Mixed industry response to first Conservative Budget in 19 years

BSEE asked some industry insiders for their immediate reaction to the new Government’s first Conservative-only Budget. Here’s their reaction…
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Julia Evans, BSRIA Chief Executive

One million extra jobs to be created by 2020/new apprenticeship levy for large employers

BSRIA welcomes this announcement – and with the construction industry “crying out” for highly skilled staff – investment is needed now – both to attract new entrants into the industry and train them – and, indeed, train and upskill staff already in the industry. The construction industry is currently suffering from a major skills shortage. Any measures that attract new entrants will be welcomed.

Housebuilding targets have been set – but who is going to be building houses? BSRIA sees the training of construction industry apprenticeships as critical, if the government is serious about boosting apprenticeships, it should focus on improving the quality of apprenticeships to make them more attractive to employers – especially in the construction industry. Businesses of all sizes need positive encouragement and an apprenticeship system that meets their needs.

As an industry, we need to invest now in recruiting and developing the skills we are going to need to deliver the high volume of energy efficient homes required. This includes presenting the industry as a viable long term career choice.

Last year, the construction industry had 16,000 apprenticeships. Considering the construction industries’ GDP contribution, this figure needs to grow to around 40,000 per year.

Social housing sector rents

Rents in the social housing sector will be reduced by 1% a year for the next four years. Will this lead to a reduction in investment to ensure housing is energy efficient? And will it discourage building of new housing? Energy efficiency in housing – both existing and new – is essential. Measures in testing for such energy efficiency and, indeed investing in existing housing stock is vital. It is clear that if financial reductions are being made in this sector – then the industry is at risk of losing energy efficiency credentials elsewhere. This potentially puts improvements in energy performance in jeopardy – which is clearly unacceptable.

Climate Change Levy exemption for renewable energy to be removed

After the announcement that renewable power generators would no longer be exempt from the Climate Change Levy, BSRIA is concerned that this could lead to a lower take up of renewable energy – such green credentials must play a part in achieving the carbon emissions targets. Delivering the change that is required to meet the carbon emission targets will require long term investment from industry; this will only happen if it has the confidence to do so. Government needs to agree an action plan that will deliver low-carbon heat and energy efficient homes.

Corporation Tax

The Chancellor’s commitment to further cut Corporation Tax is a clear sign that Britain “is open for business”, however, it could be asked if this should be linked to improved energy efficiency.

Karen Richardson, marketing manager at Constructionline – the procurement and supply chain service

As the Chancellor’s austerity plan continues, it’s disappointing to see limited commitment to driving infrastructure development. Not only would this unlock economic benefits for the future, it provides direct investment in skills and jobs helping guarantee stability and growth. Missing this opportunity also makes future investment harder as supply chains will start to fizzle out.

In light of the recent cancellation of the electrification of the Trans-Pennine line, we also expected more focus on infrastructure spend for the so-called Northern Powerhouse, matching projects like Crossrail 2 and Heathrow’s Third Runway. Today’s budget adds to feeling present over the last fortnight that his concept lacked significant substance.

The skills shortage has taken place as the central challenge the construction industry needs to overcome. The sector lost a significant number of skilled professionals during the downturn and increasing the level of new blood entering construction is key to secure its long term viability.

The chancellor’s commitment to supporting apprenticeship schemes will play a key part in plugging the skills gap at a time when the lack of availability of skills on the ground has a tight grip on contractors’ ability to respond to increased client demand, which is also driving up cost.

Ron Edmondson, Managing Director of Waterloo Air Products plc

We generally believe that the overall Budget will be good for our industry. It continues a period of relative stability which encourages development. Of particular good news for Waterloo is the extension of the annual investment allowance; this will benefit us directly as we are in a period of high capital investment. Finally, we are pleased to hear that the main rate of Corporation Tax will now fall to 18% by 2020.

David Hopkins, executive director at Wood for Good – the timber industry’s sustainability campaign
 

There were some very clever gimmicks within the Budget announcement. However, four months on from the Chancellor’s pre-election budget, it’s disappointing to see key issues surrounding manufacturing, housebuilding and climate change omitted once again.
 
Not only do these both represent significant challenges for the UK, but they are all key drivers for economic growth.
 
The UK timber industry is a vital £9 billion low-carbon manufacturing sector that is key to achieving cheaper, quicker, and more sustainable delivery of housing. Recent reports show that yearly output levels of new homes would more than double, and exceed annual housebuilding targets, if off-site methods were used.
 
The UK needs a new era of sustainable construction with wood at its heart to boost our economy and reduce our emissions. The budget has missed an opportunity to help drive this forward.

Iain McIlwee, Chief Executive of the British Woodworking Federation

This is a complex Budget for businesses in our sector, the true impact of which probably won’t be known for a while.

There was a very positive announcement earlier this week about the Housing Growth Partnership initiative to bring in added support for small builders. The Government’s continued commitment in this Budget to new home building and infrastructure is also very welcome.

But our concern is that it may, on closer scrutiny, turn out to be a Budget of indirect and hidden costs to the construction industry, the very engine of growth the Chancellor is depending on most.

Like others, we have serious concerns about the future security of income for housing associations and their likely ability to maintain their development or refurbishment programmes. Affordable housing is already on its knees. Planning reforms to be announced on Friday will need to reduce development costs significantly to give us any chance of a sustainable social housing sector in the future.

Changes to the tax breaks for private landlords are less than expected, but could also impact on the funds available for domestic RMI work (home repair, maintenance and improvement), which is so essential to the refurbishment to our ageing housing stock.

And looking at the direct impact on SMEs in the construction supply chain, while an increase in the minimum wage for the lowest paid is welcome, we cannot ignore the fact that such increases have a knock-on effect throughout a business, creating inflation in a firm’s total wage bill.

Our latest State of Trade survey among Britain’s joinery manufacturing firms already reveals that 73% of respondents had seen a sharp increase in labour costs, and this is fast becoming a constraint on business.

Wage inflation and other increases in the cost of doing business, such as the IPT increase, will need to be properly offset by the cuts in Corporation Tax and increases in employment allowances.

We always welcome Government support for apprenticeships – the joinery sector has the highest ratio of apprenticeships in construction. But we really were hoping for more detail on apprentice reform and there are many questions about how the Apprenticeship Levy on big firms will be delivered and the interplay with the current CITB levy. This is an area which we will continue to scrutinise closely.

The UK wood products manufacturing sector is a vital part of the construction industry, adding £3.8 billion to the UK economy every year. Carpentry and joinery also represents the third largest sector of employment in construction.

The Aldersgate Group

Following the Emergency Budget presented by the Chancellor of the Exchequer George Osborne, the Aldersgate Group stated that the continued growth of the low carbon economy was vital to the UK’s long-term economic prospects and that the government should do more to back it.

The Emergency Budget, which contained very few proposals to support the growth of the UK’s low carbon sector, came a day after the Aldersgate Group published its latest report A Brighter, More Secure Future. In this report, businesses from a wide range of economic sectors called on the government to provide enough policy clarity to support continued investment in the UK’s low carbon infrastructure and help investors to continue cutting the cost of new technologies.

Nick Molho, Executive Director of the Aldersgate Group said: “The government’s understandable focus on tackling the annual budget deficit and the national debt shouldn’t come at the expense of failing to support those sectors of the economy that are key to the UK’s long-term growth and competitiveness prospects. With the global low carbon goods and services sector already worth US$5.5 trillion and international momentum building to accelerate cuts in carbon emissions, the UK economy can’t afford to drop out of the low carbon race.”

“With the UK’s low carbon economy already reaching a turnover of £122bn in 2013, the Aldersgate Group added that rapidly providing sufficient funding under the levy control framework to invest in low carbon infrastructure after 2020 and extending energy efficiency policies would help accelerate the cost reductions of new technologies such as renewables and continue the low carbon sector’s positive contribution to the UK economy.

“Yesterday, business leaders from all across the economy showed that they were willing to make significant investments in the UK’s efficiency and low carbon infrastructure, reduce the cost of new technologies and deliver economic growth. If it wants to unlock this much needed investment, the government must use the upcoming spending review to show its commitment to rapidly growing the UK’s energy efficiency and low carbon infrastructure.”

Nik Wheeler, Planning Associate Director at property consultancy GL Hearn comments on the relaxation of Sunday trading laws announced in the Budget

This is a positive relaxation of dated regulations. Greater flexibility for larger stores will raise extra income for retailers, create more jobs and provide greater convenience for those who are unable to shop during weekdays. Relaxed Sunday trading laws were introduced successfully during the London Olympics in 2012 and will help bricks-and-mortar stores to compete better with online retailers. However, in order to avoid confusion for people shopping across council boundaries, all local authorities should take up the option of extended hours and coordinate these regionally.”

The Construction Products Association welcomed the Chancellor’s 2015 Summer Budget Statement, which backs British manufacturers and industry

Dr Diana Montgomery, Chief Executive of the Association said: “We were pleased by plans
– that were in line with our recommendations – of the permanent setting of the annual investment allowance of £200,000 from January 2016. This will offer industry confidence in the long-term to invest in new innovative plant and machinery equipment which will impact positively on productivity.

“We are encouraged by the announcement that government will be bold in in the delivery of infrastructure especially in terms of roads. The Chancellor’s commitment to the £15 billion road spending plan and his recognition of a long-term road investment programme offers certainty to industry.

“Finally, we are pleased to hear that the main rate of Corporation Tax which had already been cut from 28% in 2010 to 20%, will now fall further, from 20% to 19% in 2017, and then to 18% in 2020.”

Dr Montgomery concluded: “All of this was good news for the UK economy and industry specifically. However, what was starkly missing was any indication of policies to incentivise energy efficiency of existing housing. We continue to press the government to recognise the tremendous potential for improving the housing and commercial building stock and improve the cost of living for home owners.”

Phil Grant, Partner, Baringa Partners

Britain is a world leader in green energy but the abolishment of climate change levies renewables is another blow for an already fragile sector. Investors were perturbed by recent decisions by DECC to reduce subsidies for new renewable plants and we’ve seen the share prices of companies exposed to renewables take a further hit this afternoon.

Whilst the Chancellor has stated that the removal of the levy benefit is a correction to a legacy scheme, the move has caused further angst for investors who have previously committed billions of pounds in the renewable sector. We need these investors to commit to further new investment in the sector and today’s news will be less than reassuring for them.

CEO and property expert, Russell Quirk, eMoov.co.uk

George Osborne’s intention to level the playing field between landlords who buy property to let and those who buy to live, is going to have financial consequences for renters in the private sector.

Landlords are going to be up to 20% worse off as previously enjoyed tax relief rates of up to 45% soon disappear. Based on the average rent they could be up to £2000 worse off each year. I can only see the result being an increase in rental prices which in turn further hampers those trying to save to get on the property ladder.

John Sinfield, Managing Director of Knauf Insulation

Today the Chancellor identified confidence as central to the future of business growth. He is right, and this confidence should be easiest to achieve where Government already plays a role. Unfortunately, recent stop-start changes to UK energy efficiency programmes have already reduced investment in the UK.

Without a clear, long term framework for delivering energy efficiency, the threat of rising utility costs risks slowing consumer spending across the economy. Further policy instability will also cause business investment to continue to go abroad, making existing commitments to tackle fuel poverty by 2030 incrementally harder to achieve.

A housing stock that is fit for modern usage reduces costs to the NHS. This has been acknowledged by the National Institute for Health and Care Excellence. It shows that upgrading our homes – the infrastructure in which we live – is part of making public spending more efficient, and improving the causes of ill health rather than treating the symptoms alone.

But achieving any of these benefits requires an industry able to invest in the skills needed to finish the job. And this means a clear Government programme to support their own aims.

Melanie Leech, chief executive of the British Property Federation

The way we shop has changed beyond all recognition in recent years and Government has struck the right balance between being alive to that and ensuring any further liberalisation of shopping hours is well managed. Longer hours will not suit all places, but equally should not hold other places back. Devolving the decision to a local level and those who know what will be best for their area, in this instance, therefore makes perfect sense.

Mike Chapman, Senior Manager, Corporate Tax, Knill James

Rental Income

Annual ‘Rent a Room Relief’, the amount of tax free rent that an individual can receive through the letting of rooms in his own residence, has been set at £4,250 for many years so the increase to £7,500 will be welcome news to many people in the South East who take in lodgers.

Less favourable to the local private rental sector is the announcement that tax relief for finance costs on buy-to let properties is being gradually withdrawn so that by April 2020 only basic rate income tax relief will be available regardless of the marginal tax rate of the landlord.

In addition, as capital allowances have been unavailable for the equipping of furnished lettings, the ‘wear and tear’ allowance (a 10% per annum deduction based on net rents) has always been a useful relief for landlords. From April 2016 the relief is to be abolished and a deduction will only be available when assets are replaced.”

Capital Allowances

Anyone reading the HMRC press release on capital allowances entitled ‘Annual Investment allowance: permanent increase to £200,000’ would be forgiven for thinking that this was a bit of a give-away from the Chancellor. Far from it, as businesses have been able between April 2014 and December 2015 to claim relief of up to £500,000 per annum on the acquisition of eligible Plant & Machinery. Apparently though, this was only a ‘temporary’ relief – if a week is a long time in politics surely 21 months ranks as fairly permanent!

As a result, all businesses in the South East, especially capital intensive ones should start to review the anticipated timing of expenditure on plant & machinery in order to maximise possible reliefs before the opportunity lapses.”

Dividend Reforms

Though apparently benign, the abolition of the national dividend tax credit from April 2016 to be replaced by a £5,000 tax free allowance raises the spectre of basic rate taxpayers having to pay a 7.5% tax on their dividend income when none was due under the old regime.

HMRC has long disliked the ability of the owners of private companies to pay themselves dividends (which are NIC free) which were taxed more favourably than salaries subject to PAYE. The changes announced in the Budget (apparently introducing more punitive dividend tax rates for higher and additional rate taxpayers) significantly reduce the tax benefit of dividend payments and many local entrepreneurs may reconsider their remuneration policy as a result. This all seems like a bit of a ‘quid pro quo’ for the further, welcome, reductions announced in the rate of corporation tax.

Many of the Budget headlines will dwell on welfare reform and the state of the economy but there are some potentially far-reaching changes affecting business owners in the region which were far less proclaimed in the Budget address.

Bob Hall, Managing Director, Greenlite

In his Emergency Budget, the Chancellor shone a light, albeit a rather weak one, on future energy efficiency improvements.

Overall, general impressions from green business are dismissive of George Osborne’s budget.

The headlines make it easy to understand why; tax breaks for oil and gas, and the disintegration of the Climate Change Levy exemption for renewably sourced electricity from August 1, 2015. Not a mention of low carbon in Osborne’s speech.

It is hard to see positivity for the UK in all this. To find reasons for cheeriness, you have to dig a little deeper.

The hidden undercurrent of hope

In DECC’s budget response, Amber Rudd, Climate Change Secretary, said this: “UK business also has a vital role to play in meeting the UK’s climate change targets; by incentivising reductions in energy consumption and emissions, the government is giving business the tools to achieve that goal.”

That seems at odds with the headlines. But, Osborne also announced a number of fundamental and potentially far reaching reviews.

First, the government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime. A consultation will be launched in Autumn 2015.

Moreover, Osborne will continue to promote the low carbon investment and innovation needed to support global action on climate change, focussing on the best value for money policies to keep costs down for consumers.

How you interpret all this depends on one thing; how cynical you are.

Hopeful truth or aimless chit chat?

Hopefully Osborne’s review will pave the way for a smarter efficiency landscape, unhindered by red tape and made workable by sensible, informed changes.

It might be that the Conservatives plan to generously rebuild our energy efficiency systems, to coincide with the launch of the Energy Bill in 2016. It might be that we will be presented with a simple, low carbon prioritised, incentivised future.

To at least give Osborne the chance to deliver this, everyone with a stake in UK energy efficiency should think about what should change, and closely follow the call for opinions when consultation opens.

The cynics’ viewpoint

Alternatively, the consultations might prove fruitless. They might be a smokescreen that delays honesty on Conservative green business plans, while the party quietly allows existing low carbon policy to silently die off.

Speculation on this, quite frankly, could be endless.

Therefore, until the consultation opens, we advise business should take these actions:

a) Think about what you want from a low carbon UK. Prepare to communicate this to Government.
b) Work hard. Deliver efficiency upgrades and retrofits. Prove the value of our sector.

Politics, ultimately, is about what the people want. There is nothing action and hard work cannot achieve.

Positivity, and a sector that stands up to be counted, are precisely the response George Osborne needs to see. If you shout loud enough, and deliver enough change, the politicians are accountable to you. Not the other way around.

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