Chancellor of the Exchequer Jeremy Hunt said he was “unleashing people power” as he outlined the government’s tax and spending plans in a Spring Budget that disappointed those looking for announcements with major implications for commercial real estate.
In what could be the last such address from government before a General Election, the focus was on tax cutting, with announcements aimed at unlocking economic growth and the residential market, and pleasing voters.
The biggest headline-grabber was a cut to National Insurance payments by another 2p, meaning it falls from 10% to 8%.
For real estate the most relevant announcements were focused on changes to property capital gains tax, multiple dwellings relief, “non-dom” tax reform, devolution of power and investment in levelling up the economy via major developments, including a commitment to a life sciences and homes scheme in Canary Wharf in London.
But there was little new on areas of most concern to commercial real estate such as business rates and planning.
Melanie Leech, chief executive, British Property Federation, said there was not much for the property sector to cheer.
“Further devolution deals are welcome as are the announcements of support for delivering more homes in a small number of places, but this falls far short of a bold strategy for delivering the homes needed across the country.
Leech added that the scrapping of the multiple dwellings relief on stamp duty will hit the build-to-rent sector at a time when the government should be doing “everything in its power to encourage more long-term investment into professionally managed rental homes”. Leech said it would hinder rather than stimulate the efficiency of the housing market.
Will Matthews, head of commercial research at Knight Frank, described it as a budget with “little fanfare” that had limited direct on the United Kingdom’s commercial real estate markets. He suggested the government was preparing a gamble on more excitement this autumn ahead of an election.
He added the big announcements on national insurance and investment in growth sectors including innovation, life sciences and film studios were “helpful” but the sums and measures involved were not game-changing.
Perhaps of greater immediate interest to the commercial real estate sector, Matthews said, were the Office for Budget Responsibility’s revised forecasts. “These now point to significantly lower inflation and somewhat higher growth over the coming years, and although largely just playing catch-up with City views, this new outlook is more supportive of much-anticipated interest rate cuts.”
He added: “Big questions over the level of public sector funding remain. What is clear, however, is that the private sector will be called upon to make up some of the shortfall in UK infrastructure investment – in the broadest sense.”
Walter Boettcher, head of research and economics at Colliers, described the Budget as continuing to chip away at the domestic agenda of levelling up, business evolution, workforce development, housing issues and the like, but no new major steps forward are evident.
“For UK commercial real estate, ongoing reforms to pension and other savings platforms that encourages a larger and wider range domestic investment sounds encouraging, intended as it is to ensure that UK pension funds have more flexibility and can adopt international best practice to improve performance. This is not a sudden game changer, but continuation of a gradual shift that should begin to pay off as the decade unfolds.”
There were plenty of updates on investment in large real estate and infrastructure projects with the first announcement £1 million of funding for a memorial for Muslims who fought in the two world wars.
A commitment to investment in United Kingdom’s manufacturing, by making £4.5 billion available for
strategic sectors over the five years to 2030, was welcomed by the industry. That includes over £2 billion for the automotive industry and £975 million for aerospace, available for five years from 2025.
Paul Farrow, head of United Kingdom’s industrial and logistics at CBRE said the package for the manufacturing sector comes at a time of huge importance.
“In recent months, we’ve seen a notable increase in requirements from manufacturers for warehouse space, predominantly a response mechanism to Brexit, deglobalisation, geopolitical risk and ongoing supply chain disruption. Measures such as these are essential to support growth” as the United Kingdom looks to “reaffirm its foothold as a market of choice for manufacturing.”
Levelling up is the government’s flagship policy for encouraging economic development across the country, particularly via devolution of power from central government.
The Chancellor confirmed the extension to Freeport tax reliefs to September 2031 announced at Autumn Statement 2023 will apply across English Freeport tax sites. The 10-year window to claim reliefs has also been agreed with the Scottish and Welsh Governments, meaning tax reliefs will be available until September 2034 in tax sites in Scottish Green Freeports and Welsh Freeports.
Hunt announced a new Level 4 “trailblazer” devolution deal with the North East Mayoral Combined Authority, which will provide a package of new funding potentially worth over £100 million, including a new Growth Zone. The government is also extending devolution powers through new Level 2 agreements with Buckinghamshire Council, Surrey County Council and Warwickshire County Council. He recently announced Level 4 deals with West Yorkshire, Liverpool City Region, and South Yorkshire Combined Authorities, as well as granting additional Level 4 powers to the West Midlands Combined Authority.
These deals increase the proportion of the population of England benefitting from devolved powers to almost two-thirds.
Spring Budget also provided £400 million in new investments to extend the 10-year Long-Term Plan
for Towns to 20 more places.
The budget also confirms the allocation of £100 million of funding for culture projects supporting nationally-significant cultural investments such as the British Library North in Leeds, National Railway Museum in York, and National Museums Liverpool, as well as the development of cultural projects in places previously prioritised for levelling up investment but have not received levelling up funding, including in High Peak, Redditch and Erewash.
A surprise was an announcement of £118 million of funding to support the development of a major life sciences hub, commercial and retail floor space, a healthcare diagnostic facility and up to 750 homes in Canary Wharf.
The government also announced investment of £124 million at Barking Riverside to unlock 7,200 homes in east London.
There was clear disappointment from industry about a lack of movement on reforming the business rates system.
The government said it was committed to supporting small businesses, referring to Autumn Statement 2023 where it announced an extension to the 75% business rate relief for eligible retail, hospitality and leisure properties for 2024-25, a tax cut worth £2.4 billion. It also increased the value added tax registration threshold from £85,000 to £90,000 in this budget.
It announced over £1 billion of new tax reliefs for the United Kingdom’s “world-leading creative” industries. This includes introducing a 40% relief from business rates for eligible film studios in England for the next 10 years. A permanent extension will be made to tax relief for theatres, orchestras, museums and galleries, and £26 million of funding will be provided to upgrade the National Theatre’s stages and infrastructure
The government will extend the Empty Property Relief “reset period” from six weeks to 13weeks from 1 April 2024. It will also consult on a General Anti-Avoidance Rule for business rates in England.
John Webber, head of business rates at Colliers, said it amounted to another “kick in the teeth” for high streets.
“As always the devil is in the detail and today the detail revealed that the Chancellor has extended the period for which an occupier must occupy a property to gain empty rates relief from six weeks to 13 weeks. This is a kick in the teeth for those retail or leisure landlords who are unable to find a tenant for their property, who will end up paying considerably more in business rates for a property from which they are receiving no income. This is likely to deter property investment and values in an already distressed market.”
He also said the Chancellor had failed to “right the wrongs” of the 2023 Autumn Statement and cancel the business rates increases planned for April.
“Given the Chancellor confirmed today that the OBR has forecast inflation to be below 2% in 2 months’ time, it is outrageous that all but the smallest of UK businesses will be paying increased business rates tied to a multiplier that will increase from 51.2p to 54.6p in the pound in line with the 6.7% inflation figures of last September.”
Josh Myerson, partner and head of rating advisory at Montagu Evans, said the relief for creative industries was an “unprecedented intervention, but clearly the right thing” to do.
He added: “Subjecting film studios to as much as a 600% assessment increase under the Revaluation was unsustainable and detrimental not only to the film industry but to UK plc given the wider economic and employment impacts. […] Today’s announcement is an important signal. Time will tell whether this intervention is sufficient to undo the damage caused by the Revaluation but we welcome the steps now taken.”
He described the decision to extend the Empty Property Relief “reset period” as disappointing. “It follows recent consultation on business rates avoidance and evasion but will nevertheless have significant impact for owners of vacant commercial property seeking to legitimately minimise their exposure to empty rates.”
Richard Curry, partner and head of retail at Rapleys, described the lack of progress on business rates as disappointing but not unexpected.
“I would have liked to have seen business rates scrapped for all businesses that are taking existing high street space, no matter which use, to stop the decline on our high street and get existing properties repurposed more quickly.”
There was little new on another key area for the industry, the planning system.
The government confirmed it would be piloting the use of artificial intelligence solutions to support planning authorities to streamline their local plan development processes, producing plans in 30 months rather than the current average of seven years. This builds on work that has already reduced planning officer processing times by up to 30% per application, it said in Treasury documents.
It also published the consultation on a new accelerated planning service for major commercial applications, which it describes as a response to the consultation on operational reforms to the Nationally Significant Infrastructure Project regime; and the updated National Networks National Policy Statement.
Nicola Gooch, planning partner at Irwin Mitchell, said: “This was never expected to be a big budget for planning. The current economic picture doesn’t leave a great deal of room for the large-scale structural investment needed in local planning authorities, the planning inspectorate and the courts, to enable them to operate more effectively. The wider political picture would seem to encourage pre-election promises over long-term stabilisation of national infrastructure and public services.
“We were not disappointed. The future funding plans for local government remain highly constrained – meaning that additional funds for improving planning services are not going to be easy to find.
“Promises of an AI pilot to improve productivity amongst planning officers, increasing taxes on holiday lets, and additional levelling up funds will not change the fundamental underlying picture. Without functioning Local Government, we cannot have a functioning planning system; and local government needs more help than this Budget is offering.”
There was also disappointment that tax-free shopping was not introduced.
Paddy Gamble, director in the retail strategy and analytics team at Colliers, said: “It is disappointing that once again the Chancellor has missed the opportunity to create a tax-free shopping environment, despite the heavy campaigning and subsequent positive noises we heard from the Government on the matter.
“The continued delay in the reinstatement is damaging London’s retail and hospitality businesses, alongside a host of further reaching consequences for our UK regional destinations and our job market. By not providing tax-free shopping incentives we are losing our competitive edge with our European counterparts, who are not only seeing a boost in visitor numbers but also a rise in spend.”
There were a string of major tax reform announcements, with a number significant for the residential property market.
From 6 April, the higher rate of capital gains tax for residential property disposals will be cut from 28% to 24%. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band. Private residence relief will continue to apply, meaning the vast majority of residential property disposals will pay no capital gains tax.
The government also announced the abolition of the furnished holiday lettings tax regime. It says this will eliminate the tax advantage for landlords who let short-term furnished holiday properties over those who let residential properties to longer-term tenants. This will take effect from 6 April 2025.
It will abolish multiple dwellings relief on stamp duty land tax in England and Northern Ireland from 1 June 2024. Henry Moss, partner at law firm Ashurst, said: “The axing of multiple dwellings relief is an unexpected blow to institutional investment in high quality rental housing. I’m surprised, as this contradicts the government’s professed wish to increase investment in new housing.”
