and punitive system for at least five years, during which time it will have to adjust to the fallout from Brexit. Firms have given their views on business rates at least five times since 2013 and it’s time the Government acted on this information.
“Businesses don’t need more consultation, nor piecemeal reliefs – they need genuine reform of the rating system and they need it now. Philip Hammond has spurned a golden chance, and those firms facing dizzying increases will not thank him for it.”
David Jones, senior director at GVA added: “The chancellor has simply not listened to the majority of business facing significant uplifts from the 2017 revaluation. Pre budget GVA laid out a strong case for the government to find £1.75bn to help alleviate business concerns. This was principally through capping liability increases for all business to revert back to no higher 12.5%, rather than the current cap of 42%. However The Chancellor only committed to cut business rates by an additional £435m through targeting small business, pubs and specialist hardship cases.
“Pre Budget hype promised so much more from this chancellor. He has failed to listen. For a tax system to impose on the worst affected a 42% increase in their liability and so clearly differentiate between small and all other businesses, is in our view inequitable. The devil will be in the detail as to the rules for distributing the hardship fund. However we have real concerns as to whether local authorities will fairly distribute the additional £300m hardship relief fund. We simply don’t believe that relief in a tax system be based on those that shout loudest.”
Mike Flecknoe, Partner, Ratings, Cushman & Wakefield, said: “This was a golden opportunity for the Chancellor to show he had listened to the very real problems so many firms are facing with significant increases in their Business Rates bills following the 2017 Revaluation. No-one seriously suggests that rates should be scrapped as the Chancellor rightly pointed out they are a key element of public finance.
“We await detail on the Government’s preferred future approach to make the system fairer and on his suggestion that digital businesses may currently have an unfair advantage over traditional firms. However, the three solid measures he outlined in his speech, whilst welcome for those few small businesses that benefit, are clearly a sticking plaster response to a grave situation and are wholly inadequate.”
Emily Francis, head of rating at BNP Paribas Real Estate, said the rebate for pub operators, while welcome, will still leave hospitality industry "badly out of pocket" if government plans to restrict appeals come in to force.
“If the new system had been in place in 2010 it would have cost ratepayers hundreds of millions of pounds in overpayments. Our research shows that this would be worth £95m in the hospitality sector alone.”
The new system would see businesses that can prove they are overpaying see their appeals refused if the error is within the bounds of ‘reasonable professional judgement’, often considered to be 10% of the value of a property.
BNP Paribas research shows that over the last seven years, 6,000 hospitality businesses saw their rateable values lowered by up to 10%, leading to a reduced rates liability in excess of £95m.
Francis said: “With the new rating list coming in to force in just three weeks’ time, legislation for the new appeals system is still not in place and there is no indication that HMRC’s online portal is ready. Businesses will wonder how they can appeal their bills from 1 April.”
BPF chief Melanie Leech said: “We welcome the Chancellor's announcement to cap business rate increases to £50 a month for any business coming out of the small business relief bracket, as well as the £300m fund for local authorities to give further relief to local businesses, and look forward to hearing from the government on their preferred approach for more regular valuations. However, while the government has moderated its contentious proposals on business rates appeals and the powers of the Valuation Tribunal, we continue to challenge whether they are needed at all.”
"This year’s budget was more interesting for what it did not mention, rather than what was actually promised by the Chancellor’’, added Richard Wackett a Partner at rating specialists, Montagu Evans.
Meanwhile JLL's head of rating, Tim Beattie, said the measures "will provide no real comfort and is a missed opportunity to implement the changes that are urgently required".
“He has largely ignored the impact on London, which will still see large increases in both the retail and office sectors for most businesses. The announcement that business rates will be reformed, is on the face of it welcome news. However, business will be frustrated that they have been told they will have to wait until the next revaluation in 2022 before any real changes are made. This is far too little too late and business will conclude that Mr Hammond was not listening after all.”
Commenting on the local authority fund, PwC's head of rating Phil Vernon said: "The new relief creates a new administrative burden for both Local Authorities and Ratepayers, and the Government will need to cut out red tape by making the relief process as painless as possible. A costly application process will add more frustration and confusion to the business rates system. As with many targeted reliefs, the financial assistance will be subject to EU state aid limits.”
On Business Rates, the top campaign priority for Chambers of Commerce at the Spring Budget, Dr Marshall said: “The business communities hardest-hit by this year’s business rates revaluation will breathe a little easier thanks to the Chancellor’s decision to offer a package of transitional reliefs.
“We now challenge councils across England to use every penny of the new funding announced by the Chancellor to offer relief to the hardest-hit businesses in their areas, without excuses and without delay.
“However welcome, measures that mitigate the short-term impact of business rate rises are little more than a sticking plaster. The radical changes needed to improve the broken business rates system will have to wait for another day. The campaign for radical reform – and an end to punishing levels of business property tax to ensure the Treasury raises enough to fund local services – continues.”
Sir Peter Rogers, chairman of New West End Company, said: "We are disappointed by the Chancellor’s announcement. He has missed the opportunity to deal with a major concern for London businesses.
"The short term relief he announced will have no impact on the majority of the companies in London and the West End which will suffer massive tax increases on April 1st. This will mean closures and job losses. The current system is good for civil servants but bad for business.We hope that this Parliament will be the last one to oversee a business rate revaluation.
"We will push for the Chancellor’ review to take a more fundamental look at how the business tax system can more effectively respond to the government’s duty to finance local services with the need for all businesses to pay their fair share.
"The review should look beyond digital businesses to ensure that all companies, particularly multi-nationals, make a fair contribution to Britain’s tax take. New West End Company is happy to work with the government and others to explore a more effective and equitable system."
Tim Attridge, Head of Rating, Central London, CBRE: “The changes to business rates are too little too late, with a £230m giveaway this year against a total tax bill of £29bn being a drop in the ocean. There is £180m for Councils to use at their discretion this financial year, we will wait for more detailed guidelines, but with bills being issued as the Chancellor was speaking it is difficult to see how business experiencing significant rises in rates liability from 1 April will take any comfort from this.”
Bryan Johnston, Real Estate Litigation partner at law firm Dentons, said: "The measures announced today about business rates are very much aimed at small businesses. There is no detail as yet on the mechanism for discretionary relief in respect of business rates hardship. The package is by its nature reactionary and does not address the fundamental reasons as to why industry is up in arms about the 2017 revaluation.
"In his speech, the Chancellor emphasised that business rates could not simply be abolished as they were worth £25 billion to the revenue. However, Mr. Hammond acknowledged the 2017 revaluation has exposed issues concerning the revaluation and had created 'hard cases'. The Chancellor is currently considering reform to the revaluation process in order to make it smoother and more frequent. The Government's current view is that revaluation should be at least every three years. The Government will set out its approach in the Autumn 2017 Budget and will consult upon it before the 2022 revaluation. Whilst this is cautiously welcomed, the scope of such a consultation may be limited and simply may not address the fundamental problems of having a taxation system based on property values. This may not go far enough to appease ratepayers disgruntled with the 2017 revaluation.
"The Chancellor also recognised the transition from a bricks and mortar economy to a more digital economy. Mr Hammond confirmed that in the medium term he would be looking at a better way to tax the digital economy to achieve fiscal fairness vis-à-vis more traditional forms of business. This will be welcomed by businesses whose models rely heavily on property and whose market share has been eroded by businesses whose model is more electronically based and who are consequently less exposed to business rates liability."
Martin Davenport, Rating Partner at Hartnell Taylor Cook, expressed mixed emotions: “The decision to provide an additional £435m relief has to be welcomed together with the announcement to introduce an additional cap the relief for small businesses and the £1,000 saving for pubs with a rateable value of less than £100,000 but these are only relatively small savings for those affected and does not go far enough.
"There are a large number restaurants and retailers who are going to be as hard hit as the pubs but there is no additional relief for them and no announcement to re-introduce the retail relief despite calls for it.
"The £300m fund to be provided to the local authorities to distribute to deserving cases has to be welcomed but until we have the fine details, I am concerned there could be too many ambiguities with its implementation and lead to diverse regional differences. Care and consistency will be required to ensure all deserving cases receive relief.
"I am also disappointed the Chancellor has not removed the ‘reasonable professional judgement clause’ which is the equivalent of not giving a reduction even if one is merited. This can’t be fair and needs to be knocked on the head. I do agree there needs to be consideration on how digitally based businesses can be taxed in the future and how the imposition of business rates can be made a smoother and fairer system in the future.”
However, business rates specialist CVS said that the Secretary of State, Sajid Javid, had immediately after the Budget discussed with Mark Rigby its CEO the plans to restrict tax rebates and confirmed that the Government would not proceed with the professioanl judgement clause.
Ministers have, over the last two weeks, been facing a growing revolt over the proposed shake up of the tax appeal system with 13 leading bodies claiming it could be illegal.
The business groups, including the British Retail Consortium, the Confederation of British Industry and the Federation of Small Businesses said it could be illegal under local government finance laws.
Under the plans that were being drawn up, the shake up would have prevented firms from receiving rebates against the incorrect bills they faced if they were within a 'margin of error', which CVS believes could have been in the region of 10%, and other experts forecasting even higher at 15%.
The Government has now clarified the scope a tribunal has to determine a business rates appeal introducing a new phraseology ‘reasonable valuation’. At appeal on the 2010 Rating List it isthe duty of the ratepayer to demonstrate why the Valuation Office Agency’s determination is not reasonable and therefore there is no change to the ability of the ratepayer to seek a reduction on the new 2017 Rating List say CVS and this was a view shared by the Secretary of State during the telephone discussions and subsequently confirmed by the Department of Communities and Local Government.
After the discussions this afternoon Mark Rigby, Chief Executive of CVS, Britain’s largest business rates advisory firm said: “I am absolutely delighted to confirm, following intense lobbying and my meeting with the Secretary of State last week the controversial “Professional Judgment” Test will not form part of the ‘Check. Challenge. Appeal.’regulations."
He added: "The Secretary of State was once again fully committed to ensuring all firms pay fair and accurate tax, without rebates being curtailed and he should be commended for taking on board the concerns of business."
Wot no Stamp duty or housing news?
The Budget was notable for a lack of significant new announcements around stamp duty and housing.
John Overs, partner at Berwin Leighton Paisner, said it was a missed opportunity: “The Chancellor missed an opportunity to address the problems caused by the stamp duty reforms and rate increases introduced in the last couple of years. These are causing both problems for the housing market at all levels and losing revenue for the Government.”
John Goodall, CEO and co-founder of Landbay, said: “For all the talk of easing the pressure on affordability in last month’s housing white paper, Hammond’s Budget was underwhelming to say the least. By not raising the stamp duty threshold, the Chancellor has missed a valuable opportunity to improve access to the housing ladder for millions of aspiring homeowners in the UK, for many of whom the tax is the final straw when facing prices that continue to climb.
“Stamp duty is a significant barrier to liquidity in the market and any increase to the threshold would help to reverse the falling home ownership numbers and transaction volumes. I hope the situation is reviewed in the Autumn Budget.”
On residential stamp duty land tax the Chancellor deferred the introduction of a payment and filing system of two weeks.
Melanie Leech, chief executive BPF, said: “We welcome the Chancellor’s decision to defer the introduction of a payment and filing system of two weeks for SDLT. However, it is two years since the major reform of SDLT bands and the system is ripe for review, to ensure it is not leading to unintended consequences, or preventing investment. The government should use the Autumn Budget to review whether the new bands and three per cent surcharge on investments by institutions are not barriers to a housing market firing on all cylinders.”
Nick Taylor, Head of Planning, Carter Jonas, said: “Following the very recent release of the Housing White Paper, it’s no great surprise that the delivery of new homes was not a key focus in today’s Budget. However, we would have welcomed any confirmation from the government around physical incentivisation for housebuilders and urban regeneration schemes. Perhaps there will be some policy change around housing delivery in the next Budget, but in the meantime, we have no choice but to adopt a ‘wait and see’ attitude.
“It is thought that the government’s reaffirmed commitment to increasing the devolution of powers to the regions will be received as a positive step forward in granting Local Authorities greater autonomy, allowing councils to efficiently and quickly address their individual housing targets, without involving central government.
“While the government has assisted businesses by allocating business rates relief, we would urge the Chancellor to commit to financially supporting development in town centres. Encouraging local communities to develop on brownfield sites is irrefutably a challenge, but the long term benefits for towns that this might have can no longer be ignored.”
Devolution progress with London in focus
The chancellor outlined a range of initiatives partly set out in the Industrial Strategy green paper already and aimed at supporting growth across the UK in today's Budget.
The government will shortly be announcing the Midlands Engine Strategy, and is "continuing to build the Northern Powerhouse" the Budget said.
On devolution Hammond said the government has agreed a Memorandum of Understanding on further devolution to London. The agreement with the Greater London Authority (GLA) and London Councils includes joint working to explore the benefits of, and scope for, locally-delivered criminal justice services; action to tackle congestion; and a taskforce to explore piloting a new approach to funding infrastructure".
The agreement also commits to explore options for devolving greater powers and flexibilities over the administration of business rates and greater local influence over careers services and employment support services, as well as working with the GLA and London Councils to ensure that employers can take advantage of the opportunities offered by the apprenticeship levy. The government and London partners will agree a second Memorandum of Understanding on Health and Social Care".
The government is also in discussions with Greater Manchester on future transport funding and the government continues to make "good progress towards city deals for Edinburgh and Swansea and is working constructively with local partners and the Scottish and Welsh Governments respectively to achieve this".
The government has also opened negotiations for a city deal for Stirling and looks forward to considering proposals as they are brought forward for a Tay Cities Deal and a North Wales Growth Deal.
Randeesh Sandhu, CEO of leading residential financier Urban Exposure said: “There was also little additional on the Government’s regional investment strategy, although we have taken previous encouragement from signs of support in this area such as the Northern Powerhouse Investment Fund and Midlands Engine Investment Fund that were announced in the Autumn. While the South East and London remain key drivers of growth in the housing market and wider economy, supporting the development of other regions of the UK is absolutely key to both deliver on housebuilding targets and sustainable economic growth in the future. Indeed, we recently funded our first development in Birmingham, in recognition of the growth, development and potential of the midlands region and we hope this is just the start."
Ben Rogers, director at Centre for London, said: "Perhaps the most significant element of the budget, as far as London is concerned, is the chancellor's announcement that he has further developed a devolution deal for London.
"London urgently needs greater power over its tax base and public services, so this is welcome. But the MOU between London and Central government, included in the Budget papers, does not go far enough.
"It is disappointing to see so little on fiscal devolution, especially over domestic property taxes and housing. A number of housing policy reforms are essential to allow London to continue to grow.
"If, as noted in the housing white paper, the government is serious about supporting councils to build more homes with “all the levers at its disposal”, we believe it must unlock London boroughs’ capacity to build more locally and to collaborate in delivery across borough boundaries. This should include relaxing borrowing limits, as well as restrictions around the use of Right to Buy receipt."
Melanie Leech, chief executive, BPF, said: "“It is hugely positive to see the government agree to establish a joint taskforce bringing together the GLA, TfL, London Councils, HM Treasury, Department for Transport and Department for Communities and Local Government to explore the options for piloting a Development Rights Auction Model (DRAM) on a major infrastructure project in London. However, the creation of new infrastructure funding models must be done as part of the root and branch review of CIL, and should be tested with the wider developer community to ensure that efforts to bring about more infrastructure do not become barriers to the very development they are seeking to underpin.”
The Chancellor outlined a range of investments into transport and infrastructure.
The government said it has already made progress on allocating NPIF funding announced in the Autumn Statement, and the Budget announced further details of support for transport. These are:
• Local transport – NPIF allocations have already been made for 2017-18, supporting local projects like improvements in Blackpool town centre, improving the A483 corridor in Cheshire, major maintenance of the Leicester Outer Ring Road, and a new roundabout at Hales in Norfolk. £690m more will be competitively allocated to local authorities, with £490m made available by early autumn 2017.
• National road network – The government has completed a strategic study on relieving congestion in the south-west sections of the M25 and will now develop options ahead of the next Road Investment Strategy. The Budget announces regional allocations of the £220m NPIF investment for pinch points on the strategic road network, with details of individual schemes to be announced by Department for Transport shortly.
Melanie Leech, BPF chief executive, said: “The Chancellor’s focus on increasing infrastructure spend will act as the backbone to regeneration up and down the country, opening sites for new housing and employment. This provides a huge vote of confidence for our industry which supports most, if not all, UK economic activity, encompassing a vast range of essential economic and social infrastructure. We provide the professionally-managed rented homes in which many people live, the commercial space in which virtually all types of businesses operate and the shopping centres, restaurants, cinemas and more in which people spend leisure time.”
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