On the Day Briefing: Spring Statement 2018

The Government published its Spring Statement today, Tuesday 13 March 2018

For the first time, the Chancellor of the Exchequer has introduced a Spring Statement and moved the budget to the autumn.  In aiming to make the Spring Statement a low-key event to prioritise the importance of the Autumn Budget as the major tax and spending showpiece, there were no big announcements and nothing new for the housing sector.

The Chancellor reasoned that “No other major economy makes hundreds of tax changes twice a year, and neither should we.”  So, there was no red box and no big announcements.

The Chancellor’s short speech responded to the economic and fiscal forecasts from the Office of Budget Responsibility (OBR) – the UK’s public finances watchdog.

Although there were no big announcements, the Spring Statement has been used to launch a number of consultations on future tax changes, and there is still plenty of detail in the fine print. On housing, it was largely a repeat of announcements made in the Autumn Budget 2017.

Key points

Look out for the following updates within Infrastructure and Housing Growth:

  • the publication of the interim Letwin Review
  • the Housing Growth Partnership Funding increased to £220 million
  • the comment from the Chancellor that 60,000 first-time buyers have benefited from stamp duty relief so far
  • announcements on two deals (one in the West Midlands for 215,000 homes to be built by 2030/31 and one in London for 27,000 affordable homes to be built by the end of 2021/22)
  • bids are opening next week for construction skills training.

Economic Forecasts

The Chancellor said: employment has increased by 3 million since 2010, which is the equivalent of 1,000 people finding work every day. The unemployment rate is close to a 40-year low. The OBR predict there will be over 500,000 more people in work by 2022.   The OBR expect inflation to fall over the next 12 months, and wages to rise faster than prices over the next five years.

NHC: The Chancellor was bullish about the forecast stating that the economy has grown for five consecutive years, and exceeded expectations in 2017.  He repeated many times the government’s approach to a “balanced budget” to get debt falling while funding our vital public services, keeping taxes low, and investing in Britain’s future. 

Public Finances

The Chancellor said: borrowing has fallen by three-quarters since 2010. In 2009-10 the UK borrowed £1 in every £4 that was spent. The OBR expect that we will borrow £1 in every £18 this year.  Debt will start falling as a share of GDP next year. The cost of debt interest payments is around £50 billion each year – more than the amount spent on the police and armed forces combined.

NHC: The Chancellor emphasised the UK’s public finances have reached a “turning point”, with borrowing down and the first sustained fall in debt for 17 years. He acknowledged, the UK’s debt remains too high, equal to around £65,000 per household. This makes the economy vulnerable to future shocks. It also imposes a significant burden on future generations.

Infrastructure and Housing Growth

The Chancellor announced:

An investment programme of at least £44 billion over the next five years at autumn budget 2017.

Work is starting with 44 areas on their successful bids into the £4.1 billion Housing Infrastructure Fund.

The Housing Growth Partnership, which provides financial support for small housebuilders, will be more than doubled to £220 million.

A deal has been agreed in the West Midlands for 215,000 homes by 2030/31.

London will receive £1.67 billion to start building a further 27,000 affordable homes by the end of 2021-22.

To help people getting onto the housing ladder, stamp duty for first-time buyers of homes under £300,000 was abolished at autumn budget 2017, with buyers of properties up to £500,000 benefitting from the change. An estimated 60,000 first-time buyers have benefitted so far.

The review of build out rates announced in the last budget by Sir Oliver Letwin’s – an interim report to the Chancellor of the Exchequer and the Secretary of State for Housing, Communities and Local Government on the Independent review of build out rates was made available today (13 March).

Funding for construction skills, described in the last budget, will open for bids next week.

NHC: The Government remain committed to raise the supply of homes to 300,000 a year on average by the mid-2020s.  The Chancellor talked about “an ambitious plan to tackle the UK’s housing challenge” and build the homes the country needs.  There were no new announcements on housing with a confirmation of funding agreements announced in the last budget including reference to a total of £31b used to support devolution and the Northern Powerhouse, City Deals and funding for local transport priorities.

The last budget also announced that local authorities would be able to charge a 100% council tax premium on empty properties. It is understood that this provision is yet to be enacted and no reference was made to this.  

A number of initiatives have come forward since the budget aimed at overcoming housing supply constraints – including, for example, a revised National Planning Policy Framework, currently out for consultation which includes a ‘presumption in favour of sustainable development’.  

Brexit

The Chancellor announced:

Over £1.5 billion had been allocated to departments and devolved administrations to prepare for Brexit in 2018-19.  It is part of the £3 billion to be spent over two years announced at autumn budget 2017.

NHC: More detail was expected on the uncertainty of Brexit and the impact on the economy. 

The looming impact of Brexit, particularly for the Northern regions is of great concern.  Economic analysis prepared by Whitehall officials for the Department for Exiting the EU (DexEU) concluded growth would decline after Brexit regardless of the terms of its departure from the EU.  According to regional forecasts, every area of the UK will suffer a decline in GDP. In the event of a no deal, the North East would take a 16% dip in economic growth, the North West a 12% dip and Yorkshire and Humber a 7% dip.

Impact analysis suggests the Government will need to borrow £120bn more over the next 15 years to make up the overall shortfall following Brexit.  When factoring in a £40bn in potential net gains from leaving the union – including £11bn in saved payments – this leaves a total cost of £80bn.

Improving Transport in English Cities

The Chancellor announced £1.7 billion at autumn budget 2017 for improving transport in English cities. Half of this was given to Combined Authorities with mayors. The government is now inviting bids from cities across England for the remaining £840 million.

Helping Households with the Cost of Living

The Chancellor said:

In April 2018 the National Living Wage will rise to £7.83, worth £600 extra a year for a full-time worker. National Minimum Wage rates for under 25s and apprentices will also rise. The tax-free personal allowance will rise to £11,850 from April 2018. This means that in 2018-19, a typical taxpayer will pay £1,075 less income tax than in 2010-11.

NHC: Although the Chancellor announced that the economy is in better shape than expected, there are still concerns for household living standards, despite the short-term picture of improvement.

Some changes are still due to be implemented over the coming weeks following the spring statement. About 11 million families will experience the impact of a freeze on benefits from 9th April, although some 1.5 million workers will also see a 4.4% pay rise when the national living wage increases to £7.83 on 1 April.

Estimates reveal that a couple with two children will be set to lose £315 on average, while overall benefit changes coming into effect are set to result in an average £135 income loss for the poorest third of households. The richest third of households are largely unaffected by the changes.

Help for Businesses

At autumn budget 2017 the Chancellor announced that business rates revaluations will take place every three years, rather than every five years, following the next revaluation. This makes bills more accurately reflect the current rental value of properties.  The spring statement confirmed that the next revaluation, currently due in 2022, will be brought forward to 2021. This will mean businesses can benefit from the change to three-year revaluations earlier, with the first taking place in 2024. He also said he would set out to tackle the “scourge of late payments” for businesses.

Improving the UK’s digital connectivity

In the Autumn budget 2017 the Chancellor launched a £190 million Challenge Fund to help roll out full-fibre to local areas – providing the fastest, most reliable broadband to more homes and businesses. spring statement 2018 allocates the first wave of funding, providing over £95 million for 13 areas across the UK.

The Government is inviting views on future changes to the tax system

Reducing single-use plastic waste through the tax system

The government will take further action on the use of disposable plastics like coffee cups, plastic cutlery and foam trays, and is seeking views on how best to use the tax system to encourage the responsible use of plastic.  Some of the money raised from any tax changes will be used to encourage the creation of new, greener products and services. In addition, £20 million from existing budgets will be given to businesses and universities to research ways to reduce the impact of plastics on the environment.

Making sure multinational digital businesses pay a fair share of tax

Digital businesses create value in a unique way, relying on the participation and engagement of their users. This is not always reflected in where such multinational businesses pay tax on their profits.  The government has set out its thinking on how the tax system can change to give a fair result for digital businesses.

Seeking views on the role of cash in the new economy

Digital technology has changed the way people shop, sell, and save. While cash will continue to be an important method of payment, more people are moving towards digital payments every year.  The government is seeking views on what more it can do to:

  • support people and businesses who use digital payments
  • ensure that those who need to are able to pay with cash
  • prevent the use of cash to evade tax and launder money

Supporting people to get the skills they need

Improving people’s skills benefits both individuals and the wider economy. To support upskilling and retraining, the government is seeking views on extending the current tax relief to support self-employed people and employees when they fund their own training.

Response from the NHC

There was very little that was new for housing in the statement, and no mention of the Northern regions other than one reference to the Northern Powerhouse. This led to accusations from the Opposition of a London-centric approach to housing supply and ignoring the regions.

The emphasis on a balanced approach and rebuilding public finances for future generations set the tone for the spring statement which rejected outright more spending at this time.  There will be a spending review in 2019 leading the way to setting what he described as a clear path for 2020. 

On housing, we are still waiting for the Government to come forward with a Social Housing Green Paper and to have a full debate on housing policy.  We believe the sector needs a fully coordinated response which provides Council’s with the financial flexibilities to build new homes of all tenures, allows them to bring land into use more quickly and gain earlier profits from it and connects areas where jobs are created to ambitions for housing supply.   The NHC will continue to work towards a coordinated policy to create a national holistic housing framework covering housing renewal, affordability, welfare, home-ownership, decent standards, integration of public funding and co-ordination in delivery at local and regional levels.

The Chancellor resisted calls from other departments and from the Opposition to use extra cash from tax receipts to ease the spending squeeze which is pushing the public sector to the limit of being able to deliver services, arguing for more stability.  The Chancellor made it clear that the positive forecast needs to be maintained for longer to reduce the deficit and the national debt.

There remain long-term challenges for the public sector in being part of the solution on the housing crisis.  Recent funding support for local government in recent years has been mainly for adult social care. Uncertainty remains over the long-term financial plan for the sector.

Despite greater freedoms to increase council tax bills and one-off short-term funds from government, local authorities are struggling to juggle ever-increasing responsibilities and cost pressures against severe cuts to their budgets – in excess of 40% since the austerity programme started in 2010.  Nearly all local authorities in England are set to raise council tax and service charges amid concerns for their financial stability.

The result of this is continuing pressure on housing and homelessness services at a time when considerable additional responsibility has been given to local authorities.  But as both the Chancellor and the Prime Minister agreed that the Spring Statement should be used to stress the “virtue” of economic responsibility, announcements of new spending commitments to come in the autumn were not forthcoming.

While the Chancellor remained firmly committed to a short Spring Statement, and delivered just that, the challenges and uncertainties ahead, including the uncertainty of Brexit and the implications for the housing sector and to household finances, are likely to remain long lasting.