RICS welcomes the UK Pre-Budget Report and believes that measures contained within it will provide some much needed support for the UK economy and in particular the construction sector.

It is our view that such action is necessary in the current challenging circumstances.

However RICS has some concern over the economic assumptions built into the PBR which appear a little optimistic.

The risk is that public debt will remain at elevated levels for longer than the PBR assumes forcing the Government to take more drastic action to curb public borrowing in the future.

Our response is below; a detailed analysis of reviews and initiatives announced alongside the PBR can be downloaded from the right-hand panel.

Repossessions/Mortgage rescue
We welcome the Government’s continuing action to address repossession through the three-month period before action can start, expansion of Income Support for Mortgage Interest and mortgage rescue schemes.

With repossessions likely to rise to over 50,000 next year, measures to help prevent the trauma caused to families by repossession are essential. Although repossessions are not as high as the peak in the early 1990s, the number of people at risk is likely to rise as the economic situation worsens and unemployment rises.

Helping families avoid having to leave their homes must continue to be a priority for both Government and mortgage lenders.

Capital spending on construction projects
We welcome today's measures to bring forward capital spending which may inject some much needed stimulus into the rapidly weakening construction sector.

Within the planned areas for capital spending the social house building package to support only an additional 2000 homes (equal to one month’s output) is regrettably lacking in clout and will do little to offset a pronounced decline in residential investment in the coming year.

At less than 1% of the required house building rates construction workers will take little comfort from these plans.

Recognising that a large proportion of smaller construction firms operate in the repair and maintenance sector we welcome additional moves to improve infrastructure.

Upgrading flood defences for 27,000 homes to the tune of £20million and modernising school infrastructure using £800 million should be seen as a first step in preventing a widespread deskilling in the sector.

The reduction in activity over the next year is looking dire and could lead to over 300,000 jobs being lost.

Empty Property Rate Relief
The decision to amend the Empty Property Rate Relief for lower value properties will certainly help small businesses in difficulty; however empty property rates affects all businesses and this change will therefore have only a limited impact.

There is still the risk that empty rates will damage the commercial property market and delay regeneration schemes.

The change is unlikely to prevent the unnecessary demolition of large buildings in the current economic condition leaving our towns scarred by piles of rubble.

Insulating homes
Additional funding for insulation will help reduce carbon emissions from homes and provide a much needed boost for the construction industry.

Insulating cavity walls and lofts is the most cost effective way of reducing carbon emissions and should be the focus of Government spending.

The announcement demonstrates that environmental issues must not be forgotten while the Government deals with the current economic crisis.

VAT
Although the reduction in VAT to 15% could have a beneficial effect to the economy, the Government can still take further steps in certain areas.

The Chancellor must urge his fellow EU Finance Ministers to adopt recommendations to allow a cut in VAT to 5% for the repair and maintenance of buildings.

This will make it cheaper to install energy efficiency measures, bring empty homes up to a decent standard and reduce the advantage gained by cowboy builders working for cash.

Stamp duty
The acknowledgement by HM Treasury that stamp duty receipts from housing transactions are set to fall sharply over the coming financial year provides the Government with the opportunity to implement fundamental reform of the tax at little cost.

Unfortunately there was nothing in the PBR to signal that the Government is minded to move away from the current slab structure and all the distortions to the market this results in to a marginal rate system.

This is a missed opportunity which could have further adverse ramifications for the housing market as the year long extension of the zero rate band to all properties costing less than £175k draws to a close.

First time buyer saving scheme
RICS are pleased that the Government has accepted our calls for a tax relieved savings scheme to help first time buyers save for a deposit.

This scheme should use the existing ISA structure allowing use of the full £7,200 limited and supported by an additional Government contribution.

A savings scheme is essential to ensure buyers save responsibly for a deposit and do not need mortgages with high loan to value ratios.

Mortgage availability/Crosby
The key recommendation to be taken up by the Government from Sir James Crosby's report on housing finance is that the Government should support the mortgage market by providing guarantees on the interest and principal of residential mortgage-backed securities (RMBS) or covered bonds backed by lending for new housing transactions.

Ultimately, this move should increase funding available for new borrowers which, in turn, could inject some much-needed activity back into the housing markets.

However, the Government will first need to work on a detailed scheme and then obtain State Aid approval from the European Commission before any such programme can be implemented.

There is no clear time-line for that indicated in the PBR.

Although we welcome the sentiment and the attempt to address the current problems in the mortgage market, it is disappointing that it may take a considerable amount of time before it can have any material impact.

Background
In a letter to the Chancellor earlier this year, the RICS set out a range of short term measures for inclusion in the Pre-Budget Report which we believed would play a part in addressing the current difficulties in the residential, commercial, construction and property sectors. 

We also included a number of measures on which we urged the Government to start work promptly in order to avoid deep and long term problems in the future. The proposals are based on our current policy priorities: housing, planning, skills and climate change.

A summary of our key recommendations to the Chancellor are listed below:

Housing

This budget year
Convert the current stamp duty holiday into long term reform of residential stamp duty land tax, replacing the ‘slab’ structure of the tax with a ‘marginal’ structure. It is essential to avoid a further disruption to the residential market by ending the holiday without replacing it with longer term reform. The effect produced at the end of the holiday in the early 1990s was disastrous for the public and the market.

Future years
Introduce a mortgage saving scheme to enable first time buyers to save sensibly for a deposit.

Review the REIT regime to enable the formation of Residential REITs for long term institutional investment in housing models such as ‘build to rent’.

Climate Change - Low carbon build environment

This budget year
Reduce the rate of VAT to 5% on building work covering the repair, maintenance and improvement of housing and historic buildings.

Exclude from rateability plant and machinery installed solely or mainly for the purposes of reducing pollution or complying with environmental standards

Future years
Simplify and promote the Enhanced Capital Allowance scheme to encourage uptake and reduce carbon emissions of businesses.

Extend tax relief for land remediation expenditure to all taxpayers.

Planning reform/skills

This budget year/future years
Increase Government funding to address skills shortages amongst planning, project management and construction professionals.

Allocate funds to keep the construction industry active during the downturn. Further measures should be made specifically for house building to ensure steady supply as the housing market picks up again.

Provide long term commitment on infrastructure planning.

Business

This budget year
Double void periods to 6 and 12 months to reflect the time needed to assemble sites and enable regeneration and re-letting of  buildings.

Reduce the level of empty rate liability from 100% to 50%

Future years
Review the Business Premise Renovation Allowance to increase its application.