The Chancellor has little to play with and lots to play for in his forthcoming Budget on 22 November 2017. According to both HSBC and the Financial Times (14 November) he has less than £0.6bn of available monies against his rule of maintaining a 2% Budget deficit. Set this against a backdrop of rising inflation, this year’s election and the stalling Brexit negotiations, and the Chancellor is in an unenviable position.
Yet a response has to be found to some major pressing issues, most notably the housing crisis. The shortage of housing has been an issue for some time, undoubtedly most acute in London, but has risen to be one of the main issues this year. It will therefore be no surprise if the budget will focus upon housing and increasing infrastructure expenditure. He may consider:
- reducing the level of stamp duty land tax (SDLT) payable by first time buyers;
- increasing the funding available to housing associations;
- concentrating on skills training for those within the construction industry
- further easing planning restrictions on brownfield land.
There has been some talk about “land-banking” and whether there should be a disincentive for holding land. The recent Budget in the Republic of Ireland introduced a development land tax levied on landowners who land-bank sites in an effort to stimulate the development of housing. The reality is undoubtedly more complicated as there are many other factors preventing development than merely the phasing of complex construction sites. There are significant obstacles involved in development such as obtaining finance, gaining vacant possession or satisfying ever-increasing legal and planning conditions laid down by local authorities.
In terms of specific measures, past experience has shown that reducing SDLT for first time buyers in isolation only fuels existing demand and so potentially increasing house prices further. Even if the exempt rate were to double from £125k to £250k, this would only produce a relatively modest saving of up to £2,500.
What is required is a new strategy involving the planning process, local authorities and housing associations. Such alternative policy measures could include easing planning restrictions or capital raising for housing associations by enabling them to benefit from the especially low interest rates payable through the Public Works Loan Board, as local authorities currently do.
Whatever the Chancellor announces in his forthcoming Budget, it would be wise to look beyond the headline statements for a strategic, cross-departmental approach to policy setting rather than merely adjusting certain financial criteria in isolation.