What impact will the fiscal stimulus announced in the Summer Statement have?
Which of the policies matter to our industry?
What will come in the Autumn budget?
How far would our economy shrink due to lockdown? How many jobs would be at risk? We now have tentative answers to those questions and understand the scale of the problem. But what are the next steps in the Government’s plans to get the economic recovery underway?
We could be entering a new era for the UK real estate market. There is a fantastic opportunity for our industry to ensure long-lasting positive change while we have the Government’s attention.
The scale of the problem
Since lockdown began, over 600,000 people have lost their job. It would have been much worse without the unprecedented actions of the Treasury. Over 11 million private sector workers are on the Government pay roll – a third of all jobs. But the hours not worked, and money not spent, has caused a quarter of our economy to vanish.
The Treasury hasn’t just propped up the job market with its furlough schemes; it has announced 38 policies since the start of the crisis at a running cost of £230bn across tax measures, grants and loans made to date. Meanwhile, the Bank of England has bought over £100bn of gilts since March.
The purpose of this stimulus was to mitigate lost output, protect jobs and keep as many people in a position to take part in the recovery as possible – not prevent a recession. Even so, the decline in economic output is shocking.
However, the daunting recovery is already underway as restrictions ease. Economic output ticked up in May. The number of people supported by furlough schemes has levelled out in recent weeks, and the number of people on work-related benefits declined in June.
Our attentions now turn to what policies can support the recovery and ask what is real estate’s role?
What matters most for the real estate industry?
Fiscal stimulus can seem a disorganised and disconnected set of policies, but each policy needs a narrow focus to be effective. Luckily, the real estate industry has often been that focus. Business rate holidays, temporary cuts to stamp duty and tax cuts for the construction industry have been a direct help.
The largest schemes have also indirectly helped by alleviating cashflow problems along the chain from consumer to tenant, landlord and lender. However, landlords have lacked any direct support, despite being an important link in that cashflow chain.
Remit Consulting confirmed that tenants only paid 82% of rent due for the March quarter within 90 days of the due date. That suggests £1.5bn of unpaid rent across the industry. The rent collection rates for June have been lower and so a larger shortfall will rack up this quarter.
This is unsustainable and landlords will need more government intervention if rent payment levels stay low. Immediate options are:
- Government guarantees against unpaid rent as a form of bad debt relief
- Making elements of the government’s new Code of Practice for commercial property relationships mandatory to ensure tenants that can pay do so
- Ending the Government moratorium on property owners’ rights of action
Currently, Covid-specific policy protects tenants from eviction if they can’t pay rent but guarantees against unpaid rent would also ensure landlords aren’t out of pocket.
A less hands-on approach would be to make the new Code of Practice mandatory. Tenants unable to pay stay protected, but the 'can pay, won’t pay' tenants would finally honour their lease terms.
Ending the government moratorium on property owners’ rights of action is the most hands-off approach. Landlords could once again take possession of their property if a breach of the lease occurs. The Code of Practice should still apply, and landlords and tenants should still work together to work out the best payment plans if the tenant is in distress, and all current schemes should continue to ensure tenants have full support.
There are no easy options, but the current situation is not sustainable and much of the money spent to prevent a cash crisis might have been a waste if distress merely passes from the tenant to the landlord.
Three Reviews and a Little Budget
Fortunately, the opportunity to gain government support has not passed. We’re meant to have one Budget a year, and since former chancellor Philip Hammond moved the Budget from Spring to Autumn, the main announcements should now come later this year.
Are there big announcements to come, or has the chancellor already thrown in the kitchen sink?
The government delayed last year’s Budget due to the General Election, and following chancellor Rishi Sunak’s summer statement, we’ve now had two sets of announcements this year. The government already refers to the next Autumn Budget as the third phase of its plan for an economic recovery, rather than a standalone event. It will be more of a refresh of policies than another Big Bang of stimulus.
The delayed Comprehensive Spending Review is now underway, which the government will publish in the Autumn, as will the review of the planning system. The review of the business rates system will also complete this Autumn and revaluations will push back to 1 April 2023.
As for stimulus, the existing schemes have more to give. The Treasury will guarantee up to £330bn in loans – we are nowhere near that limit – and the Bank of England still has another £200bn of assets to buy before it hits the Asset Purchasing Programme’s new target.
There is a lot of change coming for the real estate market and our industry bodies are heavily involved in the ongoing consultations. For the industry, the next few months are a chance to make long-lasting changes while it has the government’s attention. We cannot waste that chance. For the government, a functioning and more efficient real estate market is a vital part of its plans for a sustained economic recovery.