What does the Mini-Budget mean for business and UK commercial property markets?

Friday’s mini-budget announcement by the new Chancellor of the Exchequer outlined a range of measures found within HM Treasury’s ‘The Growth Plan, 2022’.

Business impact

Lee Elliott, commercial research 

The delivery of any sustained economic growth will naturally be dependent on the growth of private business, and as such the measures can broadly be viewed as being ‘pro-business’.

In some senses the measures announced can be regarded as taking the UK economy back to the future with the planned upcoming increase in National Insurance contributions from employers being rolled-back and, notably, the proposed rise of Corporation Tax from its current level of 19% to 25% being shelved.

The extent to which this will stimulate additional investment from business is a point of conjecture. The Chief Secretary to the Treasury countered pessimists, by highlighting the ability of Dublin to attract Google (and indeed other tech giants) through low corporation tax levels as a reason to be optimistic, but of course that position ignores other attributes shown by Ireland not least unencumbered access to the EU trading block.

The other challenge of Friday's announcement for business is that it highlights a further example of a highly changeable policy environment. Businesses often struggle to make long-term investment decisions against such a back-drop.

These wider considerations are important, and the current global macro-economic pressures being felt by corporates do not simply disappear with tax cuts.

The operating environment remains challenging and will do for some time to come. Whilst the UK Government’s £29bn Business Energy Plan will be welcomed by businesses facing up to rising energy costs, these costs will still at least double for most from their pre-crisis levels and intervention is only in place for the next six months.

The governments hope is that this policy and the others announced Friday will be sufficient to stave off a deep and prolonged UK recession. It is far from certain that when we emerge from a difficult winter, global macro-economic and operating conditions will be sufficiently benign for global corporations to press the investment button once again.

Investment zones

A further example of the ‘back to the future’ tone of Friday’s announcement came in proposals for the creation of investment zones, which strongly echo the Enterprise Zones brought forward by the Thatcher administrations.

These zones – currently being discussed with 38 county or city councils or combined authorities – seek to create micro-environments that are highly conducive to business investment.

Businesses located in these zones will benefit from 100% tax relief on any investment made in plant and machinery; will not pay stamp duty on any land or building purchases; or pay any business rates on newly occupied commercial space found within the boundaries of the zone.

Whilst attractive, the extent to which such measures will bring new net investment into the UK economy is questionable. They may instead lead to the redistribution of business activity, which of course would accord with the Government’s levelling up and regeneration agendas, but may not drive the stated growth ambitions of UK plc.

Pro-business agenda

The government announcement underscores the aspirations of the incoming Prime Minister by reducing taxes, removing regulatory burden and indeed reducing the role of government in favour of private enterprise.

Yet missing in Friday’s announcement was any great consideration of how to support innovation sectors (aside from some proposed future action on R&D tax credits) or indeed on how to enhance the skills base of the country which remains a grave concern for business leaders.

A new footing has been established, a clear direction and tone is in evidence, bets have been placed, but it remains to be seen whether the measures announced are sufficient to entice corporates to invest and grow.

Retail

Stephen Springham, head of retail research

It is difficult to see Friday’s tax cuts having a material impact on either consumer or retail markets. Merely more cushions rather than crashmats.

Consumer demand has held up surprisingly well to date in the face of the cost-of-living crisis, but the acid tests are still to come from October onwards, when rising energy costs become much more of a reality.

The reversal of the national insurance rise from November will provide a little respite, but the basic rate income tax cut does not come into effect until April 2023, long after the impending pinch-points are felt.

Are consumer and retail markets in as dire straits as we are led to believe?

High inflation is clearly not helpful to retail markets but is at least a manageable force in a way that lockdowns weren’t.

Equally, rising interest rates are not necessarily as destabilising to the consumer economy as many believe.

Just 18% of outstanding mortgages are variable, the rest fixed rate, compared to over 50% pre GFC. And just 2% of new loans are for variable rate product and more than 50% of new loans are for products with a 5 year+ initial term. The structure of mortgage lending has fundamentally changed and is far less sensitive to interest rate rises than previously.

At the end of Q1 2022, the level of excess savings in the UK stood at £185bn which is unlike any previous period. The corresponding figure in 2008 was a peak of £30bn. It clearly doesn’t apply to the whole UK populace, but for those it does, it is still a substantial cushion.

Logistics

Claire Williams, commercial research 

The mini-budget named a number of transport and infrastructure projects that will be accelerated, including highways, rail, and local transport such as the Stonehenge road tunnel.

These transport and infrastructure schemes will offer new areas of opportunity for the sector and could help to ease bottlenecks and delivery delays.

As part of the levelling up agenda, the government is to include new local investment zones dubbed “full-fat Freeports”. While the details were scarce and locations are yet to be determined, the zones would benefit from a simplified planning regime along with tax incentives.

Levelling up secretary Simon Clarke has said the Government would also be 'seizing the opportunity to turbocharge the Freeports programme by offering early discussions with all Freeports about the possibility of extending the Investment Zone incentives to them'. We look forward to seeing the detail of how these will operate in practice.

Business energy bill cap

The cap on business energy bills is welcomed. The new government Energy Bill Relief Scheme will provide a discount on wholesale gas and electricity prices for all UK businesses and will offer much need support for logistics operators, particularly those with temperature controlled or energy-intensive, highly automated facilities.

Corporate tax and business rates

As expected, chancellor Kwasi Kwarteng announced corporate tax rate would remain at 19%. With businesses currently facing a myriad of inflationary pressures, this will be one less coming down the tracks.

There was however, no mention of the business rates revaluation due early next year, leaving firms facing a great deal of uncertainty. The logistics sector has recorded particularly strong rental growth over the revaluation period and this could pose a threat to some businesses, particularly those operating on thin margins or in locations where growth has been particularly strong.

Making the annual investment allowance (AIA) permanent will be welcomed by the logistics sector and will give firms greater certainty enabling them to plan their investment strategies beyond the one or two-year horizon.

The tax relief, which gives 100% tax relief for qualifying capital expenditure at a rate of £1 million, was already in place but its limited time frame means that firms are not able to plan for tax implications on capital expenditure beyond a one or two-years. It will be expensive but is likely to boost investment.

The level of government borrowing to fund the announced initiatives will however, put additional inflationary pressures on firms sourcing goods or components from abroad, with the pound now at a new 37-year low against the dollar.

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