The Chancellor’s pledge to build affordable housing has today been welcomed by the multinational, but it also warns that challenges lie ahead for the construction sector.
Dom McAra, EY director specialising in construction products, said the Chancellor’s commitment to building 400,000 affordable homes across the UK “will provide a welcome boost to companies operating in the sector and add to the feel good factor currently being felt on the back of a number of IPOs and increased interest from a range of investors.
“However, in meeting this rise in demand there will be challenges that many companies will face such as the battle for skilled labour and capacity constraints around materials supply.
“Another consideration will be the terms on which developers will be offered incentives to build these homes particularly given the cost pressures brought about by the ‘battle for skills’.”
Caroline Artis, London senior partner at EY, added her take on the issue, welcoming the “significant response by the Chancellor to the challenges of the London housing market, and in particular the recent polls which revealed that housing is now restricting businesses ability to hire and grow in the capital.
Significant pledges on starter homes, including £4bn to help with shared ownership and additional money for ‘cheap rent’ homes to be occupied while saving for a deposit, “reflect the size of the issue,” she added.
“In addition, the new 3% surcharge on stamp duty for buy to let homes could increase the supply for first time buyers if BTL buyers are discouraged to invest,” Ms Artis concluded.
Another policy announcement made today which will affect the property sector was changing the date on which property owners must pay their tax. The measure reduces the payment window for Capital Gains Tax due on residential property from 10-22 months to 30 days after the transaction and will be effective from April 2019.
David Kilshaw tax partner at EY praised the move saying it demonstrates “strong commercial sense. The sooner they can collect CGT, the sooner they can put the money to use.”
Tax
As well as the high profile charity announcements that were made, the Chancellor also removed charities from punitive tax rules designed to prevent individuals and trustees from extracting money from private companies by way of loan.
David Kilshaw tax partner at EY said: “Although largely a technical change, in the season of giving, charities will welcome this relaxation in the rules which tax advisers have been asking for since 2013. The devil will of course be in the detail and we will need to look carefully at the new rules to be sure that no charities remain trapped in a net that was never designed to catch them.”
Analysing the fiscal implications more generally, Chris Sanger, Head of tax policy at EY, said “the sky blue document heralded in almost £21bn in tax rises over the six year period, of which the Apprenticeship Levy is meant to raise over half. The rest will come from tax avoidance, evasion, and planning as well as those who seem to be portrayed as the new villains of the day, those who have buy-to-let or second properties.”
“With limited detail announced today, we have to wait two weeks to Legislation Day on 9 December when we see the draft Finance Bill.”
Mr Sanger also noted that there would also be an acceleration in tax payments.
“First we have Capital Gains Tax for residential property (effectively buy-to-lets and second homes), who now have to pay almost 21 months earlier and now the Government is looking at shortening the window for paying stamp duty from 30 days to 14. Following on from the Summer Budget’s advance of corporation tax, the Chancellor seems to have found a seam of gold that he wants to continue to develop,” he said.
Summarising the effects, Martin Beck, senior economic advisor to the EY ITEM Club said: “Overall, Mr Osborne’s announcements will deliver a small net fiscal boost to the economy next year of around £6bn, or less than 0.3% of GDP, mainly through the preservation of tax credits.
“But this largely disappears over successive years as the effects of tax rises (a new apprenticeship levy and bigger rises in council tax) kick in. And while we heard little about it today, the economy still faces the drag from a major fiscal squeeze over the next four years.”
Pensions
In a boost for pensioners Osborne pledged to raise the flat-rate state pension to £155.65 a week, but made no changes to private pensions rules.
For Jason Whyte, Director in EY’s Insurance practice, “no news is sort-of good news for the Life & Pensions industry,” as it is “still dealing with the consequences of earlier interventions.”
“The new Pensions Freedoms continue to reshape the retirement industry, and the implementation of the tax relief taper next April is likely to create a lot of volatility in pension premium income as high-earners with variable pay try to guess what their annual limit will be by the end of the tax year,” he added.
Energy
Noting the announcement to create a Shale Wealth Fund to support the creation of a shale gas industry, Chris Lewis, partner in EY’s energy team, said he expected the move to “accelerate investment in this sector.”
“One of the biggest challenges the sector faces right now is funding projects as a result of drawn out planning applications and the low current gas price. This long planning is making investors reluctant to hand over cash as under the current system projects are uneconomical.
“The creation of a SWF helps garner community engagement because the communities will directly benefit from the projects that are happening in their own back yard. It will also speed up and streamline the planning process by connecting the investors with the local communities and planning decision makers,” he said.
Transport
Nathan Marsh, Northern Infrastructure Leader at EY, questioned how transport infrastructure associated with the ‘Northern Powerhouse,’ would be funded.
“By boosting the Department of Transport’s budget by 50%, the Chancellor has freed up some capital to help address one of his biggest challenges for the ‘Northern Powerhouse’; directly financing its infrastructure, such as HS2 and Northern rail electrification. Many of the key projects in the North will fall under the £13bn earmarked specifically for Northern transport over this parliament, which was first announced in August.
“While clear funding for the Transport for the North body will help to drive plans closer to construction, it remains to be seen how the Government will raise even more capital for Northern infrastructure through alternative, innovative means. More sources of finance are likely to be needed to make these plans a reality, given their ambitious scale and timeframes.”