Spring Statement 2018 – Colliers International Reacts
Today, the Chancellor delivered his Spring Statement, which laid out scant initiatives impacting on commercial property. The reaction from Colliers International is:
Economic – ‘Forecasts are there to be beaten’ said Phillip Hammond
Oliver Kolodseike, Senior Property Economist said:
The Office for Budget Responsibility (OBR) revised up its 2018 growth forecast marginally from 1.4% in the Autumn Statement to 1.5% and now believes that positive real wage growth will return in the second quarter of 2018. This does not come as a surprise. However, it is indeed surprising that the OBR is now more pessimistic about the longer-term outlook for the UK economy beyond 2020. For both 2021 and 2022, it now predicts slower growth. This comes despite the strongest labour market in four decades, a predicted return of positive real wage growth, signs of rising productivity and improving public finances, which should provide the government with extra money to spend should they have to.
The OBR believes that household consumption over the next five years will grow at rates weaker than seen in 2017, when inflation outstripped wage growth. Especially striking is the downward revision for 2019. It is now anticipated that household consumption will grow by only 0.9% next year, down from a previous estimate of 1.2% in the Autumn Statement. Expectations for business investment have also weakened, highlighting that the OBR is far from confident about the UK’s economic future.
On a more positive note, the OBR now believes that positive real wage growth will return in the second quarter of 2018. This is in line with our forecasts. As a result, consumer confidence should improve and thereby support household spending over the short to medium term. We hope that the wider retail sector will benefit from increased spending after a very subdued start to the year.
Public finances are looking better now and the debt to GDP ratio is forecast to fall to below 78% by 2021-22. Public sector net borrowing is now expected to come in at £45.2 billion in 2017-18 which is £4.7 billion less than predicted at the time of the Autumn Statement.
Overall, the OBR forecasts are disappointing and, in our view, too cautious.
- OBR upward revision of GDP growth from 1.4% to 1.5% in 2018 – still cautious in our view
- Real wage growth from q1 2018/19
- First fall in debt in 17 years – light at the end of the tunnel – rebuilding public finances
- Living wage rises to £7.83 next month
Infrastructure investment – local authorities’ proposals for £840 million
Mark Charlton, Head of UK Research at Colliers International commented:
“Recognising the cost to the UK economy of congestion on British roads (c. £9bn per annum), £1.7bn was announced in the Autumn Budget for improving transport in English cities. Half of this has been allocated to Combined Authorities with mayors. The government is now accepting bids from English cities for the remaining £840m. The resulting infrastructure spend could result in new relief roads and the subsequent release of land parcels ripe for development. This could provide opportunities for the development community – both residential and commercial (retail and logistics).”
Business Rates Revaluation brought forward to 2021
John Webber, Head of Rating, said:
“The Chancellor’s proposal to bring the next Business Rates Revaluation forward to 2021 and that revaluations would then be every three years rather five, enabling a fairer reflection of rental values, is all very good says John Webber Head of Business Rates at Colliers International, but it does nothing to help those businesses, particularly the retailers, who are struggling with the system today. And ” the change from a seven year to a five year, then a four year and finally a three-year revaluation system, only underlines how the Government has finally realised how disastrous the seven year 2017 Revaluation really was.” He continued. Webber believes the Chancellor has missed a trick in his Spring Budget by failing to properly tackle the issue of business rate reform, leaving many businesses and retailers out to dry, particularly as the 2018/9 rate bills for 1st April start to hit home.”
Planning – £1.67 billion to start building a further 27,000 affordable homes by the end of 2021-22
Director of Planning, Jonathan Manns, said:
“The announcement that London will receive £1.67 billion to start building a further 27,000 affordable homes by the end of 2021-22 is another small step in the right direction. However, the fact that the Chancellor felt the need to stress this would include Social Rented homes again underlines the difficult balance which must be struck between the total volume of new properties built and extent to which they are genuinely affordable.”
Residential – 60,000 first-time-buyers have already benefited from stamp duty relief
Ben Morris, Director, New Homes, at Colliers International commented:
“Phillip Hammond mentioned in his spring statement today that around 60,000 first time house buyers have already benefited from stamp duty relief announced at the autumn budget. Without knowing the number of first time buyers for the same period the year before, I presume that this is a number to be celebrated. The issue, in my opinion, is that this is not an area of the market which needs additional support right now. Large scale project starts are being put on hold due to lack of investor demand who would typically commit to buying 3-4 off plan which kick starts projects to deliver more homes for first time buyers. The government need to focus on simplifying the planning system and supporting buy-to-let investors. Initiatives that actually deliver homes rather than prevent the construction is the only way we can solve the housing crisis.”