2023 Spring Budget

The Chancellor’s priorities in this Budget were limited to ‘Employment, Education, Enterprise and Everywhere’. While that gives him scope to offer incentives closer to the next election, it meant a disappointing result, particularly for the housing sector, where new building is down but rents continue to rise.

It was no surprise that housing did not feature in the Budget, given the Chancellor’s stated aims were elsewhere – halving inflation, reducing national debt and growing the economy. Indeed, last December, the Government stepped back from a target of delivering 300,000 homes per annum as it fell short of its target – delivering 176,000 homes in 2021, with a similar outturn projected for 2022 (ONS).

Without a substantial hike in Government support, the construction sector cannot bridge the housing supply gap. House prices are falling, building materials are rising, aggregates levy and landfill taxes are increasing, the pool of experienced workers has reduced and the bank rate has risen to 4%. The Government mentioned three limited initiatives. There will be a 40-basis point reduction in borrowing costs for local authorities funding social housing. Two Strategic Place Partnerships between Homes England and local authorities will be implemented (West Midlands Combined Authority and Greater Manchester Combined Authority). The total funding for West Midlands, including investment by local partners, is £400 million plus £100 million to be spent on brownfield land. While this could translate into 1,700 new homes (using an average home price of £294,000), that cannot be achieved as the funds are to be applied for a range of costs including regeneration, not just new homes. Finally, the Government will provide funding to help housing developers deliver ‘nutrient neutral’ sites to help them comply with environmental obligations.

The fundamental problem with housing is the lack of supply of accessible housing for those who need to rent. Zoopla reported in January 2023 that rents were still increasing while house prices were set to fall by 5% (Halifax reported an expected 8% price fall). There were some helpful features in the Budget aimed at increasing the disposable income of people, for example, through the energy price guarantee and free childcare. However, these advantages are countered by the impact of inflation and the creeping tax take resulting from frozen personal tax allowances.

Opportunities for the construction sector are likely to arise from ‘Everywhere’ (the fourth category of ‘Employment, Education, Enterprise and Everywhere’) which provides for the creation of Investment Zones focused on development and regeneration. Each shortlisted host authority is based outside London and the South East. There are to be 12 locations, of which 4 are to be in Scotland, Wales and Northern Ireland. In England, the following authorities have been shortlisted to host an Investment Zone – East Midlands, Greater Manchester, Liverpool City, North East, South Yorkshire, Tees Valley, West Midlands and West Yorkshire.

The host of an Investment Zone has to make its case. If successful, it will benefit from being able to work up and implement a regeneration plan designed to meet local needs, underpinned by a package of tax measures and grant funding. In England, the total package is worth £80m per Investment Zone over 5 years. Like Freeports, there will be a package of enhanced rates of Capital Allowances, Structures and Buildings Allowance, relief from Stamp Duty Land Tax, Business Rates and Employer National Insurance Contributions. Grant funding can also be accessed to provide training, apprenticeships, business support and improvement of local infrastructure. There are ongoing discussions about the form of measures to be introduced in Scotland, Wales and Northern Ireland.

Other measures announced include confirmation of the increase in the corporation tax rate from 19% to 25%. This is to be mitigated for certain businesses through fully expensing (obtaining a 100% deduction from taxable income) for certain capital expenditure on qualifying assets (excluding leased assets) for the next three years. There is a three year extension of a 50% capital allowance deduction, in the year of purchase, for qualifying expenditure on buildings. For large companies with innovative processes, there is an increase in the Qualifying Research and Development Credit from 13% to 20%, while loss making SMEs will receive £27 for every £100 of qualifying investment.

On infrastructure, confirmation of the Government’s commitment to £600 billion on social and economic structure is welcome, although the Budget statement was light on detail, apart from the figure of £200 million for repairing potholes in 2023/24. More information will be provided in the National Infrastructure and Construction Pipeline, which is to be published later this year. The UK Infrastructure Bank is mentioned but this is an initiative dating back to 2021 with 10 projects already completed, while reform to the planning process for Nationally Significant Infrastructure Projects together with consultation on policy statements for National Networks is underway. However, the Budget Speech was silent on the ramifications of the cuts to HS2 which became apparent in February, although confirmation was given of £8.8 billion to be invested in City Region Transport Settlements, Round 2, for the period 2027-28 to 2031-32.

In summary, the Budget’s focus was not ‘Everywhere’ but focused on certain areas. Investment Zones, if successful, will lead to relocation of people, where local co-ordination can ensure that the provision of housing corresponds to the development plan. However, what about the rest of the country? There will still be many people who should live in a decent home but are struggling to rent and cannot afford to buy. The Chancellor has made a start but must do more.