28 October, 2021

The Chancellor of the Exchequer, Rishi Sunak, published his Autumn Budget today. Unusually, this Budget was accompanied by the Treasury’s latest Spending Review, which covers spending plans for Government departments for the three years 2021-22 to 2024-25.

The Office for Budget Responsibility (OBR) GDP growth forecast of 6.5% in 2021 and 6.0% in 2022 brings OBR quite close to CBRE’s current forecast of 6.9% and 5.0% respectively. The difference between CBRE and OBR is due to uncertainty about the rate of falls in unemployment and the effect of a boost to public spending.

Inflation is also a hot topic. CBRE expects CPI inflation of 2.4% in 2021 and 3.7% in 2022 (annual average), which is broadly in line with today’s OBR forecast of 2.3% and 4.0%. Inflation pressures are significant due to supply chain challenges, some of which are caused by Brexit (not that the Chancellor owned up to that). These pressures will ease, but we expect continued temporary discomfort in specific sectors, including energy, transport and construction materials.

So much for the post-pandemic economy. But what about the policy announcements?

‘Levelling Up’ was a key Budget theme. Although there were £1.7bn of allocations from the new Levelling Up Fund, we’re still waiting for a serious policy statement from the Government as to what Levelling Up actually means. It risks becoming an even more ambiguous catchphrase as it gets applied not just to inter-regional disparities but to any sort of social disparity at all.

Levelling up, if it is a long-term ambition, is probably best defined technically as an increase in productivity growth in lagging regions compared to the national average. However, such a target is extremely challenging to achieve – which may explain why the Government has decided not to commit to it. We’ll need to await the promised Levelling Up White Paper before it’s clear what counts as success – although the Budget document already makes it clear that the Treasury is focusing on the drivers of productivity growth.

Turning to tax, the much-awaited but never quite arriving ‘fundamental review’ of business rates has been finally driven into the sand. As CBRE predicted in its recent report, this is an area where the Treasury would always have been reluctant to contemplate fundamental reform, and so it has proved.

However, the Treasury now says it will consult on the idea of an online sales tax (OST), which CBRE has previously flagged as the most-likely part-replacement for business rates. Although it is presented very cautiously, and wasn’t even mentioned in the Chancellor’s speech, this is probably the most significant property-related announcement in the entire Budget. The Treasury says that if introduced, the revenue from an OST would be used to reduce business rates for retailers, so it could have the ‘level playing field’ effect that high street retailers want.

The Budget also splurges another £900m on freezing rates bills next year, and £1.9bn on a 50% one-year discount for retail, hospitality and leisure occupiers, and it introduces some small but eye-catching new reliefs (despite the Treasury previously saying reliefs needed to be simplified). One shouldn’t look a gift horse in the mouth, but this is a clear and unfortunate continuation of the short-term tactics I first wrote about here. These tax cuts are significant but should be viewed in the context of the Treasury’s decision to maintain this £25bn tax base largely intact.

Unusually for a Budget, there are few housing announcements. The Budget re-announces £11.5bn of existing funding for affordable housing, re-announces £5bn of funds for cladding remediation, and re-announces the mortgage guarantee scheme for up to 95% loan-to-value mortgage. Amid all that re-announcing, it was difficult to notice the £1.8bn of new money within the housing department’s settlement for new initiatives to promote housing supply, though there is not much detail yet on how this money will be spent.

Similarly, planning reform is a Treasury favourite but also almost entirely missing from the Budget documents. There is a very welcome £65m for digitisation of planning services, but that’s it. CBRE expected that former Secretary of State Robert Jenrick would announce final adjustments to his White Paper proposals in September, but the recent reshuffle put paid to that. So we’re still waiting.

What conclusion can we draw? Admittedly, combining the Budget with a Spending Review meant that it was going to be dominated by spending announcements, but the decision on business rates, and the thinness of the housing and planning content, suggest that the Treasury may have gone cold on property-related structural reform.

But let’s hope this isn’t the start of a trend, because part of the answer to ‘levelling up’ productivity growth is likely to be found in that type of reform.

View CBRE’s latest full UK Economic Outlook (Q3 2021) here.