As budgets go, Rishi Sunak’s first as Chancellor was emphatic and delivered with both barrels. One shot was aimed squarely at quelling the immediate pain caused by the spread of COVID-19, and the other was a raft of major spending commitments through substantially higher public borrowing, the like of which hasn’t been seen in nearly 30 years. Among the announcements, below is a list of our top six takeaways for their relevance to UK commercial property.
1) Interest rate cut will have a limited impact
Though not part of the budget, yesterday’s slashing of the interest rate back to an all-time low of 0.25% was clearly part of a coordinated package of measures to boost confidence amid the COVID-19 chaos. As for its impact on commercial property, consider it more of a gesture than a game changer. For debt-reliant investors, with rates already very low, this move is unlikely to offset the knock to sentiment caused by the impact of COVID-19. So, don’t expect this rate cut, which is after all meant to be temporary, to suddenly stimulate investment activity beyond where it already was.
2) Investment bonanza
After years of watching the purse-strings, the scale of investment announced by the government yesterday is difficult to comprehend for its sheer magnitude. Public investment is set to jump by half, reaching 3% of GDP by 2022, and includes £27bn for strategic roads, £22bn for R&D and £11bn for housing. Contractors up and down the land will be feeling like Christmas has come early and, true to Boris Johnson’s word, much will be channelled into projects outside London and the South East as part of his mission to 'level up' the UK economy. While the Chancellors’ commitment to rail infrastructure investment, including HS2 and Northern Powerhouse Rail is reassuring, a clear emphasis on roads seems at odds with ambitions around carbon net zero.
3) Business rates – hefty concessions but still no reform
The new Chancellor made some major concessions on business rates, abolishing them this year for retailers with rateable values below £51,000. Also, eligible businesses will get a £3,000 cash grant – free money essentially. With disruption from COVID19 looking more severe by the day, this is a generous move from the Chancellor. What it does not do, however, is answer growing calls for root and branch reform to the whole system. Large retailers, many of which are struggling to cope with structural change and ultimately drive footfall for the smaller businesses, get nothing out of this.
4) Shifting jobs and skills
A widely expected but nonetheless key announcement is that 22,000 civil service jobs will be moved out of Central London into the UK’s regional cities by 2030. This reflects the government’s drive to rebalance skills and indeed political power across the country and will be a catalyst for growth and office market activity in a host of locations. Special reference was made to Wales, Scotland and Northern Ireland as key beneficiaries, while the North of England will be home to an economic campus of 750 officials in the Treasury and other government departments.
5) Government remains aboard the Arc
The prime minister’s pledge to focus greater attention to the north was seen as a threat to the long-term prospects of the Oxbridge Arc, a major growth initiative which by 2050 will see up to one million new jobs in the region. While plans for the Expressway road have been put on hold, the Budget document demonstrated a clear willingness to drive the initiative forward, including the development of a long-term spatial framework to support strategic planning and consider the creation of up to four new development corporations at Bedford, St Neots, Cambourne and Cambridge.
6) Door closing on local authority yield hunters?
With so much to yesterday’s budget, one easily-missed announcement related to local authority borrowing from the Public Works and Loans Board (PWLB). The past few years have seen local authorities make significant use of this cheap source of finance to invest in commercial property and generate income, both within and out of borough. In addition to a hike in the PLWB interest rate last October, yesterday the Treasury will now consult on tackling this practice, meaning local authorities looking to borrow simply for yield / income will no longer be able to. To be successful, local authorities will have to invest in their own boroughs and prove that the borrowing is primarily aimed at ‘good causes’ of regeneration, place-making and housing delivery. No bad thing.