Chancellor delivers ‘Budget for growth’

New investment zones, enhanced devolution deals, cash for life sciences and tax relief for capex were the highlights of the chancellor Jeremy Hunt’s Spring Budget. But reform of the planning system and business rates were notable by their absence. Speaking in the House of Commons this afternoon, Hunt said this was a “Budget for growth”, promising “prosperity with a purpose”, which he would deliver by “removing obstacles that stop business investing”. “Investment zones, regeneration projects, levelling-up partnerships, local transport infrastructure and business rates retention… more control for local communities over their economic destiny so we will level up wealth generation and opportunity everywhere,” he proclaimed. The main thrust was warmly welcomed by the industry, especially the heavily trailed decision to give more powers to some metro mayors in what the Treasury has termed “trailblazer deals”. Under the deals, the West Midlands and the Greater Manchester Combined Authority will be given multi-year single settlements at the next spending review. Hunt added that this was “something I intend to roll out for all mayoral areas over time”. The Treasury has also agreed a new long-term commitment so they can retain 100% of their business rates, which Hunt also hopes to expand to other areas. “For levelling up to truly succeed we need to unleash the civic entrepreneurship,” Hunt said. “That is only possible when elected local leaders are able to fund and deliver solutions to their own challenges. That means giving them responsibility for local economic growth and the benefit from the upside when it happens.” The reaction Landsec chief executive Mark Allan praised the deals, but said the government needed to go further. “I was pleased to see today’s announcement of further devolution for the West Midlands and Greater Manchester – it is something we have campaigned for through our Cities Manifesto. “But we can and should be much more ambitious in supporting our city regions in driving economic growth. Cities across the UK will continue to lag behind their European counterparts and communities risk being left behind if similar funding deals aren’t prioritised for the rest of the country.” British Property Federation chief executive Melanie Leech (pictured) was also heartened by the announcement. She said: “Both regions understand the critical importance of real estate to delivering better outcomes for communities and we look forward to working with them to unlock new opportunities for investment. “Taken together with the chancellor’s announcement for 12 new Canary Wharf-inspired investment zones and further levelling-up funding, towns and cities across the country will move towards a more strategic and targeted framework of interventions.” The 12 new investment zones had been well trailed by the Treasury. Investment zones will be set up in the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one each in Scotland, Wales and Northern Ireland. Hunt said: “To be chosen, each area must identify a location where they can offer a bold and imaginative partnership between local government and a university or research institute in a way that catalyses new innovation clusters. “If the application is successful, they will have access to £80m of support for a range of interventions including skills, infrastructure, tax reliefs and business rates retention.” Bruntwood director Jessica Bowles welcomed the investment zones. “We believe this clustering with universities is key, as their strengths can be used to support regeneration and provide tailored responses to local issues ensuring they have the greatest impact and catalyse change. By doing this, people can come together, generate ideas, build on key strengths and create more productive clusters, and ultimately contribute to the wider levelling up agenda.” Alistair Watson, UK head of planning and environment at law firm Taylor Wessing, added they appear to be |more targeted” than previous incarnations of the policy. “Perhaps that will give them a better chance of success,” he said. However, the size of the Budget pots per investment zone were small, he added, “more akin to seed-funding or pump-priming, so the need for the private sector to step in and invest and collaborate is huge”. “As a real estate sector, we are very keen to collaborate, and this is the almost perfect next step for us to engage. What would make it the perfect step? A modern planning system, and that still needs Government attention and action.” ‘Major mistake’ But some in the industry were disappointed by the plans. Michael Jones, head of commercial at Cheffins, said: “Mr Hunt made a major mistake in not including Cambridge and the wider Cambridge-Oxford Arc in his new investment zones. “There is a danger here of throwing money down the drain, and trying to create life sciences clusters where they will not be able to thrive. “The ‘build it and they will come’ adage certainly does not apply when it comes to R&D hubs, and it is disappointing the government hasn’t chosen to capitalise on the hugely successful centres which are already in existence.” ‘Back to the Future Budget’ Hunt also praised former environment secretary Lord Heseltine as the inspiration for his version of investment zones. “Canary Wharf and the Liverpool docks were two outstanding regeneration projects that happened under a previous Conservative government,” he said. “I pay tribute to Lord Heseltine for making them happen, because they transformed the lives of thousands of people. They showed what’s possible when entrepreneurs, government and local people come together.” However, in an interview with EG this week, Lord Heseltine said he was not a fan of the policy, claiming it is too narrow. “They lack total coherence,” he told EG. “You have to be able to talk about the totality of the area. If you are going to attract inward investment, you have to talk about skills and educational standards.” Gary Sector, partner in Addleshaw Goddard’s planning team, said: “This was a bit of a Back to the Future Budget, returning to the days of Lawson and Heseltine, with lots of talk of enterprise zones and garden cities. “The chancellor’s announcement of new investment zones is the latest development initiative from the government to help boost growth, but we have seen a lot of similar rhetoric in previous Budgets. Is there now a meaningful difference?” Time will tell if the proposed levels of government funding are sufficient and whether these are indeed new commitments or a rebrand of existing spending plans Linklaters’ Jack Shand added: “Levelling up is at risk of being more platitude than policy. Investment zones may counter this by offering sufficient legislative and tax advantages to lure both domestic and international capital to areas in need of skilled jobs and infrastructure. “Previous policy initiatives providing regional incentives, such as enterprise zones, have won plaudits, but also fallen short of initial ambitions. Time will tell if the proposed levels of government funding are sufficient and whether these are indeed new commitments or a rebrand of existing spending plans.” He added, with an eye on the accusations that followed the allocation of the second round of levelling-up funding, that “investment proposals should be critically interrogated to avoid accusations of pork barrel politics”. Show us the money But a greater concern is that the money for levelling up might simply be drying up. “This government was elected on a mandate for levelling up,” Hunt said. “We have already allocated nearly £4bn in over 200 projects across the country through the first two rounds of the levelling up fund. A third round will follow.” He added that there would be additional money for levelling up projects, £200m agreed “together with our formidable levelling up secretary, Michael Gove”. A further £161m for regeneration projects will be allocated to mayoral combined authorities and the Greater London Authority. And £400m will made available for new levelling-up partnerships in areas including Redcar and Cleveland, Blackburn, Oldham, Rochdale, Mansfield, South Tyneside and Bassetlaw. However, the promised funds are a drop in the ocean, considering the fact levelling up funding has been spread out for a further two years, effectively reducing the overall amount committed by £2bn. The levelling up department spending on resources, except that which it takes on behalf of local governments, will fall from £4.3bn this year to £2.1bn for 2024 and 2025. Capital spending will be limited to £7bn, down from £7.2bn. Simon Peacock, head of regions at JLL, said: “Reports that around £2.5bn remains unspent from the levelling up fund will prove frustrating to those hoping for support for underserved communities.” He added: “The chancellor was always unlikely to pull any rabbits out of the hat with this statement given the need for stability and to reassure markets. “Still, those in the property sector – particularly outside London where levelling up remains a priority – will be hoping to see more urgency on spending in the regions in the coming months to make an impact across communities.” ‘Missed opportunities’ Hunt said the promise to introduce full expensing for capex for the next three years, with plans to make that permanent “as soon as we can afford to do so”, was worth an average of £9bn a year, while the OBR said it will increase investment by 3%. The BPF’s Leech said changes to capital allowances were a much-needed “counterbalance to the increase in corporation tax and the ending of the super-deduction”. “By providing full tax relief in one year, called for the by the British Property Federation, it will better support businesses and encourage long-term investment into carbon reduction and energy efficiency measures,” she added. But others were worried about what wasn’t in the Budget, namely any real focus on sustainability Knight Frank’s head of ESG consulting, Jonathan Hale, said: “It is disappointing that today’s Budget lacked more meaningful measures to support business addressing the urgent needs of the planet. “The chancellor missed the opportunity today, for example, to introduce tax incentives for reducing embodied carbon in retrofit and refurbishment projects.” He added that the Budget failed to take up the challenge laid down by the the Skidmore Report, released at the start of this year, which called for a minimum EPC rating for all homes sold or rented by 2023 and requested the introduction of legislation mandating a minimum EPC B rating for commercial properties by 2030. “However, the government needs to rapidly accelerate its support for those on the path to net zero by creating a clearer framework of rules which work for all and which are connected to the cross-industry goal of reaching net zero by 2050.” Lee Fraine, head of sustainability and building services at Rapleys, said “nothing was mentioned about EPCs”, despite stringent EPC implications up to 2030 where the minimum EPC requirement will be a C rating. Landsec’s Allan (pictured) agreed:  “Today’s Budget could have gone even further. I’d like to see the government build on the commitments they’ve made today by prioritising measures like whole-life carbon assessments and better regulation which will get to the heart of the issue.” Chris Hammond of Beau Property said that “aside from regeneration projects in a few areas, there was little in the Budget to help fast-track development or housing”, a view shared by Olivia Harris, chief executive of Dolphin Living. Moda Living planning director James Blakey said: “What we were looking for from the chancellor’s statement was a true ‘levelling-up’. This is required not just for a population in need of sufficient and affordable housing, but for the private sector that can help, but needs to be given the tools, incentives and backing to develop both brownfield and greenfield sites and get the right roofs over everyone’s heads. “Let’s make no mistake: this country is in a housing crisis. When you couple that with a government that is being investigated over the political motivations behind the reforms to the NPPF – something that will reduce the already delayed annual 300,000 new home target, to somewhere around 150,000 – you’re left with a housing market that is completely misaligned to the needs of the country.” But for John Webber, head of business rates at Colliers, the greatest omission was a lack of comment reform of the tax. That was “desperately disappointing”, he said, and proposals to let mayors retain receipts were a “hospital pass” at best. “This is a damning indictment for the Conservative government which has failed its manifesto promise to reduce this tax.” Jennet Siebrits, head of UK research at CBRE, concluded: “The Chancellor’s slimline Budget 2023 is notably light on measures with big real estate consequences, with the Chancellor instead focusing on growth and cost of living. We judge the ‘full expensing’ of capital allowances to be the most important measure, while new investment zones and a tentative revival of localism and devolution are also constructive steps. The R&D tax credits for life sciences will further support the sector’s growth. “However, the Chancellor missed an opportunity to act more decisively on climate change in the light of Chris Skidmore’s Net Zero Review.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Image © James Veysey/Shutterstock