Budget 2016

Rebekah Paczek from Snapdragon Consulting on the 2016 budget and what it means for the construction industry.

1 Introduction
2 Planning and Development
3 The other bits
4 The deserving poor…
5 Business and enterprise
6 Devolution
7 Education
8 Can it be true?
9 Related articles on Designing Buildings Wiki

[edit] Introduction

Having steadily been drip-fed generally quite depressing information about the Budget, no one was too surprised when the latest rounds of cuts started to bite. It’s worth remembering that this is a Budget which is as far away from the next General Election as it is possible to be, so not only is there no need for sweeteners for the voting public, it’s a good time to get all of the bad bits out of the way to give scope for the goodies in three or four years’ time. That said, there were a few (smallish) rabbits pulled out of the proverbial hat.

This was branded as the budget which will put the next generation first – which translates as ‘just suck it up, you’re doing it for your kids’. It was also a thinly veiled leadership election campaign for George Osborne who took the opportunity to announce policies on behalf of the Department of Health and the Department of Education, with the Sugar Tax catching most attention.

Apparently the economy is set to grow faster than any other advanced economy in the world. Osborne was keen to stress the weak outlook for the global economy and the risks for the UK economy. A sort of pre-emptive “not my fault Guv”. It would seem we are being told that we would be worse off anywhere else and that we are teetering on the brink of disaster so should just be grateful.

Growth rates overall are down but we are still growing – apparently. Osborne did deftly manage to gloss over the stats which he didn’t like and Corbyn failed to drag them into the light. Handily, the OBR has come out in favour of staying in the EU.

[edit] Planning and Development

According to George Osborne, ‘In this government, we are the builders’ …

Not in the speech, but hidden in the documentation, the Treasury announced:

The launch of the Starter Homes Land Fund which allows local authorities to bid for £1.2bn of funding to remediate brownfield land to deliver 30,000 homes. This should reduce costs for developers and increase deliverability and viability. However, as something similar was announced recently as a grant rather than a bidding fund, it is not clear if this is a separate initiative or part of the same thing.

The delivery of 13,000 affordable homes two years early by bringing forward £250m of capital spending to 2017-2018. It is not clear whether this is new spending or just re-announced spending.

The introduction of a zonal/red line planning approach whereby local authorities use local plans to signal development strategy and make maximum use of permission in principle to give early certainty and reduce the number of stages developers must go through to get permission. This raises the question of whether Local Plans are effectively to become outline consent and how that sits with detailed planning applications, localism and local communities. If this is truly the case, that Local Plans will provide outline consent, this is a huge change.

The HCA will work in partnership with Network Rail and local authorities to provide land around stations for development. There will be an initial pilot scheme. Expect a healthy bidding process for this land and lots of money going back to the exchequer. This may also create more pressure to develop on land around stations and Network Rail facilities in the South East.

An amazing new initiative called Garden Villages has also been launched. This is not like anything anyone has ever thought of before and is so innovative it is bound to deliver all of the homes which the Government has committed to. The new plan isn’t to be confused with Garden Cities, or Eco Towns, or New Towns, or anything else which might sound similar and which has been launched recently with the same money and intention.

[edit] The other bits

In a further shock to the buy to let industry, landlords with more than 10 properties will now be covered by the additional 3% Stamp Duty Land Tax (SDLT) on additional properties. This effectively starts to close down the buy to let market to private investors and push it all towards institutional investment.

Big changes announced to SDLT on non-residential property transactions with over 90% of transactions paying the same or less. However, for large investors, there will be an increase – the top 9% working on transactions over £1.05m will pay more.

The new stamp duty rates on second properties will also apply to larger investors. Some of the money will go into setting up community housing trusts in the south west.

The Chancellor has given the green light to HS3 between Manchester and Leeds, greater investment in M62, A66 and A69 – a few crumbs thrown to the north east, although not for those who live along the A1. He also announced investment into Crossrail 2. Given how long it has taken to get Crossrail 1 off the starting blocks (at least 60 years) and that HS2 is still in deep debate, giving the green light is hardly the same as actually investing and delivering.

We await the detail on the planning changes from DCLG with interest.

[edit] The deserving poor…

As announced earlier this week, Government will help working people save by topping up savings. Although the paltry amount set aside by government for this suggests that even they realise that those struggling to make ends meet on tax credits, probably don’t have the money to set aside in savings.

Added to that, a new lifetime ISA has been introduced for those under 40. From April 2017, anyone under 40 will be able to open a lifetime ISA and save up to £4,000 with an additional £1 for every £4 saved for basic rate tax payers. Help to Buy ISAs can be rolled into this.

The tax free personal allowance will be raised to £11,500 and the 40% threshold increased to £45,000 in 2017-18.

The Chancellor stepped back from the reported raid on pensions which he was apparently intending. Presumably he was gently advised that it would not only be political suicide but would also penalise many of the hard working people he is purporting to be interested in helping.

Whilst the welfare cap is still in place and spending is still forecast to come down, it is not clear where the next £10bn of cuts are coming.

[edit] Business and enterprise

The Chancellor announced a fundamental reform of the business tax system, cutting loopholes and also reducing business rates. This has elements of a Google Tax and a Robin Hood Tax all in one. The £9bn in extra revenue raised from changing the way in which losses can be offset against profits and shutting down loopholes in taxes, borrowing, expenses and royalty taxes for big multinationals will go towards, amongst other things:

Reducing Corporation Tax to 17% by 2020.
Providing tax free allowances worth £1,000 per year for people who sell their wares on line.
Cutting the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10% (except for property) from April 2016 and extending entrepreneurs relief to long-term investors in unlisted companies.
Abolition of the Carbon Reduction Commitment to be matched by a rise in the Climate Change Levy by 2019.

On business rates, the Chancellor announced a more than doubling of the Small Business Rate Relief permanently to £15,000 with the higher rate threshold raised from £18,000 to £51,000. The Government will move to a minimum of three-yearly re-valuations and consult on this in due course. The rating will also move from RPI to CPI which will be a real terms cut for all businesses.

The Small Business Rate Relief could be moved to a Small Business Allowance which small businesses could use if they have multiple spaces in one particular local authority. Summer 2016 will see a consultation on the implementation of Business Rates devolution. This is obviously because there hasn’t been enough consultation on business rates yet.

[edit] Devolution

Continuing the devolution agenda, more mayoral deals have been agreed with the West of England, East Anglia and Greater Lincolnshire. However, given that local authorities now have no control over education and most of them will probably see their receipts from business rates disappear, you may question exactly what they have power over and how they finance any of it.

The Chancellor announced that within a few years 100% of local government financial resources will be raised by and from within local government – not sure local government is necessarily celebrating this, given that they struggle to raise enough money to deliver their services. However, it really is localism.

[edit] Education

Apparently the next generation will all be educated at academies, which is a neat way of taking education off the balance sheet and probably means that balancing the UK economy is significantly easier.

Basically, the government will dispense with all authority over education and conveniently, quite a lot of the running costs. By 2020, every primary and secondary school in England will be an academy.

[edit] Can it be true?

There is already scepticism about the figures and how the government can go from a significant deficit in 2018/19 to a £10bn surplus in 2019/20.

Predictably, Jeremy Corbyn thought it was terrible and an attack on the poor – although he stopped short of quoting from Mao’s Little Red Book. However, the Labour Leader, despite his passion, seemed to get little traction either in the House or from the various commentators gathered around Parliament and TV studios.

As always, the detail tends to unravel over the few days until the Sunday papers finally pull it all together.