Budget 2021: What’s in it for real estate?

Stuart Tym, Claire Petricca‑Riding and Paul Henson consider the Chancellor’s Budget delivered on 3 March.

Energy 

The March Budget included initiatives designed to support the economy in the short and medium‑term as it looks to recover from the coronavirus pandemic.

The government’s commitment to the ‘green agenda’ and its 10‑point environmental plan was highlighted, particularly in the run‑up to the 26th UN Climate Change Conference of the Parties (COP26).  The new green savings account with a green gilt to fund renewable energy and clean transportation projects could certainly be a game‑changer.  It may lead to much more support for renewable energy, including onshore wind and hydrogen generators, and lead to cleaner transport, more electrical cars and cycling, along with the Sovereign Green Bond.

Competitions have also been set up to:

• deliver first‑of‑a‑kind long‑duration energy storage prototypes that will reduce the cost of net zero by storing excess low carbon energy over longer periods;
• identify ways to increase the production of green energy crops and forest products that can be used for energy; and
• develop floating offshore wind demonstrators and help support the government’s aim to generate enough electricity from offshore wind to power every home by 2030.

£68m, £4m and £20m have been allocated, respectively.  These funds need to be viewed in the context of the difficult political position between the ‘red wall’ MPs whose constituencies may benefit from the jobs created by these initiatives, and the resistance to wind power among the Conservative ‘Shire’ councillors who most feel the visual impact of these small power stations.

Green agenda – ‘Building Back Better’

There has also been much discussion regarding what it means to ‘Build Back Better’ – does this mean greener, or faster, or both? One thing is certain, however: we cannot ignore the climate crisis that is ever‑present and fast‑approaching.  To that extent, the ‘Build Back Better’ regime seeks to address some of those issues.

The new infrastructure bank based in Leeds is set to be a key driver in the renaissance of renewable energy and green infrastructure, both of which are much‑needed to meet the government’s ten pledges.  A lot of what is contained in the ten‑point plan is set out above, but the ‘Build Back Better’ document sets out further measures; for example, the Taskforce on Climate‑related Financial Disclosures providing for a mandatory reporting mechanism for financial institutions regarding climate change and the environment.  There is an £80m Green Recovery Challenge Fund which has started to bring some changes, and it is hoped that the UK will become a global investment destination though these methods, creating an extra 250,000 jobs in the process.

Housing/development

The government signalled a return to 5% deposit mortgages, with those loans backed by the government (at up to £600,000).  As encouraging as this is for those trying to get on the housing ladder, a tentative look back to the 2008 economic crash is needed.  While it’s positive for buyers now, the risk of prices being pushed up by increased lending power leading to negative equity in the future provides a real danger that generation rent will become generation buy, only to end up as generation debt.

For residential properties only, the nil rate (£500,000) SDLT band has been extended to 30 June with a ‘smoothing’ transition for the nil rate band at £250,000 until the end of September 2021.  Although more generous than expected, this still leaves a cliff‑edge for many buyers.  The property sector is already groaning under the pressure of the stamp duty holiday, which will only worsen as transactions pick up again, bolstered by this extension.

The government also announced new temporary increased reliefs for qualifying capital asset investments from 1 April 2021, up to and including 31 March 2023.  The enhanced capital allowances and 100% SDLT relief should provide a welcome boost to the property market for those who can take advantage of them.

High streets

The economy has shrunk by 10% in 2020.  The government announced over £1bn to help pubs, restaurants, hairdressers and shops reopen after a deeply challenging year.  They will be entitled to grants of up to £18,000 each, with approximately 700,000 businesses expected to be eligible for the money.  A further £56m Welcome Back Fund to help local authorities spruce up town centres and coastal towns, in a bid to increase local tourism over the summer, was then announced over the weekend of 20‑21 March.  While this will go some way to helping some of the smaller businesses reopen, a wider and more holistic package of support is still needed to help them deal with the new normal, where online may come to dominate.

There has also been a further extension to the business rates relief for retail, hospitality and leisure businesses.  100% relief will continue to the end of June, with a tapering off of up to 66% relief until the end of March 2022.  The relief, however, is capped at £2m for those businesses that were required to close in the third lockdown, and at £105,000 for all others.  These caps have led to claims by large multi‑site retailers that the relief will offer little real comfort to them.  The relief is also a short‑term measure and will not solve the long‑term concern that there needs to be a root‑and‑branch review of the system of business rates.  A major new tax aimed at online retailers who are fuelling the decline of the high street is being looked at, but decisions are unlikely until the autumn.

Challenges to businesses include pivoting to online sales, innovating how existing high street premises can be used to add value and continuing to interact with consumers in a safe but experiential way.  With our ever‑increasing reliance on online shopping, is the Saturday dash for the shops well and truly over? In an attempt to counteract this, will the

£830m Future High Streets Fund announced on Boxing Day go some way to addressing this, or is the answer in the Levelling Up Fund?

Levelling up in the regions

The regions received renewed priority in this Budget.  Eight new English freeports will be based at East Midlands Airport, Felixstowe & Harwich, the Humber, the Liverpool City Region, Plymouth, the Solent, the Thames and Teesside.  These will be special economic zones with different rules to make it easier and cheaper to do business, with a simpler planning regime also promised.  While much of the detail is still awaited, there is the feeling that freeport status will be different in a post‑Brexit world from what it was in the past.  The government has more latitude on offering tax breaks and subsidies, but whatever is done will still need to comply with the TCA agreement and WTO rules.  The new infrastructure bank based in Leeds (mentioned above) is fantastic news for the city and the wider Yorkshire and Humber region.  Together with the freeports announcement, there will be building blocks in place to deliver the much‑trailed levelling up agenda in the north, replacing funding previously obtained from the European Investment Bank.  This will close that funding gap and promises to support a positive post‑pandemic recovery that is green, deliverable, and sustainable.

A Levelling Up Fund was also announced to bring investment, trade, and most importantly, jobs, right across the country.  The fund will be available to communities in all UK nations, with up to £4.8bn available for local infrastructure across the UK (with a minimum of

£800m allocated to Scotland, Wales and Northern Ireland).  It is one of three new investment programmes highlighted to help support local economic growth; the other two being the UK Community Renewal Fund and the Community Ownership Fund.  Details on these funds are below:

Levelling Up Fund

The £4.8bn Levelling Up Fund will invest in infrastructure that improves everyday life across the UK and has a visible impact on people and their communities.  It is a consolidation of the Local Growth Fund and Towns Fund.  The key objectives of the fund are economic recovery and growth, improved transport connectivity and regeneration.

It is a fund for high‑value local infrastructure, albeit with a cap of £20m, except for road schemes (where a £50m cap may apply).

The deadline for the first round of funding applications is 18 June 2021, which may limit the initial effectiveness of the first round of funding given that a lot of councils are about to head into a purdah period for their elections, and the application process is not designed to be simple or easy, with funding allocated for assisting with the application process itself.  A flat £125,000 of ‘capacity funding’ will be allocated to all eligible (tier 1) local authorities.  Capacity funding is provided to support the relevant local authorities to develop their bids for later rounds (it is not expected that local authorities will be able to use it in time to support bids for the first round).

The fund will be targeted at ex‑industrial areas, deprived towns and coastal communities.  It is a polite nod to those ‘red wall seats’ the Conservatives gained in the last election which may have suffered disproportionately in the last year; it is difficult to spot many locations south of Northampton in tier 1.

The index places local authorities into categories 1, 2 or 3, depending on their identified level of need, with category 1 representing places deemed in most need of investment through this fund.  Standard metrics were used in relation to each of the main objectives, ie:

• productivity, measured using gross value added (GVA) per hour;
• 16+ unemployment rate;
• average journey times to employment centres by car, public transport and bike; and
• commercial and dwelling vacancy rates.

While preference will be given to bids from higher priority areas, the bandings do not represent eligibility criteria, nor the amount or number of bids a place can submit.  Bids from categories 2 and 3 will still be considered for funding on their merits of deliverability, value for money and strategic fit, and could still be successful if they are of exceptionally high quality.  MPs, as democratically elected representatives of the area, are expected to champion just one bid that they see as a priority – but each local authority can only succeed in bidding once.

We question whether the combination of the capacity fund, and the ‘you can only win once’ policy, actually puts the tier 1 areas (those in most need) the advantage that was intended in the first round of applications, since they are being incentivised to wait for the next round and submit an A‑grade application.

The first round of the fund will focus on smaller transport projects, town centre and high street regeneration, and cultural and heritage assets or projects should be aligned to, and support, net zero goals.

Bids will then be ‘graded’ with investment prioritised for local areas that are most in need of levelling up, with category 1 representing the highest level of identified need.  All bids will be assessed for evidence of clear and robust delivery.  Contributions will also be expected from private sector stakeholders, such as developers, if they stand to benefit from a specific project; schemes already envisaged and catered for in s106/CIL policies may have an advantage here.

Bids should have a strategic fit with local priorities setting out a compelling case for why the proposed investment supports the economic, community and cultural priorities of their local area, and offer value for money (see Procurement Policy Note PPN 06/20, or the balanced scorecard).  These criteria, while ensuring public accountability, are unlikely to give rise to quick, reactive schemes to now level up struggling areas.  It is more likely to unlock stalled schemes in the short‑term which benefit from pre‑pandemic policy support but may not necessarily deal with the problems of now.

The Community Ownership Fund

The details of the Community Ownership Fund have now been published and could reinvigorate interest in assets of community value (ACV).  The purpose of the fund is to allow community groups to bid for match funding from the government of up to £250,000 to allow them to purchase local community assets, with a view to running them as community‑owned businesses.  The examples given include shops, ‘pubs, sports clubs, theatres and post office buildings’ (see here); some of the most common types of properties registered as assets of community value.

Bidding will be open from 21 June 2021 and can be applied for by any community group – although strong preference will be given to those with a formal governance structure in place or where there is a clear plan to set up community level governance to take over a facility.  Any funding will be conditional on a governance structure being in place.

The intention of ACV legislation originally was to give local community groups the opportunity to purchase valued community facilities (such as the local pub) and save them from the risk of closure or redevelopment, but it has long been an area of law which has lacked teeth.  ACVs, successfully registered, are buildings or land which further the social wellbeing or interests of the local community and which could be expected to continue within the next five years.  Once successful, it is then subject to the ‘Community Right to Bid’.  Although there is no obligation on the owner to sell to the community group, the ACV cannot be sold until the six‑month moratorium is over and the delay in completing a sale can have a rather chilling effect on commercial transactions.

Will the availability of government‑backed match‑funding to support Right to Bid requests encourage local community groups to nominate ACVs and register expressions of interest in bidding on them in greater numbers?

The fund opens for bids on the same day as the current roadmap out of the pandemic.  Perhaps this is significant.  Concerns about whether valued pubs, shops or services will re‑ open again may encourage local communities to grab the opportunity to enjoy pubs in all their glory again.

Extension of tenant protections

The Budget itself was silent on the ‘ban’ on commercial evictions, but in a press release on 10 March 2021, it was announced that this will be extended for a further three months, with the moratorium on commercial forfeiture relating to rent arrears being extended to 30 June 2021 (in a further amendment to s82 of the Coronavirus Act 2020).  This restriction only prevents a landlord from seeking to forfeit a ‘relevant business tenancy’ in relation to arrears of rent or other sums that the tenant is liable to pay, and does not include forfeiture for other breaches of a tenancy.  It also does not cover licences or tenancies at will.  Despite this temporary ban, rent will continue to accrue during the period together with interest.

The government also intends to launch a review of commercial landlord and tenant legislation later this year where it (see here):

… will consider a broad range of issues including the Landlord & Tenant Act 1954 Part II, different models of rent payment and the impact of Coronavirus on the marketplace.

The property market will no doubt await that review with considerable interest.

Finally, the government followed up the Budget with Tax Day on 23 March.  Retail landlords would have been hoping for some kind of indication of relief from business rates for empty units, which is desperately needed considering their lack of income due to the ongoing lockdowns.  However, nothing definite was announced.

Tax Day overall was uneventful.  There was no mention either of expected changes to capital gains tax, which was perhaps due to a wish to avoid a flurry of sales by business owners wishing to crystallise gains.  And proper business rates reform, delayed in the Budget, is now unlikely to be considered before the autumn.

Overall, Tax Day led to more questions than solutions.

Conclusion

While this Budget was silent on certain prominent property issues (eg, how to address financial fall‑out on the cladding issue), it was a Budget that seemed to have a lot in it for the property world; freeports, the Levelling Up Fund and the renewed emphasis on green issues are great news in theory.  Of course, as is always the case, the proof will come in what happens later, and how well these initiatives get off the ground remains to be seen.  As we have highlighted, there are many unanswered questions, which will only be answered with the passage of time.  It is also inevitable that temporary reliefs (SLDT, capital allowances, business rates and tenant protections) will end and this may well be a decisive moment for many businesses.

This article was first published in Property Law Journal 386 (April 2021) and is also available on lawjournals.co.uk.