Budget 2018: There were a couple of rabbits after all

29 Oct 2018

Policy area: Budget

Following the Chancellor's speech, our Director of Policy (Finance), Ion Fletcher, blogs about this year's Budget.

It was never going to be a Budget for the history books. Beholden to an increasingly frantic Brexit process and complicated Parliamentary maths, the Chancellor even told us that a ‘no deal’ scenario would mean a new Budget and it’s a fair bet that Treasury officials have done at least as much work on that as they have on today’s announcement.

A Budget is still a Budget though and a good chance for the Government to persuade people and businesses that it is on their side. It was therefore lucky that the Chancellor was able to find an extra £13bn down the side of the OBR’s sofa, allowing him to increase funding for the NHS and potentially for other public services too (local authority planning departments please!).

Sadly, neither that extra £13bn nor his no doubt close scrutiny of the BPF’s Budget representations seem to have persuaded him to just leave the real estate tax rulebook alone. Instead, we have more changes to our tax code, although some of them surprising and positive.

Overseas owners and prospective owners of residential property will probably need to revisit their sums, as the Chancellor confirmed a new SDLT surcharge that will apply to properties they buy. While we have yet to see the detail (coming in January), this is potentially bad news for the Build to Rent sector, where we estimate that 22,000 homes (about 15% of the total) are reliant on funding from overseas investors such as pension funds. The government should be very careful in how it targets this surcharge if it doesn’t want to restrict the building of new homes.

Better news for the High Street, where a combination of more money for urban rejuvenation and increased business rates relief will have many small retailers breathing a sigh of relief. It is also good to see the government proposing changes to planning rules to make it easier for high streets to keep up with changing demands for the use of space. But business rates will continue to be an issue for occupiers of all sorts for as long as they are levied at a rate of almost 50%. Because the government can’t afford to meaningfully reduce that, business rates will sadly be on the agenda for many years to come.

Mixed news for commercial property owners. On the one hand, a (genuinely ‘rabbit from the hat’) brand new tax relief for capital expenditure on non-residential buildings – a real boon for new property development and refurbishment. On the other hand, a restriction on the use of capital losses, effectively turning loss-making investments into even more costly propositions by denying investors the ability to fully offset those losses against profits from other investments.

Despite recent calls by some commentators to capture more value from the development process (think the apocryphal landowner whose open field becomes 100 times more valuable the second it receives planning consent for new housing), this Budget has put forward relatively modest – and sensible – proposals. It feels like officials understand that land value creation is more complex, risky and nuanced than often portrayed and therefore there are no simple solutions.

Important announcements on housing such as lifting the borrowing cap for local authorities and increasing the size of the National Productivity Investment Fund round off a Budget that never promised many surprises, but in the end was able to deliver a couple of them.