February 2020
By Paresh Raja CEO at Market Financial Solutions
The significance of the Government’s annual fiscal statement – the Budget – is a matter for debate.
For some, it is a standout event in the calendar; a chance to gain some genuine insight into the Government’s plans for the UK economy. For others, however, it is a speech filled with clichés, rhetoric and promises that are not kept.
Whichever side of this divide one falls on, the upcoming Spring Budget on 11th March is particularly hard to overlook.
After 2019’s iteration of the Chancellor’s announcement was cancelled due to the snap General Election, we have not seen the iconic red briefcase make an outing for almost 18 months.
What’s more, the 2020 Budget is the first for the new Conservative majority government. It is the first under Boris Johnson as Prime Minister and Sajid Javid as Chancellor. And it is the first major government announcement to take place following the passing of the Brexit deadline on 31st January. All these things point towards the speech taking on added importance.
So, that is the case for not dismissing the Budget as an insignificant event. Yet the more pertinent questions are these: what are we likely to see the Chancellor announce? And, moreover, what reforms should the Government focus on when it comes to fuelling the growth of the UK property sector?
Stamp duty reform
It looks highly likely that the Spring Budget will be used to announce a stamp duty surcharge for overseas buyers. In short, non-UK residents looking to purchase property in the UK will be required to pay an additional 3% stamp duty.
Will this have a significant impact on foreign investment into UK real estate? I do not think so. After all, the UK will still have lower property taxes than many other global hotspots for real estate investment, including Hong Kong, Singapore, Berlin and Sydney.
There could be other stamp duty changes afoot, though. For example, there have been suggestions that the Government will revise the brackets at which different rates are paid, and it might even be abolished entirely for first-time buyers.
Ultimately, the Government must focus on ways to incentivise house-buying while still boosting the public coffers through strong tax receipts in the property space. To do so, ensuring there is greater activity is more beneficial than hiking taxes and driving down the number of purchases.
Spending commitments and housebuilding
I can say with almost complete confidence that the Chancellor will spend a healthy portion of his speech discussing the need to build more homes. Indeed, successive governments have stressed that addressing the housing crisis is high on their agenda, with increasing the rate of new-build construction often the primary focus.
The new government has already stated that it aims to have a million new homes built during this parliament (by 2025). However, the more cynical reader will recognise that we have heard such promises for years now, with targets like this consistently missed. I am preparing to take whatever the Government says in this regard with a pinch of salt.
Perhaps of greater interest is what Sajid Javid will say concerning investment into both physical and digital infrastructure. In particular, will the government plough money into improving transport connections and superfast broadband access across the North of England?
The Conservatives won an overwhelming majority in December’s election thanks largely to the fact that the party stole traditional Labour seats across the North. In the aftermath of the vote, Boris Johnson recognised that the people in these areas had “leant him their vote” and that he must now repay the faith they have shown in him.
Will he do that? And will the Chancellor demonstrate a willingness to invest funds into reigniting the Northern Powerhouse vision?
For me, these are interesting questions – and if the answer is yes, then the property markets across the North of England could see accelerated growth in both house prices and rents over the coming years.