By Although this was primarily a “consumer led” Spring statement addressing issues such as costs of living rises and high energy bills, it was disappointing that the “elephant in the room”, business rates was largely ignored, despite the impact that ultra-high rates bills has had on businesses in recent years.
The Chancellor re-iterated the 50% business rates discount for the retail, leisure and hospitality sector as of April 1st but with a cap of £110,000 per company, this will only support the smallest businesses in the sectors and will do little to help the larger companies who account for the majority of jobs.
Any support to businesses in other sectors of the economy was also totally lacking.
Longer term, in terms of the retail and hospitality sector, we do have a rating revaluation in 2023 to look forward to – whereby rates bills will based on rental values of 2021- and this should hopefully mean bills will come down for many in these struggling sectors.
But this will be meaningless if the government does not allow business rates reductions to be implemented immediately rather than spreading them over the years of the list in a transitional arrangement as it did in the last list of 2017, said John Webber, Head of Business Rates at Colliers.
Downwards transition meant many businesses in these sectors paid too high business rates for too long.
It was a key factor in the demise of Toys R Us, Laura Ashley and other high street brands and had a major impact on the high streets of many of the UK’s provincial and poorer towns- areas of the country the government claims it now wishes to “Level Up.”
Webber continued, retailers and other high street operators will be now considering their business plans now for next year and looking closely at their future business rates liabilities, particularly when the Covid-related reliefs come to an end.
It is essential the Chancellor provides reassurance that rates bills next year will immediately reflect the lower rents we are seeing in the market now – providing incentives for businesses to keep or expand space and for property investors to invest in the sector across the UK.
Without this reassurance the government’s “levelling up agenda” will be meaningless. And the high street unlikely to get back on its feet. We are disappointed the Chancellor was not more forthright in his Statement, Webber concluded.
With inflation increasing at a rapid rate and build cost increasing exponentially new residential projects are becoming increasingly financially unviable.
We are hearing from some Housing Associations that build costs for large projects has jumped from £250 per sq m to £3,000 per sq m in just three years.
Therefore the government, the GLA and local authorities need to get real on this issue and reduce their affordable housing expectations and contribute more government grants for affordable housing to ease the burden, said Giles Sutcliffe, head of affordable housing at Cluttons.
There are key messages and challenges that need to be considered in terms of planning – we need to get the economy moving again and deliver more new builds, but it is the how, where and what that the government needs to address.
With increased pressure on local housing authorities to deliver, the government needs to ease the planning systems and align them with the levelling up agenda.
Greater incentives for the private sector may be introduced to encourage investment into brownfield land and regeneration of urban areas, however with the current environment in Europe, they may be reluctant to invest.
Furthermore, incentives for supporting alternative ways of delivering residential to meet the housing demand until the planning bill is passed later this year would have been welcomed, and ways to include locals in planning to bolster support for developments, said Raoul Veevers, head of planning at Cluttons.
It was expected that the cost of living and energy bills would be a significant priority in the 2022 Spring Statement.
The announcement of the 5% VAT to be scrapped on energy saving materials such as solar panels and heat pumps will welcome further tax savings and also savings on household energy bills, which will further encourage households to adopt energy saving materials.
It was hoped that a non-domestic heat incentive scheme would also be included as currently there is no financial support for businesses or councils adopting large-scale low-carbon heating schemes, since the closure of the non-domestic renewable heat incentive in 2021.
Lastly, no incentives to rapidly grow an affordable EV market were acknowledged – through grants and more charging points – which would help with reducing emissions and meeting net-zero targets, said Niall Keighron, sustainability practitioner at Cluttons.
We were not expecting further business rate relief to be announced for struggling businesses other than the extended retail relief and additional smaller/regional relief funds, including CARF payments, that were announced during the autumn statement.
Obviously this is disappointing as the end of the discount period for many small businesses is also nigh – and with Covid continuing to affect staffing levels and costs, it would be good if this could be extended.
We will continue to call for a fairer and simpler system.
The consultation that has been mooted on business rates reforms will of course be too late for any actual action in this statement, which is a shame, but if it is announced properly with the three month window for input starting imminently then it’s a step in the right direction, said Ryan Jones and Michael Hampton-Riddington, partners in Cluttons’ business rates team.
Our recent Connecting the UK report – in association with YouGov – highlighted that significant changes were needed to help speed up the UK’s connectivity.
As such, we would like to have seen a greater focus on connectivity to help level up the UK including greater powers to local authorities to deal with local planning issues, wayleaves and incentivise transactions to enable the development of much needed infrastructure in locations that are behind on their broadband connectivity.
Following the proposed reforms to the ECC being published just before Christmas, we would like to see these made into policy and rolled out quickly to support all stakeholders including fibre providers, telecoms companies and landlords in achieving deals that are fair for all and do not hold up infrastructure development or the roll out itself.
We also believe that the Government should be able to publish the connectivity strengths of each postcode so that, like EPCs, vendors and landlords of properties can have access to ensure we raise awareness and enable the public to make better and more informed decisions in relation to digital connectivity and to provide greater accountability on government, local authorities and infrastructure providers, said John Gravett, head of property management and Infrastructure at Cluttons.
The UK housing market has seen 18 months of its best performance in the last decade with house prices across the whole of the UK rising.
The challenge is that this growth is unsustainable and out of kilter with people’s earnings especially with escalating inflation and increased living costs.
Which, despite the Chancellor’s measures today, will likely lead to an element of anxiety in the market, potentially increasing market supply and bringing down house prices later in the year and into 2023.
The biggest concern for the government right now is rental prices.
They chased private landlords out of the market through the removal of all tax allowances and incentives, and now there are not enough private rental properties in the market, which has pushed rental prices up so much that tenants can’t afford the new rates and we have record levels of evictions, said James Hyman, head of residential at Cluttons.
With inflation already at a 30 year high and predicted to increase again to 7.4% this year, today’s Spring Statement was largely focused on addressing rising costs for households and businesses.
Elevated inflation will remain a key headwind for the UK’s real estate market this year.
The development market is already navigating inflationary pressures with construction costs growing, and this will inevitably impact commercial rent levels, as developers grapple with the feasibility on new schemes.
This comes at a time when costs have already become elevated as the industry embraces carbon reduction.
However, the overall outlook for the market remains positive.
The UK is now seen in many ways as offering better value than continental Europe, for example in Berlin and Paris prime yields are below 3%.
The UK also offers investors a very deep market for all asset classes.
Investment volumes in January surpassed £4 billion for the first time in four years and we expect levels to reach at least £66 billion this year, maintaining the recovery which came through in 2021.
Most activity so far this year has centred around retail and offices – a very welcome sign of improved confidence in the recovery in the use of workplaces and high streets, said Stephen Wolfe, Head of Commercial at BNP Paribas Real Estate.
Chris Druce, senior research analyst at Knight Frank, said:
Measures announced today in the spring statement, including a 5p reduction in fuel duty and increase in the National Insurance threshold, will soften the impact of the rising cost of living.
However, pressure on personal finances will mount and with the cost of borrowing set to continue climbing to combat inflation, which is at a 30-year high of 6.2% and forecast to peak above 8% this year, we can expect to see house price growth and demand moderate.
It means that with supply currently tight, demand strong and mortgage rates low, there is a clear window of opportunity open for buyers and sellers to act now.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said:
While we welcome fuel duty and tax cuts which help the majority, it is disappointing that there wasn’t greater recognition of the need to address the huge shortage of affordable housing.
Property prices continue to rise, mainly due to lack of new supply, and more affordable housing to buy or rent would help bring more balance to the housing market.
We are pleased that the Chancellor didn’t further target landlords with more taxes and red tape.
What is happening in the sales market is being mirrored in lettings, with a shortage of stock pushing up rents.
It is important not to lose any more landlords, which would negatively impact supply and mean higher rents.
We would have liked to see some resolution of the cladding crisis, again helping release more properties onto the market, as owners who wish to move can finally sell up.
These are so often the more affordable properties, particularly flats, which appeal to first-time buyers.
As we forecast, there was some focus on energy-saving materials, with VAT reduced to zero for the next five years for homeowners installing solar panels or heat pumps.
While this will benefit a few homeowners with the means to install these in the first instance, there is no point in doing this unless there is sufficient consumer buy-in and confidence in the product, which isn’t there at the moment with regard to heat pumps.
Consumers worry about the maintenance and servicing of these and there needs to be more confidence around their operation.
Guy Gittins, CEO of Chestertons, said:
The Chancellor’s decision to remove VAT for energy-saving equipment presents a major relief; particularly for buy-to-let landlords who are required to upgrade their portfolio to meet net-zero targets. Bearing in mind rising energy costs, we expect the VAT cut to further boost homeowners’ interest to implement eco-friendly energy solutions in their property.
As Chestertons is supporting numerous initiatives to reduce its carbon footprint, we welcome the Chancellor’s announcement on this VAT cut in particular.
Paresh Raja, CEO, Market Financial Solutions said:
The Spring Statement was never likely to contain any major surprises as far as the property sector was concerned; at least not directly.
But action was needed and, positively, it was taken to ease pressure on people’s finances in the short-term. In turn, this will help ensure the property market faces no nasty shockwaves.
Rising inflation and interest rates are affecting both homeowners and homebuyers, impeding the amount they can borrow and save.
So, it was positive to see the Chancellor cut fuel duty and financial support to households across the UK.
The tax breaks for those making green improvements to their homes is also a welcome decision, encouraging the right type of property renovation.
Looking to the property market, with demand still outweighing supply so significantly, it is likely that house prices will continue to rise as they have been.
But for lenders, now is the time to act. We cannot leave it to the Chancellor alone to offer support to those hoping to get on or move up the property ladded.
Rather, lenders’ focus must be on supporting their existing and prospective clients as best they can.
Flexibility will be key; being too rigid in how and when you lend risks alienating certain buyers in the current climate, so lenders ought to consider how they can best meet each borrower’s particular needs and provide support to help them navigate the economic challenges they are facing.
Mike Owens, Global Sales Trader at Saxo Markets, said:
Barely any reaction of note as the update focused on specific issues probably too nuanced to effect financial markets greatly.
Fuel duty cut by 5p per litre feels like a drop in the ocean compared to the price rises we’ve seen at the pump and also when you consider the energy bill cap is rising 54% in April.
A pledge by the chancellor to cut rates on business and investment in the autumn aims to maintain business confidence.
The VAT cut on energy saving devices will assist related business.
There aren’t too many that are UK-listed, but these could include Greencoat Renewables, The Renewables Infrastructure Group, ITM Power, EQTEC, and Ceres Power holdings.
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