The Chancellor's Summer Statement: key policies for real estate
The measures are intended to combat the economic downturn resulting from the Covid-19 pandemic and to provide “the next phase of…recovery from coronavirus”. The Chancellor stated that the changes are intended to give “businesses the confidence to retain and hire” and framed the new measures as a “fresh start”.
The measures represent the second phase of the government’s three stage economic recovery plan and set out a pre-emptive strategy designed to respond to what the Chancellor called the “profound economic challenges ahead”. The measures which have a three pronged approach (to support jobs, protect jobs and create jobs) are delivered against a backdrop of economic contraction which the government has acknowledged amounts to a 25% reduction in a two month period during lockdown – equivalent to the relative economic growth over the last 18 years.
The key points from the Summer Economic Update are summarised below:
Home buyers in England will benefit from an “emergency stamp duty holiday” which will take effect by an immediate change to the SDLT threshold. The Chancellor has raised the threshold for the tax from £125,000 to £500,000 effectively exempting the first half a million of property prices from SDLT. The Government estimates that this will cause the average SDLT bill to fall by £4,500. The temporary tax break will apply until 31 March 2021. Whether the Scottish and Welsh governments will follow with changes to their own separate land tax regimes remains to be seen.
This measure has been introduced in response to the 50% fall in property transactions experienced in May 2020 and the first recorded fall in house prices in 8 years. Through this measure, the Chancellor hopes to re-establish confidence in the residential housing market and in doing so boost the housebuilding industry which supports 750,000 jobs and supports the construction industry, which contributes £39billion a year to the UK economy. Given the non-UK residents 2% surcharge looming on the horizon (from 1 April 2021) this measure may encourage more overseas buyers in the short-term.
The Centre for Economics and Business Research estimates that the move will spur an additional 101,000 home purchases over the next nine months.
Richard Donnell, research director at property portal Zoopla, welcomed the move. He said the benefits would be “immediate” and would help “sustain the rebound in housing market activity” across England.
Others suggested that the Chancellor could have done more to encourage the supply of new housing in the private rented sector. Ben Beadle, chief executive of the National Residential Landlords Association, said: “The change to the stamp duty rates is welcome, but could go further.
“Additional rates should be scrapped in cases where landlords invest in properties adding to the overall supply of housing. This includes investing in new build and bringing empty homes back into use.”
The Government announced a £2 billion “green homes grant” as part of a move to increase energy efficiency and to create “green jobs”.
Homeowners and landlords will be able to claim vouchers for up to £5,000 to fund energy-saving improvements to their properties with low income households being able to claim up to £10,000 for such works.
A fund of £1billion will be allocated for the retrofitting of public buildings to reduce carbon emissions in line with the country’s target of Net Zero Carbon by 2050. Of this funding £50million is to be made available for the ‘decarbonising’ of social housing.
Melanie Leech, Chief Executive of the British Property welcomed the Government’s commitment to decarbonising the UK’s housing market as a step in the right direction and highlighted the vital role that the green homes grant will play in supporting “the dual ambition of greening the UK’s recovery and increasing employment opportunities.” However, she also noted the need for more far-reaching measures commenting that “the built environment needs a long-term road map, which this announcement falls short of providing.”
Responding to the Chancellor’s economic update the National Chairman of the Federation of Small Businesses, Mike Cherry, said: “The focus on green jobs and infrastructure is encouraging to see. Making small firms a central part this push will be critical to its success and local growth. Our late payment crisis has worsened throughout lockdown and we need to see government taking a zero tolerance approach on this front: if you can’t pay on time, you don’t win public contracts.”
Due to the somewhat reactive nature of the Summer Statement and the need to take initial steps there is an expectation that the Autumn Budget will provide additional measures to support a green recovery once the Government has had opportunity to review in greater detail the overall economic effect of the pandemic on both employment and the environment.
The Chancellor, aware of the 1.4 million workers furloughed from the leisure and hospitality industries (80% of which closed temporarily in April 2020), has introduced a targeted and temporary VAT cut. Acknowledging that the “economy relies on social consumption” the rate of VAT applied on the majority of tourism and hospitality-related activities will be reduced from 20% to 5% (to take effect on 15 July 2020 and to last for six months) to encourage recovery across those sectors and to give businesses confidence to retain staff and continue trading. The Government estimates that this will support in excess of 150,000 businesses which employ more than 2.4 million staff.
To encourage diners to return to restaurants, cafes and pubs the Chancellor’s new “Eat Out to Help Out Scheme” will give customers a 50% reduction to their food bill (capped at £10 per head). The discount will apply to sit-down meals Monday-Wednesday throughout August 2020. In addition to consumer confidence, it is hoped that this scheme will raise confidence amongst hospitality businesses to preserve and create jobs.
The measures should provide some hope to the real estate sector, in particular those investment landlords who lease to hospitality and leisure tenants such as hotels, restaurants and bars and who have experienced a challenging 4 months of lockdown. By providing support to this sector of tenants, the hope is that this will assist them in their recovery from lockdown and improve their on-going viability as tenants ahead of the September quarter.
The response from the hospitality sector has been broadly positive.
Kate Nichols, chief executive of UK Hospitality, which represents bars, restaurants and visitor attractions, tweeted: "Thank you to Rishi Sunak (for) recognising the importance of tourism and hospitality and the benefit it brings to economy - this will make a material difference for the sector as we face a long road to recovery.”
The Food & Drink Federation’s Chief Executive, Ian Wright CBE said “ The UK's food and drink manufacturers ….will enthusiastically welcome the Chancellor's announcement today to cut VAT on food and hospitality and slash the cost of eating out. We hope these measures will lead to a significant boost in demand for the hundreds of manufacturers who supply into hospitality and the out of home sectors and help them to manage increased supply costs.
He warned however that “if demand does not return quickly, these firms will continue to struggle unless they - and the sector they supply - receive additional employment support. The Chancellor must therefore keep the option of extending full furlough support to hospitality and their food and drink suppliers in his back pocket so we do not lose vital jobs and businesses.”
The Government’s furlough scheme will come to an end in October 2020 (although it was unclear whether this would be at the start or end of the month). He commented that the scheme could not “go on forever” and to continue it beyond October 2020 would be “irresponsible” but acknowledged that it would be a difficult transition.
The Treasury has sought to mitigate difficulties that might be experienced as a result of the termination of the scheme by introducing a new Jobs Retention Bonus scheme. For every employee successfully brought back to work from furlough employers will receive a £1,000 bonus. Returning employees must be employed from October 2020 until at least 31 January 2021 and the employee must earn on average a minimum of £520 per month between the end of the furlough scheme and the end of January 2021. Payments will be made from February 2021. The Chancellor stressed the value of the new scheme – if all 9 million furloughed workers return to work through this scheme the cost of the policy will amount to £9 billion.
The policy has been met cautiously by industry bodies. Mike Cherry, National Chairman of the Federation of Small Businesses (FSB) welcomed the "jobs first approach" but questioned whether the retention scheme would work smoothly enough, saying "the job retention bonus must be easy to access.”
Jonathan Geldart, Director General of the Institute of Directors, questioned whether the delay in access to the bonus would make it less appealing to businesses with constrained cashflow. He commented “the JRS bonus offers something of an off-ramp from the furlough scheme, and firms will certainly be doing all they can to keep people on board. However, with cash so tight now, January may feel like a long way off for some businesses.”
Others have been more critical. Peter Cheese, chief executive of the Chartered Institute of Personnel and Development said the bonus would not be a sufficient incentive for employers to retain staff. Others have noted that by setting the bonus as a flat £1,000 for any employee earning above £520 a month, it could incentivise employers to bring back former full-time staff on a part-time basis.
Uptake for the scheme will be critical for the construction industry, which has been one of the “most prolific users of the furlough scheme”, according to industry publication Construction News. 40% of the construction industry had been furloughed in April, according to the Office for National Statistics.
To support young people in finding jobs a new “Kickstarter Scheme” is being introduced. The scheme, touted as a "young jobs revolution”, will directly pay employers to create new jobs – with the focus being on quality of the positions. To qualify for the scheme, the new jobs must be for at least 25 hours per week and rates of remuneration must be at least equivalent to the National Minimum Wage. Those aged 16-24 who are at risk of long-term unemployment and who are currently claiming Universal Credit will be eligible for the scheme.
For all qualifying jobs the Government will pay the first 6 months’ salary for each employee (up to 25 hours at the National Minimum Wage) and an additional amount to cover the employer’s overheads. There is no cap on the number of kickstarter contributions available. Applications for the scheme can be made from next month (August 2020) and the Chancellor has urged businesses to “hire as many kickstarters as possible” with the aim being to secure positions for hundreds of thousands of young people.
The Kickstarter scheme “will help create jobs in the short-run that can turn into opportunities for the long-run, and firms look forward to working with government to get it up and running quickly and well”, according to Dame Carolyn Fairbairn, CBI Director-General. The Institute of Directors echoes these sentiments, saying “the Kickstart Scheme is a welcome idea, and we hope the system will be easy for employers to use.”
The real estate and construction industries may be able to make particular use of the scheme to bring in new skills in digital technology. Greater use of digital technology in construction in particular has long been seen as crucial for improving efficiency in the sector.
In addition, support has been announced for trainees and apprentices. The Government will pay £1,000 to employers who take on new trainees and the number of traineeships on offer will be trebled. The Government has stated that this will represent a £111 million investment into traineeships in 2020-21.
Employers will also be paid £2,000 for each new apprentice position created for those under the age of 25. This will be supported by the Government covering the initial six months’ salary for new apprentices (up to the minimum wage). For new positions created for apprentices in the over 25 age category, employers will be able to access a payment of £1,500.
CIPD commented that the Kickstarter scheme was not an “automatic free pass to a permanent role” and therefore the Government “need to invest in training and development opportunities as well.” CIPD also noted that if the Government is “serious about helping people re-skill and upskill to find work they need to invest in lifelong learning for everyone.”
A £32 million investment will be made into the National Careers Service and to expand the universal skills offering.
Work coaches in job centres will be doubled to 27,000 on the basis that evidence shows that careers mentoring is an effective tool in ensuring that people are able to access and retain employment. A fund of £900 million will facilitate this additional resource.
£1 billion of funding will be made available to the Department for Work and Pensions to support and facilitate access to employment across the UK.
Youth Employment UK reported that over 400,000 young people had visited their online content since the start of lockdown and, in the face of such demand, YEUK were roundly positive in their reception of the Chancellor’s proposals to support young people into work. In their response to the Summer Economic Statement they raised some key questions about how access to the careers service would be increased (since only 17% of young people who are not in education, employment or training use the jobcentre) and how the Government will “ensure opportunities in every area of the country and not just in the densely populated areas.”
The Prime Minister’s earlier “Build, build, build” announcement set out ideas for infrastructure and construction. However today’s announcement includes a statement that the Government is funding a Construction Talent Retention Scheme to support the redeployment of construction workers at risk of redundancy to “help retain [much needed] construction skills”.
The Chancellor will deliver a budget and spending review in the Autumn.