Against the backdrop of a rise in the cost of living, a shortage in the supply chain across multiple sectors and concerns about COVID cases rising and what it would mean ahead of Christmas, Chancellor Rishi Sunak delivered his Autumn Budget last week. Alongside this, he also published the Treasury’s latest Spending Review, covering the Government’s spending plans up to 2024-25.
Sunak spends is way out of the pandemic
The Spending Review has probably garnered more attention than the Budget, such as the increase in departmental budgets across Government. The Office for Budget Responsibility (OBR) stated that is expects that GDP will return to pre-pandemic levels by the end of this year, with a 6% level of growth forecasted for 2022. The forecasted permanent scarring from the pandemic was also reduced from 3% to 2%, giving the Chancellor more wiggle room for investment.
Moving ahead, inflation will clearly be at the forefront of the Government’s mind, with the expectation that it will hit 4% in 2022. Much of the inflationary pressures are due to the challenges within the supply chain, however we would expect these to subside in due course.
Achieving the regional ripple effect
The Government’s mantra around ‘levelling up’ was finally fleshed out – with extra funding for local transport schemes across many of the UK’s major regions outside London. This is has been received has a welcome announcement by regional organisations and businesses as it can unlock the potential of many city centres. With improved local transport links, commuting will be made easier, helping to further promote office working in major towns. Although these schemes will not be completed for a number of years, it shows the direction of travel that the Government aims for.
Trying to fix a broken system
There were very few announcements that were pertinent to commercial real estate. Unfortunately, only sticking plasters were applied to the Business Rates system when much wider ranging changes were needed. A welcome move from the Government was the 2-year freeze on the rates multiplier that calculates costs, but this is only a short-term fix for businesses whose operational costs have piled up over the course of the pandemic.
The Treasury has announced that it will consult on the idea of an online sales tax (OST). This was buried within the Budget documents and not mentioned by the Chancellor in his speech. This may be a sign that the Government knows how difficult it will be to overhaul the Business Rates system. There was a commitment to modernise the business rates system, with more frequent re-evaluations every three years, but it is yet to be seen when this will take effect. Rates were discounted in England by 50% for one year for retail, hospitality and leisure occupiers, however.
With job vacancies running at close to a record high, the Government’s extension of the £3,000 apprenticeship hiring incentive to 31st January 2022 will help the next generation of workers learn the skillsets needed to thrive in a post-COVID economy. Sunak also confirmed the rise in the minimum wage for those aged over 23 to £9.50 per hour, up from £8.36. The apprentice rate will also rise from £4.30 per hour to £4.81.
The commentary in the run up to this Autumn Budget was that it was the Government’s opportunity to set out its stall on paying for the unprecedented support that it has given families and businesses during the pandemic, as well as reshaping the economy and country post-Brexit. Sunak’s commitment to maintaining and even increasing departmental spending throughout this Parliament was particularly surprising, given that he has branded himself as a ‘low tax Conservative’. However, as has gone before, the Budget did not give any answers to the key issues facing the commercial real estate sector. As we head towards what may be a difficult winter, it will be interesting to see what support, if any, is given to businesses in the event of the Government pulling the trigger and plunging the country into a Plan B scenario to tackle COVID-19 between now and the Spring.
In all, it was an unspectacular Budget for offices and the commercial real estate sector. Few answers were proposed to the challenges facing the sector, and on the most relevant topic – Business Rates – only sticking plasters were applied. Although the last 20 months has seen unprecedented Government support for businesses, the policies that will help the CRE sector have not been forthcoming. The question is: how long will it take?