The Autumn Statement and what it means for Property
November 23, 2023
The Chancellor of the Exchequer yesterday announced his Autumn Statement. For the property world, there were some benefits but they were relatively modest.
Thanks to the UK avoiding recession during the winter 2022/23, as the Office for Budget Responsibility had previously predicted, the Chancellor had some fiscal headroom for tax cuts and additional spending. The emphasis in the Statement was on improving productivity, and promoting sunrise industries in life sciences, technology and green energy.
Pro-business measures included:
The ‘super deduction’ whereby businesses can offset investment in machinery and equipment against Corporation Tax was made permanent.
Business rates benefits and support measures already in place (which are focussed on small businesses, plus retail / hospitality firms but capped at £110k) will be extended by another year.
Measures were announced to speed up the planning process for infrastructure and commercial schemes, including a new premium service based on a fee.
The tax relief for free ports is to be extended from five to ten years. Four new investment zones were announced – in Greater Manchester, East and West Midlands, and in North East Wales.
£4.5 billion was pledged for investment in strategic manufacturing, such as EV vehicle and battery plants. £750 million is to be invested to scientific research and development (R&D). £500 million to support the development of the UK’s Artificial Intelligence (AI) ecosystem.
£110m to be spend on the protection of waterways from pollution which could clear a path for the development of 40,000 new homes.
Pro- worker / households measures included:
Class 1 National Insurance to be cut from 12% to 10%, and this will apply from 6th January 2024. For the self-employed: Class 2 National Insurance is to be axed, and Class 4 reduced from 9% to 8%.
The National Living Wage is to rise by 9.8% to £11.44 per hour for workers over 21 years old from April 2024.
The state pension is to rise by 8.5%, while benefits are to increase by 6.7%.
The steps announced to speed up the planning process are to be welcomed as a move in the right direction. However, many of the measures presented as tax cuts for businesses are in fact extensions of existing reliefs (or making them permanent), so in reality this is the cancellation of upcoming tax rises. Also, the increase in the living wage will be welcomed by low paid workers, but correspondingly it will add to the costs of many firms during an economic slowdown.
On business rates, while the government is continuing to protect small businesses, the vast majority of medium to larger companies across England will be experiencing the full CPI inflationary 6.7% increase, with the standard Universal Business Rate and supplement rising from £51.2p to £54.6p. This level of increase is the highest for 32 years.
Turning to the tax cuts for workers and the self-employed, there is an element of the Chancellor giving with one hand and taking with the other. Previously, the Treasury froze the thresholds for the tax bands, so pay growth is gradually lifting a greater proportion of our incomes into higher tax bands, an approach known as ‘fiscal drag’. So, while the Chancellor has cut the National Insurance rate, the overall tax burden on workers is rising. This will leave households with less to spend, which will have negative implications for consumer-facing real estate, such as shops and restaurants.
Meanwhile, the measures to improve the pipeline of new housing starts, while welcome, are unlikely to greatly add to supply for some time to come.
Nevertheless, the extension of the free port tax benefits will help further develop new regional business hubs, creating long-term property investment opportunities and new leasing demand. Also, the measures to support the rise of sunrises industries like AI, advanced manufacturing, green energy and scientific R&D are also positive news for the property world. These new sectors are a fast-rising source of demand for business space, and encouraging their growth will create further opportunities for the property sector.