The Chancellor’s spring budget 2024
Earlier this week, the Chancellor of the Exchequer delivered his spring budget speech, which was principally aimed at delivering tax cuts for individuals, most notably through the widely leaked 2p reduction in National Insurance and another freeze of Fuel Duty. The effect of both will be partially offset by fiscal drag, as most personal tax thresholds are not increasing with inflation, and we are not expecting any significant boost to consumer spending as a result of these tax cuts. Indeed, projected falls for inflation will do more than the budget to lessen the squeeze on household incomes this year.
Growth and Businesses
There was good news for small businesses, with the VAT registration threshold lifted from £85,000 to £90,000, although this will probably only counterbalance the fiscal drag effect.
A noteworthy levelling up announcement was the £100 million devolution deal for North East England, clearing the way for a £25 million investment at the Riverside Sunderland mixed-use regeneration scheme, and a health innovation zone in Newcastle.
While there was a small upwards revision to the short-term GDP forecast from the Office for Budget Responsibility, the Chancellor did not gain much additional fiscal headroom. As a result, the Treasury has also had to raise taxation, mostly for the better-off or businesses, such as the extension of the North Sea windfall tax until 2029.
We feel it was a missed opportunity that VAT free shopping wasn’t reintroduced for foreign tourists, which would have provided a boost for parts of the UK retail and hospitality industries, particularly in places like central London and Edinburgh.
Property Measures
From a property perspective this budget was thin on positive measures. There was a reduction in the capital gains tax rate on the sale of homes, which may encourage some landlords to take profits and sell but will not have a significant impact. There will also be support for house building in Liverpool and Sheffield; and in London, at Barking Riverside, Canary Wharf and Euston. However, there were no significant measures to help first time buyers, which in our opinion was a surprising omission.
Stamp Duty Land Tax (SDLT) Multiple Dwellings Relief was axed, which will impact the Private Rented Sector including Build to Rent. This has been a valuable source of relief for the property sector and its removal will impact pricing on standing stock and development funding structures that attract SDLT. Given the constrained housing supply, this feels like a missed opportunity to reform the measure to prevent abuse while still encouraging investment. Also, tax relief was scrapped on holiday let properties.
Business Rates
On business rates, the government is extending the Empty Property Relief “reset period”, from six weeks to 13 weeks in England. This will reduce the ability of landlords to offer short-term occupation of vacant buildings. Short lets reduce the expense for developers who are putting together brownfield sites where leases are expiring over different time scales, or while awaiting planning decisions; so the practice is supportive of urban regeneration. Also, film studios are set to receive a 40% business rates relief over 10 years, although this is to offset a recent sharp increase in rates for the sector.
Economic and Property Outlook
Overall, we doubt the budget has greatly altered the general economic outlook or the prospects for the property sector. However, for both the economy and property, we remain optimistic that a cyclical turning point is approaching. We believe lower inflation, and from the summer falling interest rates, will steadily increase the spending power of consumers and firms, leading to strengthening growth in the second half of 2024. For commercial property, we are expecting rising investor interest in the coming months, particularly for prime assets. For house prices, we believe the turning point has been reached, and a gradual market recovery will be seen going forwards.
