Last edited 25 Nov 2015

Spending Review and Autumn Statement 2015

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Rebekah Paczec from Snapdragon Consulting gives us her unique take on the spending review and what it means for the construction industry.


Osborne decided to return to the playground as he talked about moving Britain to being a ‘higher wage and lower welfare’ economy, claiming that – “This is a BIG spending review by a government that does BIG things. And my dad is better than your dad” Okay, so I made the last sentence up but it isn’t that far off. Somebody clearly wrote in some jokes for Osborne and after each one must have written ‘pause for effect’.

The pesky issue of international terrorism put something of a spanner in the works of spending, as Osborne had to pretend that the Government had factored in the need for our armed forces to be battle ready. Perhaps next time he will announce plans to call up the scouts as they are generally well known for always being prepared. The Government is expanding the national citizens service for teenagers, is this a step on the road to national service??! In light of recent events, Osborne announced (to noisy cheers) that there would be no cuts to the police budget at all.

Aside from this “clear and present danger” of terrorism (this was David Cameron thinking that he was Harrison Ford), infrastructure and housing are the headlines for the day. Note that the tone has changed from discussion of a ‘housing crisis’ to a ‘crisis in home ownership’ – so, if you are a renter and have no possibility of owning a home at any time in the future then this is not a Spending Review for you. But if you are an aspiring home owner then the mirage of ownership may become that bit more real.

However, it is all fine as we are clearly entering a golden age of growth, infrastructure development, housbeuilding and social services with all economic forecasts increasing and a surplus forecast for 2019-20. I always wonder why people get so excited by these figures – do they ever actually transpire to be true? Obviously this surplus is nicely timed with the next General Election when Osborne may be the PM in waiting, but I’m sure that won’t have any impact on his decision-making processes…

The big news of the day was the completed climb down on tax credits which, thanks to the miraculous improvement in the public finances Osborne announced that he was scrapping the proposed changes to tax credits and the Universal Credit taper rate. This was a stunning u-turn which kept both benches rollicking in the aisles for a considerable length of time. Let’s hope that none of them ever go to an actual stand-up show, they may not be able to cope with such hilarity.


Devolution

It's a devolution revolution. Building the Northern Powerhouse with £13bn on transport over the Parliament (not a new announcement). We do rather get the impression that Osborne would potentially have liked to see Scotland vote for independence, just so he could point the finger when oil revenues collapsed leading to a collapse in Scottish finances.

As a means of spreading economic power and wealth across the nation there will be lots of new elected mayors to blame any regional failures on and to claim credit when things go well. However, these elected Mayors will now be central to the review of business rates.

In a big announcement for local authority funding it came as no surprise that central funding will continue to be phased out. However, this will be balanced by giving councils the power to cut rates and elected mayors the power to raise business rates provided they are set aside for specific business related issues. This provides an incentive for more areas to go for directly elected Mayors.

Added to this, Councils are to be able to spend 100% of receipts of the disposal of property assets to improve services. This may well provide a good incentive for local authorities to actually assess property assets and get a move on with putting in place a structure for disposal where relevant.

There will also be a social care precept of up to 2% to be levelled on Council Tax to be ring-fenced exclusively for adult social care.

Whether combined this will be actually compensate for the loss of central funding is to be debated. Perhaps David Cameron can write to his local authority demanding a reversal of those cuts now.


Infrastructure and Development

As expected, Osborne announced major investment in new roads, railways and flood defences. Britain is the best place in the world to invest in infrastructure apparently – but then most countries don’t sell off their nuclear assets to a Communist dictatorship with a dubious record on espionage and human rights.

So, whilst all of our infrastructure requirements can go ahead, we will probably have no control over how they are operated and any cost implications in the future. Although, there will be a new shale wealth fund to persuade local communities of the benefits of shale gas, so that’s okay then.

27 new enterprise zones have been announced, to provide an incentive to shift development from one area to another – government doesn’t ever seem to realise that enterprise zones primarily just move investment around rather than creating new investment.


Housing and Home Ownership

Boldly going where no one has gone before, Osborne has doubled the housing budget to £2bn per year, delivering affordable homes mainly it would seem to buy rather than to rent. Around half will be starter homes sold at 20% off market value and many more will be shared ownership with massively reduced restrictions. As part of this, the right to buy is extended to Housing Association tenants with effect from midnight for tenants of five Housing Associations.

The jiggling of the figures comes partly by capping housing benefit and withdrawing benefit from those who have been out of the country for more than a month. More money will be raised by an increase in stamp duty of 3% on buy-to-let and second homes to raise £1bn by 2021 with money reinvested in local communities where people are being priced out of home ownership and capital Gains Tax to be paid within 30 days of the disposal of any property.

Further measures include re-designating unused commercial land for starter homers and delivering 100,600 homes on public land by selling off £4.5bn of public land and property and 'implementing a commercial approach to land and property management' - I can see that going down well with some local authorities and government departments. Of course, delivering at Ebbsfleet is central but it has been for about 20 years so let’s not celebrate that one just yet.

Very excitingly for the housebuilding industry, as well as throwing money at starter homes and right to buy, Osborne announced that underused court houses will be closed. Along with old Victorian prisons, starting with Holloway. And so the gun fires on the race to buy Holloway prison and turn it into flats, surely a phenomenal opportunity.

In London, help-to-buy will be overhauled with interest free loans of up to 40% of the value of the property – with a shout out for Zac Goldsmith and his Mayoral campaign. Not sure he really was the driving force behind this but his campaign could really do with a boost.


Business

The overall review of business rates will report at the Budget but in the interim, small business rate relief is extended for another year.

Industrial strategy continues with increasing investment over next 10 years. 17% wiped off the BIS budget by replacing grants with loans. Big cuts to departmental budgets overall with increasing shrinkage of the state.

Pushing ahead with the apprenticeship programme, Osborne announced a plan to see 3 million apprentices by 2020 with increased quality and increased funding. Large businesses will face a levy from April 2017 set at the rate of 0.5% of the employers wage bill.


And the rest…

Increase in state pension by £3.35 per week. Progressive government in action… Savings credit frozen at the current level where income is unchanged.

There will be a 29% increase in the budget for UK sports – presumably not to be spent on drugs.

£15m a year raised from tampon tax to be used to support women’s health and domestic violence support charities. That should hopefully end the rather bizarre and unpleasant spate of women choosing to ‘free bleed’ outside Parliament.

Osborne was very pleased to be seen to be delivering social justice because we are all in this together. He got a marvellous reception - obviously not from John McDonnell who presented him with a copy of Mao's Communist handbook - but we will see what the economic analysts make of it over the next few days.


Click here to see the Spending Review and Autumn Statement in full.