The Chancellor Alistair Darling delivered his first Budget speech today, setting out the UK’s annual financial statement, including a review of taxation levels and announcement of spending plans.
Media commentary earlier this week had anticipated the Labour government’s ‘greenest’ Budget; however Darling’s speech was attacked by the Liberal Democrats as a "great green cop out".
The Conservatives, who had earlier called for measures to abolish Stamp Duty for first-time buyers on homes up to £250,000, said measures announced only served to increase the cost of living for the British public.
RICS Policy Analysis is detailed below, listing the key points. An RICS Economics analysis is also available.
Chancellor’s housing market views based on RICS surveys
The Chapter B of the Financial Statement which accompanies the Budget Report sets out the state of the UK economy in a variety of sectors.
The Housing Market section makes specific reference to the RICS Housing Market Survey as a leading indicator:
"Annual house price inflation has slowed, from above 10% in August 2007 to around 2.5% in February 2008.
"This slowdown has come somewhat more quickly than would have been expected on the basis of past relationships with leading indicators such as mortgage approvals and the ratio of sales to the stock of available property reported by the Royal Institution of Chartered Surveyors.
These leading indicators have continued to ease since the 2007 Pre-Budget Report, pointing to a period of sluggish or flat house price growth in 2008."
Public sector land
The Government has also committed to achieving the delivery of 200,000 new homes on surplus public sector land by 2016, and the Budget announces that the Government has firmly identified sites on central government surplus land with potential for 70,000 new homes.
RICS view
The commitment to making public sector land available for housebuilding will only solve part of the land supply issues if we are to achieve the Government’s housebuilding targets.
Identifying sites for 70,000 new homes is a drop in the ocean when 2m additional homes need to be built by 2016.
Encouraging the re-use of existing buildings and allowing well managed development on Greenfield sites must also be encouraged if housing targets are to be met.
Brownfield land remediation
Land remediation relief will be extended to expenditure on derelict land and to the removal of Japanese knotweed by treatment from 1 April 2009.
The Government has considered the merits of extending business rates to include derelict and vacant previously developed land, but has decided not to pursue such an extension at this time.
RICS view
The Government has listened to RICS calls to introduce land remediation relief for expenditure on the remediation of long-term derelict sites.
We believe this measure will greatly assist developers and land owners who struggle to achieve appropriate balance in the economic viability of these sites.
We are also pleased that the removal of Japanese Knotweed will be eligible for land remediation relief.
Additionally RICS considers, as per our previous submissions to the Government that giant hog weed and Himalayan balsa are equally invasive and should be included within the tax relief.
Community Infrastructure Levy
CLG aims to formally consult on the draft Regulations in autumn 2008, with a view to finalising them in spring 2009. CLG will make further announcements on CIL before the summer.
RICS view
As they currently stand, the proposals in the Planning Bill on CIL are too broad and fail to set out how the Levy will operate.
The broad nature of the enabling powers means that CIL could be defined as parks and local renewable energy or funding road works leading to increased congestion.
The Planning Bill must be amended to define the function of CIL.
As it stands, CIL could be implemented on a discretionary basis allowing local authorities to opt out of the system.
This shows a lack of commitment from Government to fairness and parity that could bring about an unequal playing field.
Before CIL is introduced there is a need to clarify remit of charging authorities and we look forward to future Government announcements.
Excluding Low Value Transactions from Stamp Duty Admin
The Budget includes sensible measures to reduce the administrative cost of stamp duty to those who do not need to pay it.
Residential and commercial transaction under £40,000 will no longer have to submit the relevant SDLT form.
For transactions above 40,000 where no SDLT is due, the person undertaking the action rather than the agent or solicitor will now be able to sign the form.
RICS view
RICS welcomes this common sense reform to the administration of Stamp Duty.
The SDLT form is designed to capture avoidance of stamp duty so it was wrong that those not paying any duty were paying others to deal with the form.
This will simplify property transactions for lower income homebuyers and small business.
Long Term Fixed Rate Mortgages
In his speech The Chancellor announced his intention to improve the attractions of fixed rate mortgages.
RICS view
RICS maintains this does not mean that these mortgages will necessarily be suitable for all.
Many borrowers will continue to have a preference for interest rates that more closely reflect underlying economic conditions.
RICS also believes there is a strong case for greater transparency on mortgage arrangement fees which have risen sharply in recent years.
Not only do they mask the relative attractions of individual mortgage products but with regular refinancings, these mortgage fees are proving increasingly burdensome for homeowners.
On the plan to set up a Working Group to look into establishing a Gold Standard for mortgages to help strengthen financial innovation, RICS believes that there will be need to show what this will add to the existing system of ratings of mortgage products.
While agencies are under something of a cloud at the present time, it is far from clear that another body effectively charged with the same responsibilities will fare any better.
Moreover at the present time it is price volatility rather than actual credit risk that is scaring the natural buyers of these mortgage instruments.
Shared equity
New products offer equity loans of up to 50% of the property purchase price, reducing the conventional mortgage required.
These loans are larger than those previously available and will help bring home ownership within the reach of many more households.
Changes to Stamp Duty Land Tax (SDLT) rules mean that shared-ownership buyers will generally only pay SDLT on the final 20% of the property, unless they elect to pay SDLT upfront.
RICS view
RICS welcomes the changes to the shared ownership schemes that were announced in today’s Budget.
Reducing the proportion of a property that is liable for Stamp Duty to generally 20% is a sensible policy change which will lessen on the tax burden on the financially stretched households, at whom the shared ownership scheme is aimed.
Furthermore, the announcement that people will be able attain shared equity products of up to 50% of a home’s value should ensure that shared equity products are open to an even wider array of lower income households.
However, the scale of shared equity operation will be too low to satisfy the demand from households who find traditional methods of purchasing to be prohibitively expensive.
Eventually, these programs must be expanded to accommodate a larger demand, but this can only take place when the supply of new homes has increased to match the demand from new households.
VAT on renovation and repair
In the 2007 Pre-Budget Report, the Government announced a reduction in VAT on the costs associated with refurbishment or renovation of properties that have been empty for more than two years.
In further support of its housing objectives, the Government will now explore the case for additional targeted and cost-effective VAT measures for the refurbishment or renovation of other dwellings that are of too poor quality to rent or sell.
RICS view
It is essential that VAT is lowered from 17.5% to 5% on the renovation and repair of buildings as soon as possible.
The current rate of VAT acts as serious block to the reuse of empty property and makes it overly expensive to improve outdated facilities such as bathrooms and kitchens.
RICS has been calling for this change for several years as an effective tool to boost the number of properties being brought back into use.
Zero carbon non-domestic buildings
It is the Government’s ambition that all new non-domestic buildings be zero carbon from 2019.
The Government will consult this year on the timeline for this and its feasibility, and review progress in 2013.
The Government announced an ambition for all new public sector buildings to be zero carbon from 2018.
RICS view
RICS supports the Government's move toward a low carbon built environment, this will create uncertainty for commercial project developers – particularly, as the time allowed for the achievement of this target is quite short, when you consider the average term of a commercial new build project.
Commercial developers are unlikely to welcome the move and it could hit the sector hard by adding significant costs to new builds without increasing value at a time when the sector is facing a significant dip in demand.
The Government must provide fiscal incentives to encourage developers to change their practices.
Business rates and microgeneration
The Budget confirms that from 1 October 2008 microgeneration investments will not be subject to ad hoc reassessments of business rates liability. The Government will also consider the merits of the further use of fiscal instruments to promote energy efficiency in non-domestic buildings.
RICS view
This is a welcome move and should act as an incentive to encourage businesses to install microgeneration measures. Any steps that can be taken to reduce carbon emissions from commercial property should be considered by the Government.
Longer term we would like to see a wider package of measures to ensure all commercial buildings become energy efficient.
Green Homes Service
The Budget announces the allocation of £26 million to the Green Homes Service in 2008-09, helping over two million people.
It also announces that, in order to support effective delivery and to harness the enthusiasm and expertise of community groups and other interested parties, the Government will convene a Green Homes Forum in the autumn.
The Government is also interested in exploring what more can be done to raise awareness amongst the public of the ways and benefits of improving domestic energy efficiency, and to find ways to make solid wall homes more efficient.
RICS view
One of the key barriers to the uptake of energy efficiency in people’s homes is the lack of clear information on the steps that can be taken to reduce carbon emissions.
The Green Homes Service must act as a reliable point of contact for members of the public who want to take step such as installing loft or cavity wall insulation.
Alongside this information the Government should consider a range of fiscal incentives to reward those who take action.
RICS welcomes the establishment of the Green Homes Forum and we hope to play a full role in exploring what can be done to boost domestic energy efficiency.
Zero carbon homes
The Government will extend the Stamp Duty Land Tax exemption to new flats, retrospectively from 1 October 2007.
The Government will set out the definition for a zero-carbon home by the end of 2008, following a consultation in summer.
Government will provide pump prime funding for a new 2016 delivery unit that will launch this year to guide, monitor and coordinate the zero-carbon programme.
All new homes built on central government land released through the surplus public sector land programme from April 2008 will reach a minimum of Level 3 of the Code for Sustainable Homes.
RICS view
It is essential that new homes that are being built are brought up to the highest environmental standards and we look forward to working with the Government to ensure that the definition of a zero carbon home is one that meets these high standards in a way that can be delivered effectively by the housebuilding industry.
While action on new homes is welcome, it is essential that the energy efficiency of existing housing stock is also addressed.
This is where the bulk of the problem lies and if we are serious about reducing carbon emissions from homes action must be taken.
Ensuring all homes are adequately insulated would be an effective first step.
Empty Property Rates
Despite flexibility available for the Government to reduce the level at which empty rates are charged it has only made a minor concession in its decision not to extend business rates to include derelict and vacant previously developed land at this time.
RICS view
RICS considers that it would be wise for the Government to utilise its discretion, considering the current economic climate, to reduce the rate in an attempt to address the adverse impact of the new legislation on the commercial property market.
This is one issue on which the whole of the property industry remains united on.
It is not just the private sector who will be affected.
The new empty property rates legislation will result in additional costs for Local Authority run business centres and will directly increase Local Authority expenditure in creating new centres as a result of market failure brought about by this tax.
The extra costs will have to be met by the public purse.
RICS believes it would be naïve to believe that the new legislation will not have an adverse effect on business growth rates in the economy, causing the UK to become less competitive by comparison to its European neighbours despite the reductions in corporation tax.
Landfill tax
As announced in Budget 2007, from 1 April 2008 and until at least 2010-11, the standard rate of landfill tax will increase by £8 per tonne each year.
In Budget 2007, the Government also announced that the lower rate, applying to inactive waste, will also increase from £2 to £2.50 per tonne from 1 April 2008.
The Government expects the standard rate to continue to increase beyond 2010-11.
However, the lower rate will be frozen at £2.50 per tonne in 2009-10.
RICS view
The Government's decision to increase landfill tax as a means to encourage recycling and to reduce waste is a responsible one.
We have consistently called for less waste to be sent to landfill and for greater levels of construction waste to be recycled.
Although we welcome the measures, alongside the 'stick' of higher tax rates, we would like to see some 'carrots' introduced to encourage recycling.
Tax simplification: VAT
The Government will consult on simplifying the operation of the partial exemption regime and the capital goods scheme, and explore the need for business to seek permission from HMRC before taxing otherwise VAT-exempt supplies of land and property.
RICS view
RICS welcomes the consultation on the simplification of VAT rules and administration relating to the supplies of land and property announced by the Chancellor.
We consider that relaxation of rules would be welcomed by the property sector and facilitate businesses.
Capping Regulatory Costs for the Property Industry and Reducing Costs for Small Business
Government is looking to establish regulatory budgets capping the maximum total regulatory costs Departments can impose each year on industry.
This is designed to tackle the flow of new regulations, going beyond current initiatives to tackle existing regulatory costs.
Government may start this initiative with certain sectors or SMEs.
The other proposal in the new Enterprise Strategy, published today with the Budget, is to further examine exempting small businesses from new regulations or where that is not possible simplifying enforcement.
RICS view
A concerted effort to reduce the cost of new regulations on the property sector is massively overdue.
Whilst regulations to reduce carbon emissions are needed there is increasing evidence that Government's latest approach is not nearly as efficient as it might be.
With targets to increase housebuilding and affordability, reducing the regulatory cost of development is essential.
RICS also welcomes the greater emphasis on reducing costs for small businesses.
Chartered Surveyors are key business entrepreneurs across the country.
Reducing their costs will help encourage new businesses, more competition and ultimately lower costs for the consumer.
Road pricing
The Budget report announces an invitation to the private sector to run a number of projects based on charging by time of day, distance travelled and route chosen.
The Government will make available sufficient funding to ensure that these projects help answer the crucial questions on feasibility, cost effectiveness, privacy and the impact of real financial incentives on driver behaviour.
RICS view
The Government is taking a sensible approach to the question of road charging by asking the private sector to examine how schemes could potentially work and the effect they will have.
It is essential that all considerations are taken into account when looking at road pricing including the impact on business and rural areas.
Any additional revenue raised by road charging must be used to fund alternative forms of transport.
Further information
Residential property and planning
James Rowlands
Policy Officer
T +44 (0)20 7695 1594
E jrowlands@rics.org
Commercial property and tax
Nadia Nath-Varma
Policy Officer
T +44 (0)20 7695 1720
E nnathvarma@rics.org
