Off course, but sticking to the plan!

Whilst it is not all doom and gloom, the Budget yesterday did precious little to benefit the immediate fortunes of the UK Woodworking Industry.  We have summarized some of the key points below.

Housing

The announcements on housing are all off the balance sheet – real capital investment is set to see 15,000 homes built, but when? 

Of the £4.5 billion announced to support housing, £3.5 billion is support for homeownership through extensions to the Firstbuy shared equity scheme and the Newbuy mortgage guarantee scheme, under the banner of a new initiative, Help to Buy.  The remainder is made up of £800 million of equity loans for private rented sector homes and £225 million of grant for affordable homes linked to the government’s £10 billion loan guarantees scheme.

These will certainly provide a boost, but again when?  The concern is that this is not direct investment, it is wrapped in complexity and reliant on private sector investment, planning and house prices not falling.  It is also reliant on major House Builders releasing land for development.  Since the Housing strategy was launched in 2011, the government’s £10 billion guarantee scheme for housing has seen housing starts fall – to date only 1,500 loans have so far been through First Buy (against a target of 100,000!).   Real activity is in danger of being choked in bureaucracy and nothing will happen fast enough.

Apart from the timing, the concern is that we are essentially under-writing loans from the public purse in an economy in which the private sector is the most indebted in the world.  If house prices were to fall, the cost of this could be significant.  It could also act as a disincentive if house prices were to fall to invest deeper in housing.

Real capital investment in social housing would have been better in both the short and long term.

In reaffirming a commitment to Zero Carbon homes by 2016 the Chancellor has introduced “Allowable Solutions”.  Housebuilders will have to contribute to this “Allowable Solutions” pot if they cannot afford to meet the sustainability criteria for a development.  Money will go to the local authority to offset with an environmental project (for instance a wind turbine).  Details are to be clarified in the coming months.

Refurbishment

Angela Brady, president of the Royal Institution of British Architects, noted: ‘Government.   should act as a catalyst for sustainable construction growth where the market is failing to deliver. Today’s Budget was the opportunity to kickstart a major programme of capital investment in new affordable homes and to lay the foundations for the green economy – on both counts the chancellor has failed to deliver”.  This sums it up well.

Many leading lobby groups (and indeed the Labour Party*) targetted reduced VAT for Construction as a way of kick-starting growth.  This exemption would kick start refurb work, improve the energy efficiency of homes and support the Green Deal.  The legality of this was confirmed in March 2009 by a decision by EU Finance Ministers that member states be allowed to reduce VAT to 5% on particular goods and services, including the domestic building repair and refurbishment sector.   A 2010 report by Experian demonstrated that a VAT cut to 5% would:

– create more than 24,000 jobs in the construction sector, as well as an extra 31,000 other new jobs in the wider economy in 2010 alone.

– contribute more than £1.4 billion to the UK economy in 2010 alone, rising to £17 billion by 2019.

– result in an extra £450 million a year for the improvement of the UK’s social housing stock. This would be enough to renovate or bring back into use approximately 19,000 homes per year.

– generate around £1.23bn extra expenditure over the next decade on energy efficiency measures.

UK Government has implemented a similar measure in a restricted way, with certain energy saving materials – but it is being challenged through the courts that this interpretation is illegal.  So cutting the VAT across the Board would have the added benefit of saving the time and hassle associated with defending this position.

The economic benefits would be linked with real improvements in the structure and performance of the construction sector.

Tax breaks

The Chancellor will be reducing the main rate of corporation tax by 1 per cent to 20 percent from April 2015.  Britain will at this point have the lowest rate of corporation tax in the G20 and will have a unified rate of corporation tax for the first time since 1973.  This is without doubt good for competitiveness, but still on the horizon.

Plans to increase the personal allowance to £10,000 have been brought forward by one year and should help to offset the pay inflation gap.

As anticipated, the 1.89p per litre fuel duty increase scheduled for September has been cancelled.  With price at the pumps a record high, this is a prudent move.

Also good news on National insurance, with the Government announcing an Employment Allowance of £2,000 for businesses and charities to set against their employer NICs from April 2014.  The Red Book states, “This will particularly help small businesses who want to hire their first employee or expand their workforce.”  Details are scarce at this stage, but the concern here is that £2k will do little to encourage recruitment of new staff and is more likely going to have to be used to offset bad debt caused by companies going under in a low growth environment.

Other announcements such as R&D incentives were in the main re-announcements from previous Budget and Autumn statements.

Pension reform

A single-tier State Pension will be introduced. This means the optional State Second Pension (SSP) will no longer exist.  At the moment, many individuals opt out of paying additional contributions to the SSP. In 2016-17 those who are opted out will contribute more in National Insurance, and in return they will get a more generous State Pension. The self-employed will not be included in these changes and more detail is expected on these plans shortly.

Our official statement, released yesterday, is:

“What we have seen is more balance sheet bingo than tangible, practical, growth focussed policy.  Tax cuts are welcome, but without growth they are not enough.   And while more flexible mortgage loans will provide some help to home buyers, it’s unlikely to create the step change we need to see.  I remain concerned for our members, who operate at the very heart of manufacturing.   Virtually the entire business world stood up and asked for more housebuilding – the measures announced are not enough fast enough.

“We joined the leading lobbyists in the industry to ask for an end to the destructive nature of high VAT on refurbishment work.  What we got was 1p off a pint.  Where is the much needed support for the Green Deal?

“The Government continues to be soft on banks which regularly shut the door on manufacturers starved of cash.  It underwrites their risk while allowing them to charge eye-watering interest rates on any money they are actually lending rather than bleeding out of the system as bonuses.

“Let us not mistake austerity for strength. To drive growth we don’t need an iron chancellor, we need an inspiring chancellor – one who is committed to encouraging growth, one who can listen, adapt and evolve.  I didn’t see that today.”

Iain McIlwee, Chief Executive of the British Woodworking Federation

Please do let us have your views and send your comments to: iain.mcilwee@bwf.org.uk

* Labour has pledged VAT cuts to 5 per cent for home repairs, maintenance and improvements and a stamp duty holiday for first time buyers buying homes worth up to £250,000.  The party called for the government to use proceeds from the sale of the 4G mobile spectrum to build 100,000 new homes.