UK budget gets muted welcome from real estate

Amid announcements of a £150 billion increase in spending for government departments, a range of measures aimed at resuscitating the National Health Service, still struggling with Covid, and a range of initiatives aimed at “levelling up” regional inequalities, and even unspecified funding for the launch of a rocket into orbit in 2022, UK chancellor of the exchequer Rishi Sunak’s Autumn Budget contained a number of measures that will directly affect the property sector.

Business rates have long been a source of contention He announced that the business rates multiplier is to be frozen for a further year and a new 50% discount is introduced for retail, hospitality and leisure businesses. Sunac explained that it will reduce the business rates burden in England by £7 billion over the next five years alongside a promise to modernise the system and introduce more frequent valuations.

It has not won everybody over.

“It’s encouraging to see the Chancellor finally act upon the need to reform the business rates system,” commented Jace Tyrrell, chief executive of New West End Company which represents businesses in London’s West End.

Rates still too high despite changing multiplier

But he added: “Cancelling the inflation-linked rise to the multiplier may ensure that rates won’t go up this year, but they are still too high.

“A 50% discount for the retail and hospitality sectors will help some struggling high street businesses, but not all. By capping the 50% high street discount at £110,000, the benefit means little to city centre businesses. For a store in London’s West End, it will result in less than a 1% cut in their business rates bills for just one year. 

“This only results in a cut of around £1bn each year on a £25bn business rates bill – the equivalent of a 4% cut.  This falls far short of a fundamental review and is a very disappointing outcome.”

“It does little in the long term to meet the Government’s manifesto commitment to reduce the burden of business rates,” Tyrrell added.

Nor did it impress Peter Sugden, real estate partner at law firm Katten Muchin Rosenman.

“This is an extremely disappointing Budget for the commercial property sector,” he said. “The pandemic has exacerbated the existing severe hardships already felt by the high street pre Covid and yet, disappointingly, there has still been no reform to business rates. The industry has been lobbying the government for years, pre-pandemic, to help with these problems but has been completely ignored.

“Like the government’s recent retreat from introducing major planning reform, the budget does nothing to help address the enormous challenges being faced around changing commercial property demand in city and town centres.”

More frequent valuations ‘a double-edged sword’

Hugh Blaza, partner at Sandstone Law said the more frequent rating valuations may be a double-edged sword: “Not so good for those businesses whose rates bills increase at every valuation, but good for those stuck with rateable values which have been too high.”

And he pointed out “bricks-and-mortar occupiers were given little to cheer when it comes to their main competition, E-commerce and online merchants, who seem to have avoided any levy which might have given Sunak more scope to offer further occupier reliefs.” 

The Budget also put more flesh on the promise made in February 2021 of a residential property developer tax (RPDT), intended to help bring an end to unsafe cladding following the Grenfell Tower fire as well as to provide reassurance to homeowners and support confidence in the housing market. The draft legislation was published in September 2021 but the 4% rate was announced in yesterday’s budget speech.

Simon Lewis, construction partner law firm Womble Bond Dickinson, welcomed the grant but he said that the devil is in the detail. “Given the significant number of buildings that have been found to be unsafe, limiting this just to ‘higher risk buildings’ and only for cladding is overlooking all of the other unsafe buildings that fall outside these parameters.

“The sum is of course significant but it probably won’t be enough to deal with all higher risk buildings with poor cladding and certainly won’t be enough to deal with all unsafe buildings.”

Boost for affordable housing in England

He added that there is a risk the additional cost to developers from the RPDT will simply be passed on in increased costs for leaseholders and purchasers of new buildings and said the announcement does not address how leaseholders can be rescued from the often crippling costs of making buildings safe.

Sunac also confirmed investment of £11.5 billion in the Affordable Homes Programme in England from 2021-26, a measure designed to help build up to 180,000 new affordable homes, 65% of which would be outside London.

Sundeep Patel, director of sales at specialist lender Together commented that at first glance, the commitment which is part of the £24 billion multi-year housing settlement, “isn’t to be sniffed at”. “There are clearly attempts to solve the housing supply crisis. That said, we all know today is a bit of a smoke and mirrors game. It’s fair to challenge whether or not this funding will go far enough,” he added.