In private housing terms, the Budget (22 June) did not contain any significant direct measures, although of course large tax increases and spending cuts will have a significant impact on the economy and, inevitably, Government housing policy.
Economic Background
It is not possible to work out the precise economic impact of the Budget. However the Office for Budget Responsibility (OBR), which now produces the economic forecasts on which the Budget is based, expects slower GDP growth in 2010 (1.2%) and 2011 (2.3%) compared with its pre-Budget forecasts. Growth is expected to accelerate to 2.8% in 2012, unchanged on the pre-Budget forecast, with slightly faster growth in 2013 (2.9%) and 2014 (2.7%) than in the pre-Budget forecast.
Real household disposable income (RHDI), a key economic influence on housing demand, is expected to growth very slowly between 2010 and 2105. Growth in 2010 is put at only 0.2%. This rises to 1.2% in 2011 and 1.3% in 2012, about half the rate of GDP growth. As a consequence, consumer spending growth is forecast to be slower than GDP growth.
However on the positive side, short and long-term interest rates are likely to be lower as a result of the Budget’s fiscal consolidation.
The OBR assumes house prices will grow 5.9% in 2010, and only 1.6% in 2011, the averages of a range of independent economic forecasts monitored by the Treasury. For the following four years, it assumes house prices will grow broadly in line with long-run average earnings growth.
Fiscal Policy
The key policy measures affecting the economic and fiscal forecasts are the departmental current spending cuts (around 25% by 2015 in unprotected departments), reduced debt interest payments, the rise in VAT to 20%, increases in the employers’ NIC threshold, increased personal allowance, the bank levy and reductions in corporation tax. The June Budget measures mean Public Sector Net Borrowing (PSNB) is expected to be £33 billion lower in 2014-15 than in the pre-Budget forecasts.
The OBR expects SDLT receipts to rise steadily from £4.9 billion in 2009-10 to £13.5 billion in 2015-16.
Key Budget Measures Potentially Influencing Housing
Probably the most notable housing measure was that zero-rating of new homes was not changed. Before the election, the Liberal Democrats had proposed levying a positive rate of VAT on new homes.
The Government is to review the SDLT relief for first-time buyers (£250,000) “taking into account its impact on affordability and value for money”. It has confirmed the additional 5% rate for residential transactions over £1 million announced by the previous Government will take effect from 6 April 2011.
A number of announcements could potentially have implications for private housing.
The Spending Review outcome will be published on 20 October 2010, covering the four years 2011-12 to 2014-15. Allowing for commitments to protect health and overseas aid spending, other Government departments could see average real cuts in their budgets of round 25% over the next four years, increased from the 20% cuts in unprotected departments implied by the March Budget.
There will be no further cuts in public sector gross investment spending beyond those announced by the previous Government, but there will be a “fundamental review of all capital spending plans”. Gross investment spending is projected to fall from £68.7 billion in 2009-10 to £43.3 billion in 2013-14, a 37% fall.
The Government has announced measures to reduce regulatory costs for business, including delayed implementation of all regulation scheduled for introduction over the coming year until they have been “reviewed and re-agreed by the Reducing Regulation Committee”, and a sunset clause for all new regulations so that they cease after seven years unless Parliament has confirmed they are still “necessary and proportionate, or they were explicitly set to have a longer timeframe”.
The Government is to publish proposals to reform the climate change levy “in order to provide more certainty and support to the carbon price”, with legislation in the Finance Bill 2011.
The Government will create a Regional Growth Fund for England in 2011-12 and 2012-13.
Regional Development Agencies are to be abolished. A White Paper later this year will set out the Government’s plans for sub-national growth.
Capital gains tax will rise from 18% to 28% from 23 June for those with total income and taxable gains above the higher rate threshold. This is well below the rates mooted before the Budget.
The Government will introduce a whole package of measures to reform Housing Benefit from April 2011 onwards. The interest rate used for Support for Mortgage Interest Relief will be the Bank of England’s published Average Mortgage Rate from October 2010.
Measures Announced before the Budget
On 25 May, the Treasury announced £6.2 billion of spending reductions in 2010-11, including a £50 million cut in the Kickstart programme. All 108 Kickstart schemes, valued at £214 million, that have not yet gone through due diligence are under review. We understand the HCA will be advising companies of the outcome of this review within the next few days. The National Affordable Housing Programme (NAHP) was cut by £100 million, with a £50 million cut in the Housing Market Renewal programme.