Spending Review & Autumn Statement

Transcription

1 Spending Review & Autumn Statement December 2015 GLEEDS SUMMARY REPORT The Spending Review and Autumn Statement presented by the Chancellor of the Exchequer, George Osborne on Wednesday 25th November outlined government spending plans for the next 4 years. This time the Spending Review is unrestricted by inter-party politics as was the case under the coalition government. A Construction Perspective In his speech the Chancellor portrayed a growing economy - the fastest in the G7 - with a statement which concentrated on economic security and growth. If Osborne s slogans to rebuild Britain are to be taken at face value, the construction industry has much to feel optimistic about. Capital budgets across the education, health and energy departments appear uplifted, accounting for more than just an inflationary rise. The Department for Transport s (DfT) budget has increased considerably through the progression of road investment and HS2. Capital funding was also directed towards the construction of new homes in support of home ownership. Whilst plans were announced to double the budget for affordable housing, stamp duty charges have been increased for additional residential properties such as buy-to-lets and second homes. Overview Following the Emergency Summer Budget in July 2015, the Chancellor reiterated his promise to put security first by getting the UK s finances in order with a more productive and balanced economy. He aims to do this by encouraging the transition to a higher wage, lower tax, lower welfare economy. GDP and Employment GDP has risen for 11 consecutive quarters; it now stands above its pre-crisis peak. However, the growth rate slowed in Q Unemployment has fallen from 6.1% in 2014 and is forecast to settle at an average rate of 5.5% in The Office for Budget Responsibility forecasts employment at 31.1 million in 2015, rising each year to reach 32.2 million in Year GDP Unemployment % 5.5% % 5.2% % 5.3% % 5.4% % % - 1

2 Government borrowing The economy has benefitted from continued growth and rising employment levels. Despite this, the government is expected to borrow more than 73 billion this year. The Chancellor repeated his assurances that the deficit will be repaid and a surplus of around 10 billion will be made by Infrastructure The Chancellor announced investment in transport of 61 billion over the Parliament ( /21) billion of this is specifically allocated to capital expenditure including: Investment in the Network Rail Investment Programme. In addition, the Spending Review allows Network Rail to sell assets and re-invest proceeds back into rail infrastructure The start of construction works on High Speed billion for the Roads Investment Strategy, billed as the biggest road improvement programmes since the 1970s to include: Resurfacing over 80% of the strategic road network Creating 1,300 miles of additional lanes 112 major road schemes to be delivered by Highways England over the next 5 years 475 million will be available over the next 5 years for local governments to bid for in support of large construction projects, such as the Lowestoft Third River Crossing and the North Devon Link Road A 300 million Transport Development Fund will be set up to provide funding for transport infrastructure projects 250 million Pothole Fund, plus an additional 5 billion for road maintenance In conjunction with a 50% increase in capital funding, the DfT s operational budget will be reduced circa 37% by This may be in order to enable more funding to support the capital programmes, or an indication of government aspiration to build better quality infrastructure, which is less reliant on future reactive/planned maintenance programmes. Northern Powerhouse & Devolution Investment focus continues on the creation of the Northern Powerhouse: There is a revised budget of 13 billion for Transport for the North (TfN) Over 150 billion for northern health services and 46 billion on schools 250 million for nuclear research and development in Sheffield City Region, Greater Manchester and Cumbria 150 million for the development of a smart and integrated ticketing system for local transport services 50 million to fund the operation of TfN 50 million for 2 new agricultural technology centres based in York. Commitment to an additional infrastructure fund for the Cardiff region. 2

3 Housing From , the Spending Review announced a doubling of the housing budget to encourage home ownership. The Five Point Plan for housing was introduced, supporting: The delivery of 400,000 affordable homes by , comprising: 200,000 starter homes which will be sold at a 20% discount 135,000 Help to Buy: shared ownership homes 10,000 homes which allow tenants to save for a deposit while they rent Circa 8,000 specialist homes for older people and those with disabilities Piloting of the Right to Buy scheme with 5 Housing Associations Accelerating housing supply and construction growth by: Reforming the planning system, ensuring delivery against local plans Releasing 4.5 billion worth of public land and property with the capacity for 160,000 homes (some of this is allocated from former prison sites) Allowing isolated brownfield sites sitting within larger green belt areas to be developed for starter homes Providing 2.3 billion in loans to regenerate council estates and infrastructure Investing 310 million for Ebbsfleet to become the first new garden city in nearly 100 years Creation of a London oriented Help to Buy scheme, where interest-free loans of up to 40% are available Application of a 3% surcharge on stamp duty for additional residential properties such as buy-to-lets and second homes. This will take effect from 1 April 2016 and is designed as a measure to help first time buyers. It effectively adds 5,520 of tax to the average 184,000 buy-to-let property, which could have an impact on the residential market. There could be a slowdown in activity, leading to a fall in house prices, or conversely if house sales are maintained, rental values may increase to account for the additional stamp duty charge. The news around housebuilding appears to be welcomed within industry, albeit with an element of caution. After the Spending Review concluded shares in housebuilding companies rose sharply with Taylor Wimpey topping the FTSE, and Persimmon and Barratt also in the top 5, indicating positive sentiment around housebuilding. However, in light of government incentive schemes, it is important - particularly in London - that a balance is maintained between those homes offered for sale and homes for rent. This will need to remain the case as the cost of homeownership, despite government incentives, is likely to still be too much for many. Meanwhile, the buy-tolet market may be tempered by the addition of a 3% stamp duty charge. STAMP DUTY RATES (ON PURCHASES) Property value Standard rate Buy-to-let/second home rate (from April 2016) Up to 125,000 0% 3% 125k - 250k 2% 5% 250k - 925k 5% 8% 925k - 1.5m 10% 13% Over 1.5m 12% 15% Source: HMRC 3

4 Education 23 billion will be invested over the course of parliament in school buildings to include: Construction of 500 new Free Schools The rebuilding / refurbishment of over 500 existing schools The revised 23 billion budget is 2 billion more than allocated in This may be a reflection of an inflationary rise, increased investment in real terms or in light of rising construction costs. There will be further investment in education, training and apprenticeship programmes including: University and college students seeing a replacement of maintenance grants with a maintenance loan. Circa 1 billion of new loans are anticipated to be made available by Tuition fee loans will be available for 19 to 23 year olds The funding of 2,200 scholarships per year for students from developing countries to study in the UK As announced at the Summer Budget 2015, 3 million apprenticeships will be made available through the apprenticeship levy. This will be worth 3 billion by Larger employers will be asked to contribute more to the cost of higher quality apprenticeships. There is little mention of how the construction skills crisis will be addressed. Reaction from industry indicates that specific measures need to be introduced, and quickly. Fears are that the skills shortage will adversely affect the industry s capacity and capability to deliver the volume of housing and infrastructure schemes Osborne has pledged to provide. Health Following the push for a 7-day week NHS service, over the next 5 years government promises: An increased NHS budget of 101 billion in to 120 billion by New hospitals to be developed in Brighton, West Birmingham and Cambridge 1 billion to be invested in smart technology to deliver better connected services for patients. Some of this funding is potentially outweighed by the department making circa 22 billion of efficiency savings over the next 5 years. Energy The government has announced that it will double the investment in energy research over the next 5 years to at least 250 million. This will focus on nuclear energy research and development, paving the way towards building one of the world s smallest modular reactors in the 2020s. Other investment / initiatives include: Reform of the Renewable Heat Incentive increasing funding to 1.15 billion by with the intention of delivering better value for money and cost control. By the end of parliament the government expects to warm the equivalent of 500,000 homes and make savings of 700 million The introduction of a replacement scheme for the Energy Company Obligations Scheme (ECO) in April 2017 to upgrade the energy efficiency of over 200,000 homes per year, saving each up to 300 on their annual energy bills Energy intensive industries will become exempt from the Renewables Obligation and Feed-in Tariffs to ensure they are able to remain competitive Up to 1 billion will be available for local communities hosting shale gas developments. In addition, the UK government has cancelled the 1 billion competition to develop carbon capture and storage (CCS) technology on power stations only 6 months before it was due to be awarded. 4

5 Prisons & Defence 1.3 billion will be spent over the next 5 years to modernise the prison estate. With this: A total of 5 new prisons will be built which should be cheaper to run and designed to reduce re-offending. The government wants to reduce prison running costs by 800 million a year Some of the underused courts will either be redeveloped or modernised for residential use Securities and intelligence agency budgets will increase by 18% The MOD will invest 11 billion in new capabilities, innovation and the defence estate. This includes creating 2 new strike brigades for up to 5,000 personnel. Science & Technology Other The Foreign and Commonwealth Office will invest 400 million in its estate, some of which will be overseas 2.3 billion is set aside for the flood and coastal defence programme The government will provide support for the Arts, Culture and Sport including: 78 million capital funding for the Factory Manchester 2.5 million for the Museum of Science and Industry in Manchester 5 million for new South Asia Gallery at Manchester Museum 4 million in Birmingham Dance Hub 150 million funding support to the British Museum, Science Museum, and Victoria and Albert Museum in replacing out-of-date museum storage. The science and technology sectors will see 6.9 billion in capital investment over the course of parliament comprising: 150 million competition for the development of a Dementia Institute Over 130 million invested in Defra s science facilities, with 5 million of this earmarked for improvements to the Centre for Environment, Fisheries and Aquaculture Science in Lowestoft 75 million to unlock a 300 million investment to transform the University of Cambridge s Cavendish Laboratories. 5

6 Tax rates, Allowances, Finances - Headlines One of the major headlines of the Spending Review was the decision to delay or scrap some of the planned tax credit cuts, following fierce opposition in the media and the poignant rebuttal from the Lords. This will mean that the Welfare Cap will be breached through to at least Central government grants to local authorities will be significantly reduced but local authorities will be given the option to impose a 2% rise in council tax for social care this is anticipated only to affect the most deprived areas The government has committed to raise the personal allowance to 12,500 and the higher rate threshold to 50,000 by the end of this Parliament The introduction of the mandatory National Living Wage of 7.20 will be introduced in April 2016, as announced in the Summer Budget 2014 The basic State Pension will increase by 3.35 in April 2016 to a week Corporation tax will be further cut to 18% by the end of the Parliament Comment from Richard Steer Chairman of Gleeds Worldwide Increased investment in prisons, roads and schools is good news especially since the new figure of 23 billion on school building over the course of the parliament is 2 billion more than previously announced in Indeed the Chancellor s promise to deliver 400,000 affordable homes to rent and buy should be welcomed if it is achievable and it pushes housebuilder stocks ever higher, although it must be said a stretched industry will struggle to find the talent to build in such numbers. On the other side, the penal stamp duty rise on the buy-to-let market will not be welcomed by property professionals or contractors, and his decision to exclude corporate investors seems to fly in the face of previous announcements. For those working in energy it has to be said the reform of the Renewable Heat Incentive to save 700 million, and a replacement for ECO - a new scheme that will save 300 off the bills for energy customers - does not sound promising. Support for small businesses will increase with the extension of the 100% business rate relief to April Summary Is this a Spending Review of two halves? On the one hand, the outlook is promising for construction, with a focus on building an improved infrastructure network across the country and creating the homes and schools that we need. However, are the targets too ambitious in light of the skills shortages currently facing the industry? Media reaction appears to suggest this might be the case, with the general sentiment that there ought to be increased governmental support to build a robust construction workforce to successfully deliver projects to required timescales. FOR ADDITIONAL INFORMATION CONTACT: Sarah Davidson Gleeds Corporate Research & Development Wilford House 1 Clifton Lane Nottingham NG11 7AT sarah.davidson@gleeds.co.uk gleeds.com Legal disclaimer: This paper was prepared by Gleeds for general information only and neither Gleeds nor any of their partners, employees or other persons acting on their behalf makes any warranty, express or implied and assumes any liability with respect to the use of the information or methods contained in this report to any person or party. This document is subject to copyright and may not be reproduced without permission from Gleeds Research and Development, randd@gleeds.co.uk 6