When the Chancellor Philip Hammond stepped up to address the Houses of Parliament many expected a relatively dull and “boring” budget. While in reality he had little scope for tax giveaways and increased spending on public services, it was not the lacklustre budget many expected. There are encouraging signs regarding the UK economy, real wages are starting to increase although the challenges of Brexit still hang heavy over the UK economy and the UK government.
UK economy
Despite recent trepidation regarding expected UK economic growth in 2018, the Chancellor announced an unexpected upgrade of growth forecast from 1.3% of to 1.6%. While growth is expected to fall to around 1.4% in 2019 with expectations of 1.4%, 1.5% and 1.6% in the subsequent three years, it looks as though the UK will avert a damaging recession. Of course, these figures could change dramatically in light of a no-deal Brexit. However, with the percentage of low paid workers at the lowest for many years and an additional 3.3 million people in work since 2010, it could be a lot worse.
Public finances
The Chancellor Philip Hammond recently received some good news regarding public finances with borrowings lower than expected. It may have been this unexpected “bonus” which allowed him to bring forward tax allowance increases from 2020 to 2019 (£12,500 for basic rate tax and £50,000 for higher rate tax). Overall, public borrowing for 2018 will be £11.6 billion less than forecast in March 2018. This represents just 1.2% of gross domestic product and compares to a figure of around 10% back in 2010.
Over the next five years borrowings are expected to fall from £31.8 billion down to £19.8 billion. Debt as a share of GDP currently stands at 83.7% which is down from 85.2% in 2016/17. Further improvement is expected with a reduction to 74.1% by 2023/24.
Housing sector
Interestingly, there was relatively little in the way of changes to taxation when it comes to first-time buyers and the general housing market. The relatively small tweaks announced involved an extension of stamp duty exemption on properties purchased via shared equity up to a value of £500,000. There was also the traditional increase in contributions to the Housing Infrastructure Fund with further funding of £500 million expected to produce an additional 650,000 homes in the UK. As an almost side note the Chancellor also announced that in the future, lettings relief will be limited to properties where the owner shares with a tenant.
Private Financial Initiative contracts
In light of the recent collapse of building giant Carillion, which received billions of pounds of taxpayer funding via various PFI contracts, the Chancellor effectively disowned this as a future finance option. This went down extremely well on the Conservative benches but in reality the option of using PFI contracts died along with Carillion. Interestingly, there was no talk of terminating ongoing PFI contracts which puts the UK government in direct conflict with the Labour Party.
Infrastructure spending
Various elements of the budget had already leaked into the press, one of which was a £30 billion package to repair roads in England. The Chancellor also announced a 30% increase in infrastructure spending with significant funds allocated to the North and the Midlands. This can only assist in making properties in these regions more attractive and hopefully pushing prices higher in the medium to long term. However, like many government budgets the proof is in the pudding and over the next 24 hours no doubt more details, exemptions and unexpected small print will emerge.
Conclusion
While there was little real news with regards to houses and property investment in the UK perhaps we should be thankful there were no additional tax increases. We saw the obligatory increase in funding for new homes, many of which never get delivered, and the tweaking of stamp duty in relation to shared equity homes. The reality is that the UK government has milked the property sector dry in recent years with unfair tax increases. Even though the UK property market is performing much better than many had expected, with signs of strong underlying demand, Brexit still weighs heavily on the minds of many investors.
As and when further details are announced via the “Red Book” regarding housing and property issues we will update this article accordingly.
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