Following the 2024 General Election and Labour forming a new government, our experts at Avison Young UK have shared comments on a number of areas where we would like to see focus, including policies on business rates, housing delivery, green prosperity, devolution and planning reform.
Looking to the future, our industry needs to leverage its influence to ensure the new policies and regulations support sustainable growth and development. We continue to support our clients in navigating these changes, with the guarantee of a more stable political landscape where businesses can plan for the long term, fostering economic growth and innovation.
“Labour has proposed significant reforms to the outdated business rates system, which they argue places an unfair burden on smaller businesses and retailers. They suggest replacing business rates with a fairer system, possibly based on land tax or commercial property values, while keeping the tax revenue neutral at over £30 billion. However, any reform would shift the burden, creating new imbalances. Currently, small businesses with a rateable value (RV) below £12,000 pay nothing, and those under RV £50,000 avoid a large supplement, placing a heavier burden on larger businesses. Labour must decide how to maintain tax neutrality while fulfilling their pledge to help SMEs, which would likely increase the burden on medium to large businesses.
“The crux of the issue lies in how business rates, linked to the traditionally higher RPI rather than CPI, have outstripped rental growth, leading to a uniform business rate (UBR) higher than necessary. Although the index has been changed, it's estimated that switching to CPI in 2010 would have kept the UBR at around 44p instead of 49.9p, avoiding the need for significant additional supplements. Labour should focus on phasing down the UBR to sensible levels and decoupling the tax from inflation, ensuring it grows in line with rental performance. These tough decisions are necessary if the new government aims to take business rate reform seriously and address the excessive tax take.”
“The crux of the issue lies in how business rates, linked to the traditionally higher RPI rather than CPI, have outstripped rental growth, leading to a uniform business rate (UBR) higher than necessary. Although the index has been changed, it's estimated that switching to CPI in 2010 would have kept the UBR at around 44p instead of 49.9p, avoiding the need for significant additional supplements. Labour should focus on phasing down the UBR to sensible levels and decoupling the tax from inflation, ensuring it grows in line with rental performance. These tough decisions are necessary if the new government aims to take business rate reform seriously and address the excessive tax take.”
“Labour’s Housing Delivery plan aims to build 1.5 million new homes, with 90,000 designated as affordable or social housing annually. Achieving these targets will need a step change in delivery across all tenure types from social rent, the wider build to rent sector and home ownership. Given the tight public sector finances it will be interesting to see what the balance of developer (s106) and public sector contributions. Indications of appetite for land value capture mechanisms will need to develop quickly if increased expectations for developer contributions are not to lead to a slowdown in supply.
“Labour's plan also indicates a willingness to use increased devolution of planning and compulsory purchase order (CPO) powers to overcome local council obstacles and ensure land is brought forward at scale.
“Large-scale projects, such as the proposed New Towns take time. They can offer long term consistent supply numbers but land assembly, infrastructure and enabling works can take many years and incur significant upfront costs. Like all new governments these ambitions will be set against pressure to show progress quickly. There is potential to streamlining the multiple funding application assessments, relax the affordable housing funding requirements and potentially devolve more to Mayors which could yield early gains. We anticipate Labour exploring options to accelerate these processes, particularly with private sector involvement. Reforms to compulsory purchase legislation could offer quicker implementation than new laws. Whilst coverage of green and so called “grey belt” development may dominate it will be these funding changes, first steps on the longer-term projects and changes in CPO which may be worth closer following.”
“An incoming government also faces a significant in-tray of particularly thorny issues that the sector will follow closely not least Building Safety, renter and leasehold reforms as well as a significant number of outstanding “call-in” applications. All will provide signals of the tenor and tone of the new government's approach.
“It will also be interesting to see if the new government can break the previous government's tenure pattern for Housing Ministers. A crude measure of the focus on the sector and a definite confidence builder for developers would be a Housing Minster in post long enough to build relationships and work alongside willing partners.”
“Labour's plan also indicates a willingness to use increased devolution of planning and compulsory purchase order (CPO) powers to overcome local council obstacles and ensure land is brought forward at scale.
“Large-scale projects, such as the proposed New Towns take time. They can offer long term consistent supply numbers but land assembly, infrastructure and enabling works can take many years and incur significant upfront costs. Like all new governments these ambitions will be set against pressure to show progress quickly. There is potential to streamlining the multiple funding application assessments, relax the affordable housing funding requirements and potentially devolve more to Mayors which could yield early gains. We anticipate Labour exploring options to accelerate these processes, particularly with private sector involvement. Reforms to compulsory purchase legislation could offer quicker implementation than new laws. Whilst coverage of green and so called “grey belt” development may dominate it will be these funding changes, first steps on the longer-term projects and changes in CPO which may be worth closer following.”
“An incoming government also faces a significant in-tray of particularly thorny issues that the sector will follow closely not least Building Safety, renter and leasehold reforms as well as a significant number of outstanding “call-in” applications. All will provide signals of the tenor and tone of the new government's approach.
“It will also be interesting to see if the new government can break the previous government's tenure pattern for Housing Ministers. A crude measure of the focus on the sector and a definite confidence builder for developers would be a Housing Minster in post long enough to build relationships and work alongside willing partners.”
DEVOLUTION
“While we welcome Labour’s development first approach, the real impact will be determined by the specifics of the implementation and public and private sector collaboration for housing delivery will be a key”
“Local authorities face severe challenges, making financial stability nearly impossible without significant changes. While Labour's proposed themes are welcome, the impact depends on implementation specifics. It's concerning that there has been no mention of addressing section 114 notices, which are increasingly relevant. The proposed fiscal rules offer little room to increase spending to address financial gaps in local authority budgets, a pressing issue for many clients. In the next parliament, collaboration between public and private sectors for housing delivery will be key. However, local governments face pressure from a loss of expertise, hindering their ability to engage effectively with the private sector.
“Councils not part of a combined authority will be expected to integrate based on economic geographies, gaining new powers to benefit residents. We support increased devolution and local discretion in funding allocation, as shown by positive outcomes in the Midlands. Enhanced powers for mayoral development corporations, including executing compulsory purchase orders (CPO) and approving planning, will boost investor and developer confidence. Proposals for longer-term funding settlements for local government are a positive step, aligning with the private sector's need for stability and consistency, reducing bureaucracy, and allowing longer-term planning by local authorities.”
“Councils not part of a combined authority will be expected to integrate based on economic geographies, gaining new powers to benefit residents. We support increased devolution and local discretion in funding allocation, as shown by positive outcomes in the Midlands. Enhanced powers for mayoral development corporations, including executing compulsory purchase orders (CPO) and approving planning, will boost investor and developer confidence. Proposals for longer-term funding settlements for local government are a positive step, aligning with the private sector's need for stability and consistency, reducing bureaucracy, and allowing longer-term planning by local authorities.”
GREEN PROSPERITY PLANS
“Labour’s Great British Energy is only possible with robust infrastructure to support”
“Labour’s Green Prosperity Plan aims to substantially expand the UK’s onshore wind capacity, develop carbon capture and storage capabilities, and increase the use of green hydrogen. It highlights opportunities for local energy projects and promises to expedite the planning process for renewables, presenting opportunities for landowners to host wind farms and solar panels. Great British Energy aims to derisk projects as the Government’s vehicle for strategic energy investment. However, the majority of risk faced by developers is driven by weak planning policy and local opposition; reform of planning legislation to firmly support development of sustainable energy projects and infrastructure and provide more certainty on timescales would be preferred by the private sector, especially when there is currently no shortage of capital available for renewables project development.”
“Decarbonisation is essential but challenging, given that 75% of the UK's energy comes from fossil fuels, with transport being a significant contributor. Transitioning from gas and oil must be carefully managed to maintain resilience and ensure energy security. A fundamental skills shortage in building affordable homes and the energy sector poses a significant risk, necessitating targeted support and investment in skills development. NIMBYism is also a major concern for obtaining permissions for renewables and infrastructure projects, especially when considered in tandem with timescales for securing grid connections. There is a substantial opportunity for private sector involvement, bolstered by government backing to inspire confidence, but that backing need not necessarily be financial; regulatory reform to improve certainty of delivery would be equally if not more welcome by the private sector. The Green Prosperity Plan holds promise but needs more detail in the areas of planning, energy security, skills development, and fostering private sector confidence before its benefits can be given serious weight.”
“Decarbonisation is essential but challenging, given that 75% of the UK's energy comes from fossil fuels, with transport being a significant contributor. Transitioning from gas and oil must be carefully managed to maintain resilience and ensure energy security. A fundamental skills shortage in building affordable homes and the energy sector poses a significant risk, necessitating targeted support and investment in skills development. NIMBYism is also a major concern for obtaining permissions for renewables and infrastructure projects, especially when considered in tandem with timescales for securing grid connections. There is a substantial opportunity for private sector involvement, bolstered by government backing to inspire confidence, but that backing need not necessarily be financial; regulatory reform to improve certainty of delivery would be equally if not more welcome by the private sector. The Green Prosperity Plan holds promise but needs more detail in the areas of planning, energy security, skills development, and fostering private sector confidence before its benefits can be given serious weight.”
PLANNING REFORM
“Labour’s planning reform is hoped to boost housebuilding, but it must not overlook the need for an industrial strategy”
“The proposed planning reform is welcomed and ambitious, aims to revitalise housebuilding through the Housing Recovery Plan, to be implemented within the first few months of the new administration. This includes the New Towns Plan and a planning passport to fast-track brownfield development approvals. An additional 300 planning officers will be funded by raising stamp duty on non-UK residents. However, the concept of the "grey belt" requires further clarification. The focus on residential development in urban brownfield and grey belt areas must be balanced with the industrial strategy. Last-mile logistics are crucial, yet industrial development often loses out to residential projects in urban fringe locations. Strategic planning around cities should include housing and infrastructure to support population growth, such as retail and logistics to meet online consumer demand.
“Transport infrastructure is essential for growth, and planning delays significantly impact the industrial sector. Large industrial projects face long delays, affecting local economies as substantial employers. Power supply challenges are evident where grid connection limitations hinder full capacity delivery despite available solar energy potential. Currently, only about 4% of industrial roof space in the UK is used for solar energy, highlighting significant improvement opportunities. Learning from international examples of sensible intensification could be beneficial for balancing residential and industrial development needs.”
“Transport infrastructure is essential for growth, and planning delays significantly impact the industrial sector. Large industrial projects face long delays, affecting local economies as substantial employers. Power supply challenges are evident where grid connection limitations hinder full capacity delivery despite available solar energy potential. Currently, only about 4% of industrial roof space in the UK is used for solar energy, highlighting significant improvement opportunities. Learning from international examples of sensible intensification could be beneficial for balancing residential and industrial development needs.”
THE ECONOMY
“Labour’s planning reform is hoped to boost housebuilding, but it must not overlook the need for an industrial strategy”
“In our opinion, Labour is inheriting an economy that reached its cyclical low point last year, with the recession witnessed in Q3 and Q4 2023. Following the rebound of GDP growth in Q1 2024, at an above average 0.7% q-on-q, we are expecting the economy to steadily gain momentum over the course of the rest of this year and next.
“In part, this is thanks to inflation falling back to target, which will strengthen the spending power of households. As a result, the Bank of England is now in a strong position to begin cutting interest rates, and we are predicting a 25 bps cut in the Base Rate in August, taking it to 5.00%. We are then forecasting a steady reduction in the Base Rate to around 3.00% by mid-2026.
“This will improve the financial strength of firms and consumers, leading to increased spending and investment through much of the economy, even if the new government were to just sit back and allow events to follow their natural course. However, we do believe the new government will implement policies that will further boost the economy.
“Labour plans to invest £5 billion per annum of public money in green projects, with a view to bringing in private money to amplify this investment. Also, the current ban on developing onshore windfarms will be lifted.
“We see this new wave of green investment accelerating the new economic cycle which is beginning now, and will spread growth widely across the country, as the best locations for this infrastructure are found across a broad geography. Over the long-term this investment will provide cheaper power, thus lowering the cost of living and doing business in the UK. There is also the potential for the UK to develop as a centre of green infrastructure expertise and profit from selling this knowledge abroad as services exports.
“Turning to house building, the size of Labour’s majority could help to push through Parliament the measures needed to increase supply, as it will be much harder for backbenchers to threaten rebellion in response to Nimbyist lobbying. Labour’s target is 1.5 million new homes over the new Parliament – meeting that target will most likely have to stretch beyond the current emphasis on using brownfield sites.
“Nevertheless, the new Labour government does face difficulties, particularly as it inherits a heavily indebted state, which will require a mixture of government spending cuts and tax increases. As a result, central government will not have much room to offer additional support to local authorities, many of whom are in the midst of financial crisis. Consequently, we believe more councils will start to look at their property portfolios and consider selling assets to raise money.
“The need to strengthen the public sector’s finances creates dilemmas for the government, as there are a range of policy areas where fresh capital expenditure is needed – from health to education to housing to transport infrastructure. However, Labour’s election manifesto referred to partnering with businesses no less than 18 times, which suggests greater connectivity with the private sector will be seen in the coming years. As well as capital raising and project management, this will likely extend to inclusion in shaping policy. We have already seen the beginnings of this with Labour’s widespread canvassing of opinion from the private sector to shape its manifesto for the election.
“Turning to the implications of the election for property markets, the lifting of the political uncertainty, once coupled with future cuts in interest rates and a new economic cycle, will strengthen the outlook for both leasing and investment markets. The MSCI UK Monthly Capital Growth index has recorded rising values in the three months to May for Industrial property and increasing values in April and May for retail property. We believe that capital growth for offices will turn positive again by around September / October.
“Labour’s plans for green infrastructure investment will over the medium-term provide an additional boost to the prospects of industrial property; although we already expect this sector to perform the best in the new property market cycle due to robust demand from both tenants and investors. The general improvement in economic prospects thanks to lower inflation, upcoming interest rate cuts and increased political stability, should be good news for retail property and offices. However, both these sectors will probably lag industrial in the recovery due to structural changes in leasing demand.
“A positive drive to reform the planning regime, to speed up permissions, cut red tape and make it easier to change the use of a building, would also be welcome changes, which would in turn boost the economy. We welcome the prospect of reform of the business rates system, which our Head of Rating David Jones discusses here.”
“In part, this is thanks to inflation falling back to target, which will strengthen the spending power of households. As a result, the Bank of England is now in a strong position to begin cutting interest rates, and we are predicting a 25 bps cut in the Base Rate in August, taking it to 5.00%. We are then forecasting a steady reduction in the Base Rate to around 3.00% by mid-2026.
“This will improve the financial strength of firms and consumers, leading to increased spending and investment through much of the economy, even if the new government were to just sit back and allow events to follow their natural course. However, we do believe the new government will implement policies that will further boost the economy.
“Labour plans to invest £5 billion per annum of public money in green projects, with a view to bringing in private money to amplify this investment. Also, the current ban on developing onshore windfarms will be lifted.
“We see this new wave of green investment accelerating the new economic cycle which is beginning now, and will spread growth widely across the country, as the best locations for this infrastructure are found across a broad geography. Over the long-term this investment will provide cheaper power, thus lowering the cost of living and doing business in the UK. There is also the potential for the UK to develop as a centre of green infrastructure expertise and profit from selling this knowledge abroad as services exports.
“Turning to house building, the size of Labour’s majority could help to push through Parliament the measures needed to increase supply, as it will be much harder for backbenchers to threaten rebellion in response to Nimbyist lobbying. Labour’s target is 1.5 million new homes over the new Parliament – meeting that target will most likely have to stretch beyond the current emphasis on using brownfield sites.
“Nevertheless, the new Labour government does face difficulties, particularly as it inherits a heavily indebted state, which will require a mixture of government spending cuts and tax increases. As a result, central government will not have much room to offer additional support to local authorities, many of whom are in the midst of financial crisis. Consequently, we believe more councils will start to look at their property portfolios and consider selling assets to raise money.
“The need to strengthen the public sector’s finances creates dilemmas for the government, as there are a range of policy areas where fresh capital expenditure is needed – from health to education to housing to transport infrastructure. However, Labour’s election manifesto referred to partnering with businesses no less than 18 times, which suggests greater connectivity with the private sector will be seen in the coming years. As well as capital raising and project management, this will likely extend to inclusion in shaping policy. We have already seen the beginnings of this with Labour’s widespread canvassing of opinion from the private sector to shape its manifesto for the election.
“Turning to the implications of the election for property markets, the lifting of the political uncertainty, once coupled with future cuts in interest rates and a new economic cycle, will strengthen the outlook for both leasing and investment markets. The MSCI UK Monthly Capital Growth index has recorded rising values in the three months to May for Industrial property and increasing values in April and May for retail property. We believe that capital growth for offices will turn positive again by around September / October.
“Labour’s plans for green infrastructure investment will over the medium-term provide an additional boost to the prospects of industrial property; although we already expect this sector to perform the best in the new property market cycle due to robust demand from both tenants and investors. The general improvement in economic prospects thanks to lower inflation, upcoming interest rate cuts and increased political stability, should be good news for retail property and offices. However, both these sectors will probably lag industrial in the recovery due to structural changes in leasing demand.
“A positive drive to reform the planning regime, to speed up permissions, cut red tape and make it easier to change the use of a building, would also be welcome changes, which would in turn boost the economy. We welcome the prospect of reform of the business rates system, which our Head of Rating David Jones discusses here.”
