January 26, 2021

The Autumn Budget – The UK construction sector reacts…

The construction sector is still digesting the possible implications of Phillip Hammond’s Autumn Budget but here we get the initial reactions of a number of leading industry figures.

SM Lodha, Chairman of Western Thermal Group:

“The construction industry has weathered much uncertainty since the economic crash of 2008 and today’s announcement that the era of austerity is over will come as a welcome relief to the industry, particularly as construction braces itself for a tricky post-Brexit period. Without austerity, businesses can begin to recover and thrive, which will help the industry become a key player again in the UK economy.

“In the early stages of austerity there was no doubt that construction suffered and many companies collapsed as a result. Now the fiscal restrictions of austerity are to be removed, construction now has an opportunity to flourish and attract much-needed workers, investors, products and projects which have been under immense pressure since Brexit was announced. Although Brexit is still cause for concern, the future is now looking somewhat brighter for the industry.”

Richard Godmon, Menzies LLP:

“Contractors who have only been taking work from businesses in the private sector since April 2017, when IR35 changes first hit the public sector, must now think again. Some may even look overseas for employment, in territories where tax conditions are more favourable.

“The changes, due to take effect in April 2020, mean contractors will no longer be responsible for deciding if IR35 applies to them and this responsibility will shift from their personal service company (PSC) to the end user of their services.

“Deciding whether IR35 applies or not is not an exact science however, so it is important to take care. If businesses want to continue to have access to contractors because of the flexible terms they offer, they will have to make sure their working arrangements are fully consistent with the fact that they are self-employed.

“For contractors, there is also a risk that a change of their IR35 status could trigger HMRC enquiries into their previous arrangements.

“Good news for SME housebuilders, because been overlooked and this is a specific measure for them – difficult to compete with large scale and secure the upfront finance needed to get schemes underway. More opportunities potentially are more development opportunities due to easier change of use.”

Brian Berry, Chief Executive of the FMB:

“It is important that the Chancellor has recognised the importance of investing in our high streets. He has announced a £675m Future High Streets Fund to allow councils to rejuvenate town centres. It is estimated that as many as 300,000 to 400,000 new homes alone could be created by making use of empty spaces above shops on our high streets. This is space just waiting to be turned into residential accommodation. There is a pressing need to re-invent many of our town centres in light of changing patterns of retail and leisure. The Government should be applauded for its ambition to safeguard the life of our high streets.

“We would urge councils to take this opportunity to look again at how they can work with local builders and developers to make better use of existing town centre building, and facilitate the development of wasted space above shops. A recent report titled Homes on our High Streets from the FMB puts councils at the heart of the solution and suggests some practical ways for them to facilitate the development of wasted space above shops. Retail will always be an important element of vibrant high streets, but there is plenty we can do on a small scale to help convert unused and under-used space in to attractive residential units. This will both boost the supply of new homes and help breathe new life back into our high streets. What we must avoid is perfectly good space lying empty and achieving nothing in terms of boosting the local economy or housing individuals.

“We are also pleased that the Chancellor has today announced £1bn to guarantee capacity to support lending to the SME housebuilding sector. This will be implemented by the British Business Bank, working with Homes England. Many small-scale house builders continue to experience real difficulty in accessing the finance they need to build homes, and it is often the smallest scale builders that experience the greatest problems. This new funding will help to speed up the delivery of homes and lead to a more diverse and resilient housing supply.”

Steve Radley, Policy Director at the Construction Industry Training Board (CITB):

“Today the Chancellor referenced the Build Out Review in the Budget. This report confirms that we need more skilled, work-ready bricklayers to build the homes the country needs. CITB will work closely with government and industry on new training approaches to get more bricklayers working in homebuilding, including by delivering the on-site learnings hubs created by the Construction Skills Fund.

“But this isn’t just about filling up the funnel of those being trained. We need to work smarter through embracing offsite construction. And we need to help more full time FE learners get jobs by improving their employability skills. We are working with a range of industry players to develop a package of training to deliver this.”

Peter Hogg, Director of UK Cities for Arcadis:

“The Chancellor was keen to share the love around the UK in today’s budget. Whilst he may have come to bury one of his predecessor’s pet policy initiatives – austerity, he went out of his way to praise the other – devolution. No part of the Union was denied Mr Hammond’s generosity, with devo deals for Tayside, Belfast and Mid Wales, whilst Northern Powerhouse Rail, the Oxford-Cambridge rail link and the devolved authorities all got additional funding or extended funding windows. This, linked to pledges on the Transforming Cities Fund, Future Mobility Zones, infrastructure, health, schools and defence, adds up to a very regionally focused budget.

“This is good news for the UK’s overall competitiveness at a critical time and will helpfully encourage confidence and investability. It is also reassuring to see the Chancellor recognise the need to enable growth in our cities and the corridors that connect them. It is disappointing – if understandable – to see limited funding for London. The HIF funding (Housing Infrastructure Fund) of the DLR extension and inclusion of Lower Thames Crossing in the Roads Investment Strategy 2 settlement are welcome, but it feels like a missed opportunity to see nothing on Crossrail 2, The Bakerloo Line Extension or indeed the regeneration of Thames Gateway.”

Björn Conway, CEO of ilke Homes:

“We welcome the Government’s announcement that a further £500m is being allocated to the Housing Infrastructure Fund, in order to deliver an additional 650,000 homes for UK families. To unlock the necessary land to meet the growing housing demand, it’s imperative that we make the most of all available land assets despite the challenges and site constraints. Modular housing is ideal for compromised sites as it can be delivered on underutilised infill sites, supporting placemaking in towns and cities and helping the industry to hit housing targets.

“It’s also reassuring to hear the news that the Government will be working with Councils to redevelop disused areas of the high street as part of the Future High Street Fund, turning retail property into residential. Building onto the rooftops of existing buildings to maximise space or re-developing existing buildings provides a creative housing solution that can contribute to the delivery of much-needed new homes.

“Modular housing can and should be used alongside traditional housing to address the chronic shortage of homes in this country.”

Helen Hewitt, CEO, BWF:

“We were pleased to see some positive measures which will help smaller businesses offer apprenticeships. The £695m initiative to reduce the cost of apprenticeship training for small businesses will halve the amount they have to contribute from 10% to 5%. UK’s SMEs are pivotal to the success of the apprenticeship scheme and this should go some way to resolving the growing skills gap in our sector and to help boost productivity.

“Delivering a solution to end the UK’s housing crisis has long been on the political agenda and so we welcomed the Chancellor’s promise of a further £500m for the housing infrastructure fund to help build a further 650,000 homes.  In addition, he pointed to strategic partnerships with nine housing associations to “deliver 13,000 homes across England, up to £1bn pounds of British business bank guarantees, to support the revival of SME house builders.” On the surface, tapping into the potential of SME house builders to increase housing stock is a smart move.  However, as we pointed out following the Spring statement, a successful housing strategy is not just about increasing supply.  The fund now stands at £5.5bn, yet there was still no mention of an allocation to ensure that essential fire safety works required in existing social houses are paid for. So, the question still remains as to who will foot the bill.  

“In more good news for house building, the importance of investing in our high streets with a £675m Future High Streets Fund to allow councils to rejuvenate town centres could lead to benefits for members. With the Federation of Master Builders estimating last year that as many as 300,000 to 400,000 new homes alone could be created by making use of empty spaces above shops on our high streets, the Future High Streets Fund could be a further boost for residential accommodation.

“The Chancellor pledged to publish a full response into the review of build out rates by Sir Oliver Letwin which concluded that large housebuilders are not engaged in ‘systematic speculative land banking’.  We welcome any move to reduce bureaucracy in the planning system and look forward to the Governments response to the recommendations.

“The collapse of Carillion left many wondering what the impact on subcontractors would be and called for a review of public sector construction contracts.  Some clarity came yesterday when it was announced that public private partnerships will soon be no more with PFI and PF2 contracts abolished.  Existing contracts under the PFI and PF2 system will be honoured but no new ones will be signed and a “centre of excellence” will be set up to manage the remaining contracts, worth approximately £200bn. However, more clarity is still required around how a new model will work to ensure that the infrastructure this country requires continues to be built.”

Neil Carberry, Chief Executive of The Recruitment and Employment Confederation (REC):

“Businesses across the country will welcome the generally pro-enterprise tone taken by the Chancellor this afternoon. Today’s cut in small business rates, the delay IR35 taxation changes for private sector contractors and further changes in how the Apprenticeship Levy works are all positive steps.

“The REC asked the Chancellor not to implement changes in taxation for private sector contractors in 2019. We’re glad he listened. This is a big win for businesses, allowing industry to maintain access to skills and expertise at short notice.  But today’s delay must now be used as an opportunity to get any future reform right, not just a delay.

“Recruitment professionals have said the implementation of IR35 in the public sector have not gone as planned – and has fuelled tax avoidance by the unscrupulous, so now is a good time to pause for thought.

“The recognition that the Apprenticeship Levy must be more flexible and work better for employers is good news. Reducing the contribution levels for SMEs will help, but it’s disappointing that we still lack the flexibility needed to ensure training is available for temporary staff. All workers should have opportunities to progress, irrespective of what type of contract they are on. We want to work with government to ensure that the levy works better for employers and for all workers who want to upskill.”

Faith Kitchen, Heritage Director at Ecclesiastical:

“We’re disappointed the government hasn’t considered reducing VAT on repairs and approved alterations to listed buildings in today’s Budget.

“We strongly support organisations such as the Heritage Alliance and the Listed Property Owners’ Club which have argued the VAT on repairs gives an unfair tax advantage to developers and penalises owners of historic buildings, many of whom are private individuals, who are facing higher repair and maintenance costs.

“As the UK’s leading insurer of Grade I listed properties and with over 130 years’ experience we are passionate about protecting the country’s historic and iconic buildings and structures. Reducing VAT is vital to help organisations and owners of listed properties protect such an important part of the nation’s heritage.

“We need to do more to support the custodians of Britain’s heritage properties, and while unfortunately this hasn’t been addressed in today’s Budget, we urge the government to reconsider reducing VAT to 5% on repairs and approved alterations to listed buildings.”

Melanie Leech, Chief Executive of the British Property Federation:

“It is good to see the Chancellor acknowledge that many small retailers are struggling against powerful headwinds and provide additional relief from business rates. However, today’s announcement does not change the fact that at almost 50 per cent, the rate of business rates is simply too high for occupiers of all sorts. It is time to recognise that business rates are unsustainable in their current form and causing untold damage to our economy; time for a fundamental review.

“As the UK economy evolves, so must the tax system – and we welcome that the Government is taking steps to respond to this. However, this is not an alternative to much-needed support for our high streets, which still require urgent support in the form of fundamental business rates reform. They will also require local plans that can drive adaptation, incentives to encourage town centre investment and more flexibility around change of use and we are pleased that the Chancellor recognised this.

“The Government should be careful in how it targets these measures that will be consulted upon in early 2019, as an additional surcharge on large-scale overseas investors could put investment in housing delivery at risk. We estimate that 22,000 build-to-rent homes, 15 per cent of the sector’s pipeline, are reliant on funding from overseas investors such as pension funds. Making it more expensive for these institutions to invest won’t help deliver these much-needed homes.

“A new tax relief for commercial property owners is a real surprise. This move brings the UK more closely in line with the many other countries that already provide tax relief for the cost of building commercial property, making the UK more attractive to invest in. It makes investing in new and refurbished buildings cheaper from a tax perspective, and is a welcome move.

“The announcement of additional investment into a Future High Streets Fund is welcome, and when combining with the proposed planning reform and a High Streets Task Force has real potential to be a game changer for urban centres facing a change in the way that people shop, how they spend their leisure time, and where they want to live.

“However, it’s crucial not to forget some of the other knotty issues that property owners have to grapple with. We support the proper use of CVAs to help businesses in genuine distress and are keen that CVAs continue to achieve these objectives. There is, however, increasing frustration about the practice of some recent CVAs. The BPF has called on Government to conduct an independent urgent review of CVAs.

“We welcome the Government’s sensible, measured approach to land value uplift. In a noisy environment with multiple views on land value capture being aired, it is pleasing to see such a considered response providing more certainty for developers and local authorities, and enabling more infrastructure provision for local communities.

“We welcome Sir Oliver Letwin’s recommendations, and in particular, his focus on the need for a more diverse, multi-tenure approach to large sites. The benefits will be three-fold, both helping to address market absorption rates and deliver homes quicker and help to create more sustainable places home to different demographics, socio-economic backgrounds, fostering a greater sense of community. In addition, adding a tenure such as build to rent to a development site brings with it an investor with a long term interest.

“The Review also recognised the skills crisis in which we find ourselves. Time is of the essence, and whilst we applaud the Government’s intention to take a few months to consider the response to the wider Review, this is an area in which we need urgent action to sure that we can hit the 300,000 target.”

Simon Rawlinson, Head of Strategic Research and Insight for Arcadis:

“The end to the use of the PFI for social and economic infrastructure is good politics as no deal has been signed since 2016.  However, finding the finance to plug the gaps left by the EIB – which the budget does not address – along with public sector expertise to deliver publicly funded programmes, may prove to be longer-term liabilities. Meanwhile, given the raft of announcements in connection with future capital expenditure on housing, roads and the high street, the lack of an announcement on the progress of the construction sector deal points to the need for greater coordination between Government Departments.”

John Newcomb, Chief Executive of the BMF:

“The BMF is delighted that the Chancellor has agreed with our proposals for regional thresholds to be introduced to the Help to Buy scheme.

“Help to Buy has helped to drive forward the housing market whilst enabling many people to purchase their first home. Adding this new regional element will provide more targeting to ensure Help to Buy helps those who needs it most. The Chancellor’s plans will also stimulate local economies and compliment further proposals to boost the prosperity of SME businesses, such as builders merchants.

“However, we are disappointed that the Government has decided to bring the curtain down on Help to Buy in 2023. Over the coming years, we will be campaigning for a set of other measures to be introduced to further support housebuilding, as well as other construction projects, in all areas of the country.

“Removing the cap on what local authorities can borrow against their Housing Revenue Account assets is very good news.

“A long-held BMF belief is for ministers to use all available levers to ‘Change the Ratio’ between the small number of volume house-builders and the rest to foster a diverse, functioning market for building. 

“This is why we are pleased to see the Treasury liberating both local authorities and SME private builders that, for too long, have been under-used players in housing provision.”

Paul Butterworth, Partner at Ashfords LLP Real Estate Team:

“The problems in housing do not merely mean that someone doesn’t have a roof over their head, but it is vital that other areas which affect those in need, such as mental health provision are also recognised as part of the problem. Therefore, the Chancellor’s specific mention of mental health provision being part of the NHS 10-year plan and the expansion of children’s social care have to be good news in providing funding for support services.  There will always be arguments as to whether this is new money or simply filling a hole which has arisen following austerity. It is at least a recognition of the need for a joined up approach to the issues faced by those most in need.

“The £675m “Future High Streets Fund” mentions facilitation of redevelopment for under used commercial into residential property. This is likely to mean a change to allow for permitted development rights, rather like the policy of allowing conversion of offices to residential without the need for a specific planning consent.

“A further £500m for the Housing Infrastructure Fund again underlines the importance of housing and offsetting from developers the costs of infrastructure on major schemes to help unlock housing developments.

“The extension of SDLT exemption on shared ownership properties valued up to £500,000 purchasing a £300,000 share, sorts out an anomaly in the tax system whereby they were caught by an SDLT hit whereas buying 100 per cent didn’t give rise to this. It’s interesting that this is applied retrospectively so is this going to be claimed via the individual tax code.

“All in all a reasonably positive housing budget, not necessarily adding anything new but follows the trend from previous budgets.”

Paresh Raja, CEO of Market Financial Solutions:

“At a time when demand for property is outpacing supply, there is limited time left for the Government to improve accessibility to housing. Unlike the Spring Statement earlier this year, some important announcements were made, including the commitment to build an additional 650,000 new homes. Unfortunately, there were no new reforms to creatively increase the amount of private investment into derelict homes that could be renovated and put back on the market. The country boasts some of the world’s most desirable real estate, which is why we should be encouraging both domestic and foreign investment into the property market. It is also questionable whether the Government will be able to deliver on its new-build targets given its past track record.

“It is easy to see why the Government keeps missing new-build targets: Housing Ministers are appointed and replaced at far too great a frequency. Since the Spring Statement we’ve seen a new MP enter the role, but how long will Kit Malthouse last? The Government must ensure there is strong, consistent policy in the property industry because it remains hard to pinpoint their long-term strategy at present.

“Theresa May confidently touted that austerity was over at the Conservative Party Conference. This was a bold statement to make and brought with it heightened expectations about the scope of reforms to be introduced by the 2018 Autumn Budget.

“While there were some important announcements to take note of, the Chancellor fell short of delivering the ‘austerity-ending’ budget people were expecting. This shouldn’t come as much of a surprise – the official date of Brexit is now just five months away, and while Number 10 has suggested that the UK’s eventual deal with EU will not affect today’s Budget announcement, one cannot help but be suspect. Ultimately, as expected, there remains a sense that we are going to have to tread water for a little big longer as we await the final Brexit outcome and the Government can then begin making more meaningful, far-reaching reforms.”

Philip Woolner, Joint Managing Partner at Cheffins:

“The country has not delivered on the numbers of affordable homes needed for decades and lifting the cap on money borrowed for council house building could be a significant game changer for the housing market. It could well have a bigger impact on the housing crisis than any other measures mentioned in this Budget or those previously. However, this needs to come conjointly with a raft of recruitment within local government. The biggest blockage on housing and infrastructure delivery continues to be at Local Authority level where a lack of resources consistently delays the approval of planning applications and without the planning approval, there is no point in the government releasing cash which then cannot be spent. Local Authorities haven’t built quality homes for years and this will not be a case of just turning on the tap and expecting housebuilding across the country. Rather Local Authorities will now be under serious pressure to deliver quality housing in the correct locations.

“The Chancellor’s announcement of additional funding for the Cambridge – Oxford rail network is welcomed in today’s Budget. There is ground to be made up here, particularly in the Oxford – Cambridge arc and this needs to be sped up for our home-grown industries to be taken seriously on a global stage. On a more local level, developing this area of the country will help to unlock industry in towns such as Bedford and Northampton which will benefit exponentially from improved access to Oxford and Cambridge. Cambridge has been one of the world’s biggest success stories, growing at a phenomenal rate and creating some of the world’s most incredible breakthroughs in science and technology and if we want our city to continue to prosper, we have to accelerate infrastructure and connections between these two important locations.”

Will Waller, Head of Market Intelligence for Arcadis:

“Noticeable by its absence in Hammond’s speech was any mention of the ‘Help to Buy’ Equity Loan Scheme.  But the housebuilding community won’t be disappointed. The red book heralds a new Help to Buy Equity Loan scheme that will run from April 2021 for two years to the tune of almost £9bn.  Even better, it also won’t be contingent on any site-specifics or new planning policy. This is a huge win for housebuilders in minimising uncertainty, particularly crucial as an average of 40 per cent of revenue of the top ten house builders is supported by the scheme and it has played a huge part in driving profitability in an increasingly challenging market.  Equally, it will allow more first time buyers to get on the ladder. That said, whilst this policy will provide renewed comfort and opportunity, the red book makes it clear that March 2023 will be the definite end to the scheme.  The big house builders will need to invest in evolving business and delivery models.”