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No Surprises: Darling's Budget misses easy chances to help

Like the lyrics of the famous Radiohead song ‘No Surprises’, the Gordon Brown economy is a miserable place. A sea of unemployment, business failure, spin and ill-thought out policies. Today’s Budget is a confused web of missed opportunities and potential easy wins that the Chancellor has chosen to ignore. It makes Berbatov’s penalty miss in Man Utd’s defeat to Everton look like a World Cup final winning goal.

Please view the PDF below for the full array of quotes and background briefing. If you need more info, call the BPF on 020 7828 0111. If you're from the broadcast media call 07968 124545.

General comments

Liz Peace, BPF chief executive, said:

“It defies logic that during the worst recession for a generation the government should ignore some very simple practical solutions laid on a plate in front of it that would cost practically nothing and would have helped the property industry to recover more quickly from the effects of the recession and get back to doing what it does best for society namely building and managing the places we need for business, shopping and leisure.

“We suggested a number of ways of temporarily modifying the REITs regime which would have had virtually no cost for the Exchequer and these have been ignored. We had also pressed for one very simple change that would have encouraged institutional levels of investment in an alternative stream of housing provision through renting, namely the disaggregation of stamp duty on bulk purchases, but this has also been ignored. There is no empty rates relief, despite the traumatic decline of the high street.

“In trying to nibble the finger-nails of commercial rents in a boom period by introducing empty rates, Gordon Brown has cut off the hands of a sector which contributes over 5 per cent to GDP, employing thousands of people through every stage of development. We urge the government to use the powers left into empty rates legislation that allow for relief to be immediately reapplied.

“The measures designed to support housing sound impressive but it is not wholly clear how much new money is really on offer and how easy it will be for developers to access these funds – a large part of which must be spent this year. As for the plans announced yesterday to help with mortgage repayments, these have not received exactly enthusiastic support from the banks, while the extension of the asset backed securities scheme is exactly what was suggested – and ignored – last November.

“The one crumb of comfort for the industry concerns a paragraph buried in the Budget report stating that the Treasury will now look seriously at the concept of allowing local authorities to use borrowing against future tax revenues to fund infrastructure. This is an idea that we have been pressing for some time; it’s good to know that our voice has been heard.”

Ian Coull, chief executive of Segro, the UK’s biggest industrial developer, said: “It is disappointing that the Government has not announced any new plans to abolish empty rates. Empty rates will continue to see buildings demolished and occupiers who need a helping hand will continue to struggle.The real disappointment is the lack of any real changes on REITs which is where the real opportunities for turning around development existed.”

Francis Salway, BPF president and chief executive of Land Securities, said: "The chancellor made a declaration to be fair and to support long term investment but the government's refusal to reinstate empty rate relief wholly undermines this statement, particularly at a time when occupiers and developers are being equally hit by the downturn.

"Aside from the obvious effects of demolition, empty rates is a tax on hardship that defies any kind of logical thinking. We hope that pressure will continue to build over this and force the government to make use of powers that exist to reintroduce relief immediately at 50 per cent.

"The statement of the government's intention to explore new funding mechanisms with local authorities is a welcome recognition of the BPF's work to promote interests in tax increment financing which has been so widely used in the USA.

"TIFs are an alluring tool because they promote economic development by earmarking property tax revenue from increases in assessed values within a designated area. There is growing support from the development community and the chancellor's positive remarks again show that the BPF's voice has been listened to."

Peter Cosmetatos, director for finance and investment, said:

“This was a very disappointing Budget for the property industry. This Government, which has been willing to throw countless billions at a pointless cut in the VAT rate and at the financial sector, has refused to listen to a small number of sensible, targeted industry representations which would have entailed little (and in some cases no) cost to the Exchequer and which would have given valuable support to businesses in the current environment.

“Pleas for greater flexibility in the REIT rules to allow the REITs to conserve cash and manage their businesses in commercially sensible ways through the downturn fell on deaf ears.

“The Chancellor also passed up the opportunity to introduce a stamp duty relief for bulk purchases of residential property, which would have brought liquidity to the housing sector and encouraged greater institutional investment in the private rented sector at exactly the right time in the cycle.

“And almost unbelievably, given the state of the property market and the wider economy and almost universal opposition, empty rates remain in place.

“This was a Budget of missed opportunities from a Government that seems to have lost its way.”

Reits – real estate investment trusts

Peter Cosmetatos, director for finance and investment, said:

“We are very disappointed that the Chancellor has failed to listen to industry pleas for greater flexibility in the REIT rules, particularly around the mandatory distribution requirement. The flexibility that the REITs sought would not have had significant revenue implications for the Exchequer – it would simply have allowed the REITs to conserve cash and manage their businesses in a commercially sensible way through the downturn without breaching legislative conditions that were never designed with the current economic environment in mind.

“We are pleased to see that the Chancellor has taken this opportunity to fix a small number of detailed technical flaws in the existing REIT legislation – flaws which we had brought to the Revenue’s attention many months ago. One of those, to fix the law that was supposed to, but didn’t quite, allow REITs to issue convertible preference shares, is particularly welcome. However, the Government has ignored very clear messages about what is most important to the REITs right now. We will of course continue our dialogue with officials on REIT related matters, but this Budget gives rise to real concerns about the Government’s ability to prioritise business matters in a sensible way.”

Housing measures – too little change, big opportunities missed

Big headline statements about mortgage backed securities will be welcomed but are unlikely to have any real effect. The withdrawal of the so-called ‘shopping allowance’ - which allows housing benefits tenants who shop around to find somewhere with a lower rent than their allowance to keep up to £15 per week of it – is something Darling was never likely to shout about. This will take £145m from the poor, but the Government recognising how that would go down in the media and is making exactly the same sum of £145m available via its social fund, which provides funding to those in hardship.

Ian Fletcher, director of residential policy, said:

“This year’s budget provides very little surprises that are either nasty, or pleasant. Given the state of the public finances it is not surprising that the chancellor has had very little room to manoeuvre. Whilst any money for housing recovery is welcome, it has to be seen against the scale of the problem, with housing development at its lowest ebb in living memory and millions wanting a home. We continue to work with the Homes and Communities Agency to progress an initiative that could see institutional funding going into quality market rented accommodation, aiding housing recovery and providing much needed housing. We hope to report progress on this shortly.”

Empty property rates – no change

Liz Peace, BPF chief executive, said:

“Regeneration could be the a fundamental driver to a recovery through new jobs and investment, but with empty rates, Gordon Brown has not only ignored the industry, the public, his own chief whip and regeneration advisers, but basic economic sense, because empty rates undermine the viability of new development and investment.

“On the day where the worst recession for generations has been confirmed with new figures highlighting the full trauma of unemployment, the government has decided to plough on with a tax on hardship forcing thousands out of business, causing millions of square feet of buildings demolished and causing even more jobs to be lost. While many have taken drastic steps to demolish their buildings, occupiers with a lease don’t have that option and will be forced to cut jobs as a result. It is absolutely bonkers to be hitting those firms trying to cut costs with more taxation.

“A measure brought in to cut rents totally forgot that commercial property is largely owned by the pension funds we invest our futures in. With around 15 per cent of shops set to become empty this year, many of those hit with empty rates have absolutely nowhere to turn. This tax will wreak further damage on our economy.

“In trying to trim the finger nails of commercial rents in a boom period, Gordon Brown has cut off the hands of the UK’s property sector which contributes over 5 per cent to GDP. We urge the government to use the powers left into empty rates legislation that allow for relief to be immediately reapplied.”

Tax increment financing (TIF) – ref: 4.49

The chancellor has given a firm indication of the government’s willingness to explore TIFs pilot, a public financing method used for redevelopment and community improvement.

This is a victory for the BPF which published a report on TIFs last October. See: http://www.bpf.org.uk/pdf/21244/BPF%20TIFS%20Paper%20Final%20A4.pdf

Liz Peace, chief executive of the BPF, said: “We have been working hard to convince the Government that new mechanisms are required to stimulate regeneration in the UK. This is a very positive move by the Government and will hopefully be the first step to exploring the feasibility of introducing Tax Increment financing in to the UK.”

Community infrastructure levy (CIL) delayed until 2010 – ref: 5.80

Liz Peace, chief executive of the BPF, said: “While we have worked hard with our colleagues at Communities and Local Government to ensure that the CIL is both effective and workable, this will be a welcome move for an industry that has been badly hit by the downturn. It is vital that we do not place too many extra burdens on developers who are already massively overstretched through commitments to supporting local communities and now Crossrail in the London area.”

Chair of the BPF CIL Working Group, Stephen Ashworth, partner at planning lawyers Denton Wilde Sapte LLP, said: "CIL was never going to be in place by 2010. Critical matters are still being discussed such as how to ensure that CIL is set at a level that does not stifle development, how to cut back planning agreements so that developers aren’t charged twice and identifying a clear way for local authorities to waive CIL in exceptional cases."

Sustainability and renewables

Patrick Brown, senior policy adviser, said: “Buildings account for just under half of total UK carbon emissions and we welcome the introduction of Carbon Budgets today and we look forward to publication of the Government’s Energy and Climate Change Strategy this summer. The strategy will set out the policies which the Government will use to meet its Carbon Budgets. Though responses to Government consultations on existing homes and non-domestic buildings will be included in this Strategy, it seemingly will not include consultations on key issues such as zero carbon new non-domestic buildings expected much later in the year or possibly the final shape of the Carbon Reduction Commitment, currently under consultation.’

“Though we appreciate that policies need to be kept under review, the Government will need to steer a very careful path between adjusting policies in light of new evidence and maintaining a framework which the industry can embrace and respond to.”’

Disclosure of Tax Avoidance Schemes (DOTAS): Stamp Duty Land Tax

This document (click on title to read) exposes draft regulations and invites comments on the options for extending the descriptions of the Disclosure regime to cover high value residential property and considers the arrangements for identifying users of all Stamp Duty Land Tax (SDLT) schemes.

Peter Cosmetatos, director for finance and investment, said: “We were involved in the SDLT Deregulation Group with which HMRC consulted last year about the possible extension of the requirement to disclose stamp duty avoidance schemes to residential property transactions worth over £1m. We aren’t convinced that extending the disclosure regime (which imposes a noticeable compliance burden on taxpayers and their advisers) to residential property is a good idea or that it will achieve what the Government hopes. However, our main interest in this proposal is to ensure that any consequential changes to the disclosure regime for commercial property transactions are not problematic. We look forward to reviewing and commenting on the consultation document published today.”

Download

BPF Budget response and background brief