Philip Hammond had a difficult task today, having to deliver a Budget that would address the major challenges of Brexit and the housing crisis, in the face of economic headwinds. Shackled by low productivity and parliamentary arithmetic, he will be hoping his net new commitments of £4.5 billion provide a springboard for the forthcoming Industrial Strategy White Paper to build on.
Although he dressed it up with jokes and a rehearsed comic routine with the Prime Minister, the Chancellor was not the bearer of good news from the Office of Budget Responsibility (OBR). It has cut its forecasts for wage growth, productivity, and economic growth, so that for the first time in modern history every year in the forecast horizon shows growth below 2%. As the economist Stephanie Flanders has pointed out, this pessimistic outlook coincides with a recovering global economy, and strong growth from trading partners: we might wonder what is different about the UK.
The Prime Minister has committed her premiership to fixing the housing market, and the past week saw her and the Communities and Local Government Secretary give high-profile speeches on the topic. Commentators lined up to suggest how the Chancellor might address the challenges of land supply, planning and delivery. He acknowledged that the housing crisis is a complex problem without an easy answer, but declined to adopt the more radical approaches some suggested.
His big announcement was the abolition of stamp duty for first-time buyers on homes below £300,000, and on the first £300,000 of homes worth up to £500,000, effective from Thursday 23 November. The OBR believes this will increase house prices by twice the value of the stamp duty cut, increasing demand without directly affecting supply – not something likely to make housing more affordable.
The Chancellor also threatened to use his Spring Statement to announce punitive interventions should a newly commissioned report find that ‘commercial reasons’ are behind delays in building houses: effectively an ultimatum to get building. It was made clear that the government will focus on high-density, urban housing, with the Green Belt too politically sensitive to touch – and we are promised more from the Communities Secretary soon. We will await that with interest.
Among other measures of interest to those in property, the changes made to business rates – tweaks to lighten the load and make future revaluations easier to manage – will be seen by many as a step in the right direction, even if not a panacea.
In the short term, it will be interesting to see the political reaction. Once Labour MPs read the fine print, it will be attacked as a handout for homeowners – which may not make those Conservative MPs who attribute June’s election result to the housing crisis very comfortable.
In policy terms, the focus will switch quickly to the Industrial Strategy set to combat our productivity challenge, together with announcements from DCLG on further reform to housing and planning policy. At Redwood Consulting, we will be sure to keep you updated.