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News Release

London

Jones Lang LaSalle Comment on the 2010 Budget

Budget Impact on the UK Commercial Property Industry


London, 24th March 2010 - The Budget took place today, six weeks ahead of the widely expected general election on the 6 May. The forthcoming election will be centered on the question of when and how to address UK’s fiscal deficit. The ‘how’ refers to the mix of tax rises and spending cuts, the ‘when’ refers to the date spending can first start to be reduced without jeopardising the fledgling recovery. This is not a comfortable position for whatever government emerges and is reflected in today’s budget.

Perhaps unsurprising therefore the Chancellor’s speech sought to balance the challenges of a pre-election ‘sweetening’ budget alongside the market’s need to understand how the debt burden is to be driven down in the medium term.

The Chancellor confirmed there will be no rises in corporation tax; a small concession to the voting public and small businesses. Although he announced a 1% rise in national insurance, this will only be for salaries over £20,000, and there are to be no increases on Capital Gains Tax as had been widely speculated. Although all concessions are welcomed, the increasing taxation on mid and higher earners will impact household balance sheets, which is likely to hit consumer spend and therefore the profitability of retailers.

The goal of halving the UK deficit as a percentage of GDP over the next four years will be a challenge. There will be worries over the speed of this, and we have seen recent concerns regarding the possibility of the UK losing its triple-A rated sovereign credit profile.

The reduction of public sector debt must be a priority for any Chancellor; that said the UK benefits from the structural profile of its debt and its weighted average number of years to maturity is over 13, comparing favourably with other major nations who average less than six years. This gives the UK time to manoeuvre, and allows for the possibility that a substantial period of economic growth could make inroads into the UK deficit.

Specific measures to impact the UK property market include:

  • The case for a bank levy was made, but only with global agreement – without global agreement such a levy could further threaten London’s position as a leading financial centre. Although no specific action was outlined, any anticipated regulation on the banks is likely to keep the costs of lending high, ultimately impacting both the real estate capital markets and debt funding for property development.
  • The 50% one-off bonus tax rate will commence on 6 April – this was widely anticipated to bring £550m to the Treasury’s coffers, but to date has raised £2bn. This tax is on the banks and further income tax will be levied on individuals. Such windfall taxation will impact the bonus money available to be invested in residential property.
  • Earners with income above £100,000 are to have their personal allowances withdrawn and the 50% tax rate for earners over £150,000 will begin next month.
  • The Community Infrastructure levy commences on 6 April 2010 – although development is currently limited, the new levy will have an impact as the market cycle accelerates.

Stephanie McMahon, Head of UK Research at Jones Lang LaSalle said: “Demand for commercial property from tenants continues to be subdued and the uncertainty over the election is not helping. With government debt needing to be reduced, however, £20bn to be raised from property assets plus 15,000 civil servants to be relocated out of London over the next five years; we anticipate greater activity from the public sector estate. This will result in workplace strategies and sites becoming available for redevelopment.”