Chancellor of the exchequer Rishi SunakHighlights for the construction industry include the creation of eight freeport zones in England and special tax relief for companies investing in new equipment.
Lowlights include an increase in the rate of corporation tax to 25% in 2023 for businesses with profits greater than £250,000.
There are also extensions of pandemic emergency measures, including the coronavirus job support scheme (furlough) running until September 2021 across the UK and an extension to the temporary cut in stamp duty land tax in England and Northern Ireland until the same date. House-builders will also welcome the new mortgage guarantee scheme to enable all UK homebuyers secure a mortgage up to £600,000 with a 5% deposit.
Coupled with the budget announcement is the publication of the government’s plan for growth, titled Build back better. This sets out capital spending plans worth £100bn next year.
Chancellor Rishi Sunak announced in his budget statement that, beginning in April 2021, a new super-deduction will cut companies’ tax bill by 25p for every pound they invest in new equipment, meaning they can reduce their taxable profits by 130% of the cost. This is worth £25bn to companies over the two-year period the super-deduction will be in full effect, the chancellor said.
Eight new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside.
Discussions continue between the UK Government and the devolved administrations to introduce freeports in Scotland, Wales and Northern Ireland as well.
Within the freeport zones, there will be an enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings (excluding Northern Ireland). This means that investments will be fully relieved after 10 years compared with the standard 33 years and four months at the 3% rate available nationwide. To qualify, the structure or building must be brought into use on or before 30th September 2026.
There will be an enhanced capital allowance of 100% for companies investing in plant and machinery for use in freeports (again except Northern Ireland) and full relief from stamp duty land tax and business rates, until 30th September 2026. Relief will apply for five years from the point at which the beneficiary first receives relief.
Other attention-grabbing snippets include:
A UK Infrastructure Bank is to be set up in Leeds, with £12bn of equity and debt capital to finance local authority and private sector infrastructure projects across the UK;
The Ministry of Housing, Communities & Local Government is getting £10m of seed funding for a new MMC Taskforce, to promote the take-up of ‘modern’ methods of construction across the industry. It will be based in the ministry new Wolverhampton office that is going to be set up in due course;
£135m is being allocated to progressing the A66 Trans-Pennine upgrade (building on last year’s announcement that the construction phase will be halved from 10 to five years as part of Project Speed);
£20m to fund a UK-wide competition to develop floating offshore wind demonstrators;
£50m to develop proposals for transport improvements around the High Speed 2 Birmingham Interchange Station and £59m towards the construction of five new stations in the West Midlands; and
£68m to fund a UK-wide competition to deliver first-of-a-kind long-duration energy storage prototypes.
However, despite industry lobbying, there is to be no reduction in the rate of VAT for domestic repair, maintenance and imporvement (RMI) work.
Paul Hamer, chief executive of Sir Robert McAlpine: “A National Infrastructure Bank, with an initial capitalisation of £12bn to invest in an array of public and private projects, is very good news indeed for construction and the country as a whole. It’s clear that the government has an intent for ‘Build Back Better’ to be much more than a slogan and to make good on the commitments they made last summer. What’s more, in locating the Bank in Leeds, the government has sent a powerful message that it appreciates the need to level up areas outside of London.
“Crucially, the government has recognised that investment in upgrading or maintaining existing infrastructure is vitally important. For one, given the arterial importance of Britain’s roadways, any investment intended to support the transport of freight is to be welcomed. This was a vital component of last summer’s spending plans, so hopefully we will see this continue.
“The planned ‘super deductions’ for businesses investing is further good news, and could see innovation accelerate right across the sector as firms commit money to new technologies and sustainable construction solutions. The positive ripple effect could be significant and we will be looking closely at how this may benefit our business and future projects.
“It is difficult to predict whether the government’s budget strategy will create further private sector investment as hoped, but in the immediate term, today’s budget alongside the revised OBR [Office for Budget Responsibility] economic forecasts is encouraging.”
Alasdair Reisner, chief executive of the Civil Engineering Contractors Association (CECA): “We were not anticipating a range of new announcements on infrastructure today, as the chancellor was setting out details of the ‘fiscal firepower’ needed to support jobs during the pandemic for the remainder of this year.
“Nonetheless it is welcome that, to accompany the budget, HM Treasury has published Build Back Better: Our Plan for Growth, which recognises that the UK has historically underinvested in infrastructure, and details an initial £100 billion of capital investment in 2021-22 to begin to remedy this fact.
“The creation of the new UK Infrastructure Bank will help to level up the UK by investing in local authority and private sector projects, as well as providing an advisory function to help with the delivery of schemes on the ground.
“Similarly we were pleased to see greater incentivisation for employers to take on apprentices, which will help to tackle the skills shortages our sector faces.”
Rob Oliver, chief executive of the Construction Equipment Association: “Whilst the necessary extension of the furlough scheme and additional support for Covid-19 challenged business was welcome and expected, there were also some interesting initiatives that may be of direct benefit to the construction sector.
“The announcement of a ‘super deduction’ for capital investment should stimulate decisions from companies currently undecided about their expenditure plans. For every £100 they spend they will receive a tax credit of £130. The ability to carry back company losses for three years against earlier profits will also help the cash flow of many companies.
“I believe that the ‘super deduction’ is based on a scheme successfully introduced in Slovakia. We look forward to reviewing the details, but on the face of it, it looks like it will be a great time to renew the machine fleets of plant hirers and contractors. These tax concessions are clearly a quid pro quo for swallowing a corporation tax hike in the future”.
Association for Consultancy and Engineering (ACE) chief executive Hannah Vickers: “The chancellor today rightly combined ongoing support for business with steps to ensure we ‘build back better’. The built environment sector is the engine room of the economy and the freeports and city deals announcements are exactly the sort of holistic, low carbon regeneration programmes we need to simultaneously create jobs, level up opportunities and hit net zero. But the Infrastructure Bank must also play its part. The Treasury’s scoping document setting out how the Bank will operate is encouraging, taking on board the Construction Leadership Council’s regeneration proposals. The trick for the bank will be to use its powers to enable ambitious integrated regeneration investments across the UK, whilst avoid getting fixated on individual project deals.”
Rohan Malik, EY’s UK managing partner for government & infrastructure: “The chancellor’s infrastructure announcements are a strong signal of confidence that the UK economy is ready for post-pandemic recovery.
“We’ve been actively monitoring how infrastructure spend is helping countries across the world return to full strength post-pandemic. For good reason, governments view infrastructure projects as an economic stimulus with strong job delivery, however those jobs must come at the right time if that bullseye is to be hit. In other countries we’ve seen capital projects yet to be finished that were originally instigated to help credit crunch recovery, so it’s important that projects match the immediate delivery need.
“There is an important role for the government to create the conditions for success that attract and ramp-up private funding – domestic and FDI – so taxpayers aren’t left holding the chequebook every time, while also freeing up capital to be spent in other areas of recovery. The UK Infrastructure Bank is a first step in making that happen while also helping to tackle climate change. Allowing investors – be they citizen investment bonds or private sector – higher returns when they take higher levels of risk is a key lever for stimulating private investment and speeding up cash release, and one the UK shouldn’t shy away from.
“Investment in infrastructure must have people at the heart of its purpose and be linked to enhancing the sustainable living of citizens. Announcements around the City Deals, freeports and opening the first round of the Levelling Up fund suggests infrastructure policy makers are rightly thinking ‘hyperlocal’ – how can we get jobs-for-now across the regions while also aligning these investments to long term value and social needs.
“In order to give infrastructure capital projects the opportunity to feed directly into the Levelling-Up agenda they must be accelerated to achieve maximum impact for economic recovery post-pandemic. That means we need to see the right projects chosen, project development accelerated, departments and polices mobilised for success, and, finally to build, build, build.”
Patricia Moore, UK managing director at Turner & Townsend: “Today we saw further signs of the kind of creativity that we need to build back better. The commissioning of the new UK Infrastructure Bank in Leeds will grab attention from investors, and pits the country ahead of many nations mulling similar measures to help stimulate interest.
“For construction, the phrase that featured far less than may have been expected today was net zero. From past announcements and commitments, we know that this is the major challenge for our sector. Our industry is in the unique position of being one of the UK’s biggest contributors to carbon emissions, while also being the engine for growth and common thread across all these announcements. We bear the responsibility both to deliver the infrastructure and change that helps shape a modern, post-pandemic economy, while doing it in a way that effectively measures, evaluates and reduces our carbon impact.
“This makes it imperative that the recovery drives root and branch reform of the industry – from how we create skills and job opportunities for the country’s 1.75 million people who are out of work, to how we source and use materials in ways that are more ethical and sustainable than in the past.
“While we heard less about construction today, the call has been taken up by government and alongside these announcements, departments have been working to get the industry match-fit for its starring role in the recovery – from prioritising shovel-ready projects through the work of the National Infrastructure Commission, to promoting more sustainable models of procurement, management and delivery in the Construction Playbook and the forthcoming IPA Routemap. The success of the chancellor’s commitments today will rely on the successful adoption of the tools of this reform agenda for construction, but also its spirit and vision.”
Stephen Wicks, chief executive of house-builder Inland Homes: “We welcome the continued support for the housebuilding and construction sector in today’s budget, recognising the importance of the industry to support economic growth as we move out of lockdown. Both the stamp duty holiday extension and support for 95% mortgages are very welcome short term measures.
“However, the UK continues to suffer from a chronic undersupply of housing and the unintended consequences of the measures announced today may fuel an artificial buoyancy in the housing market that is not sustainable. To really speed up the delivery of new housing, we need longer term planning reform. The government needs to act quickly and invest to speed up the whole process to give us the platform to address the housing crisis.”
James Talman, chief executive of the National Federation of Roofing Contractors: “The chancellor has set out a solid investment-led economic roadmap in his budget that supports the UK economy as it comes out of lockdown and into recovery. He is right to focus on tax incentives, many of which will help boost construction – particularly the extension to the cut in stamp duty, the super deduction for companies that invest in plant and machinery, and the enhanced structures and buildings allowance at freeports.
“However, the chancellor can and must go further to encourage investment – not only to help the economy grow but to ensure we make our buildings fit for the future. To spur on investment in the upgrading of commercial buildings, he should extend his ‘super deduction’ policy so that it applies not only to plant and machinery but to buildings too. This will help businesses to not only bring down their energy bills but also to support the UK to reach its net-zero target.”
Jason Tema, director of property development firm Clearview Developments: “We welcome the government’s introduction of a super-deduction on company investments. With the UK’s ongoing demand for quality and affordable housing, we believe that this tax incentive is a much needed boost of confidence for the construction sector; particularly for SME house builders who have been hard hit by the pandemic.”
Donald Morrison, vice president of consulting engineer Jacobs: “The creation of a new National Infrastructure Bank will play an important role in supporting new infrastructure technologies, help to reduce uncertainty and has the potential to accelerate financing to free up large-scale investment across the UK. However, we also need to carefully consider how to design and integrate infrastructure that will be of long-term benefit to all – environmentally, socially and economically. The government must follow through on its commitments to take into consideration not only how best to invest, but where the structural support will result in the most benefit. An ‘outcome-based’ model for infrastructure planning, one that has social value embedded at its heart, will be essential in ensuring the UK can build back better in a way that is truly committed to ‘levelling up’ and the transition to net-zero.”
Phil Bayliss, chief executive of later living at Legal & General: “As Britain emerges from the pandemic over the coming months, extending the stamp duty holiday will help sustain a strong property market amid the worst economic downturn in 300 years.
“Importantly, the extension ensures a more efficient use of Britain’s existing housing stock can continue, by incentivising older homeowners living in larger properties to downsize. These homes can be put to much better use by first-time buyers and growing families but, at present, nearly nine million bedrooms in the homes of older people are lying empty.
“Ultimately, we hope that the holiday might one day inspire the scrapping of the levy altogether. Not only would this inject much-needed liquidity into the market, it would also help first-time buyers, second-steppers and young families climb up the property ladder.”
Clive Docwra, managing director of property and construction consultancy McBains: “The ‘super deduction’ in tax may encourage construction firms to invest, while the reintroduction of 95% mortgages, and extending their availability beyond first time buyers, could trigger a revival of the housebuilding sector.
“But we’re disappointed that it appears green retrofit schemes, such as the Green Homes Grant, were not renewed, as such programmes not only help contribute to carbon net-zero targets, but provide a lifeline to many construction firms in terms of maintenance contracts. On a macro-level, we’d have also liked to have seen a bigger commitment to wider green initiatives to help encourage the industry to move towards net-zero.
Brendan Sharkey, head of construction and real estate at accountancy firm MHA MacIntyre Hudson: “It is rare to listen to such an encouraging budget and confidence will have increased markedly across the construction sector after hearing the chancellor speak. The extension of stamp duty relief makes perfect sense given the backlog of housing purchases. The tapering of relief through to April 2022 takes the angst out of deadlines while stimulating the number of transactions and new builds, which is all good news for the economy.
“In fact, when this is combined with the dhancellor’s new government mortgage guarantee scheme we could see an unprecedented rush to buy. So the only question is whether the developers can meet the demand as it takes time to bring stock to the market.
“Finally the super deduction scheme will be a real shot in the arm for businesses looking to invest; those investing will be able to reduce tax that is paid and presumably where tax losses are sustained they will be carried back. This could prove to be the stimulus for offsite manufacture to increase volumes of houses built as well as modern methods of construction.”
Dean Clifford, co-founder of developer Great Marlborough Estates: “Home ownership remains the aspiration for the vast majority and it is right that the government’s housing policy looks to support that.
These government-backed mortgages will help first-time buyers get onto the housing ladder and drive activity as the stamp duty holiday and Help to Buy are wound down.
“Yet encouraging banks to lend to first-time buyers can only ever be part of the solution. Too much demand-side stimulus without increasing supply risks stoking an unsustainable housing bubble.
“The bigger picture involves increasing housing delivery across the board which can only be achieved by having a better resourced and designed planning system.”
Peter Truscott, chief executive at Crest Nicholson: “We welcome the measures that have been announced for prospective buyers in today’s budget. The extension of the stamp duty holiday, which has been a useful tool for so many buyers over the last few months, will ensure that the housing market continues its recovery and benefit many customers with significant savings.
“We’re looking forward to seeing the positive impact of the mortgage guarantee scheme, which will give buyers who previously felt locked out of the market, the ability to access the lending they need. House-building employs lots of people directly and through its supply chains, so it’s encouraging to see the government support an industry which has demonstrated its resilience over the past 12 months.”
Sean Randall, partner at tax advisory firm, Blick Rothenberg: “As expected, the government has extended the stamp duty holiday by three months. No stamp duty will continue to be payable on the first £500,000 of the price. Buyers completing before 1st July 2021 will benefit by up to £15,000. The twist is that a new holiday period will then apply for three months. No stamp duty will be payable on the first £250,000 of the price. Buyers completing before 1st October 2021 will benefit by up to £2,500.
“Buyers due to complete between 1st April and 30th June will breathe a sigh of relief; estate agents, surveyors and mortgage brokers will rub their hands with glee; and conveyancers, exhausted by the pressure to complete before 1st April, will look ahead with dread.
“The measure, part of the chancellor’s jobs package, was intended to protect the half a million of jobs in sectors sensitive to the housing market: eg, garden centres, DIY stores, home furnishing retail, etc. Now that we have a roadmap out of lockdown, it is logical to extend furlough and the stamp duty holiday to align with it. The cost, which is baked into the stamp duty holiday, is market distortion, with buyers bringing forward their plans to move, bunching transactions during the holiday and producing a consequential fall in the number of transactions once the holiday ends – the so-called ‘cliff-edge’. Some drop in house prices (already 8.5% higher due to the holiday) is expected, but the real pressure on house prices would come from unemployment, not the loss of the holiday. By protecting jobs until lockdown ends, the chancellor hopes to protect the economy and indirectly avoid a house price crash.
“The pleas from professional bodies for a tapered end to the holiday have been heeded to some extent. Rather than one large ‘cliff-edge’ there will now be two smaller ones. That said, buyers failing to complete before 1st July will lose up to £12,500, so there will continue to be pressure on many to complete before the second holiday begins: average house prices in many parts of the country exceed £250,000.
“Many thought that the stamp duty holiday was unnecessary and an unwise policy. They would say that the housing market was not in trouble, the surge created by the holiday has produced a logjam, the positive ripple effect will turn into a negative ripple effect as soon as the holiday ends, it was estimated to cost £3.8bn pre extension and the rise in house prices shows that the tax saving has been enjoyed by sellers not buyers. Extending the holiday means that that the chancellor is doubling down. All of that is probably true, but having made the decision to give the holiday, extending it for the journey out of lockdown is not such a big gamble.”
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Original Content from
highlights and construction industry reaction – The Construction Index – 2021-03-03 16:16:00