Scotland’s Largest Budget Faces Recovery Challenge
The Scottish budget announced on 28 January is in many ways a holding affair that awaits the outcome of the UK Budget on 3 March. Nonetheless, Finance Secretary Kate Forbes had decisions to make on some £54bn of public money, including UK funds. This made January's budget the largest in Scottish Government history. The public health emergency rightly remains the government’s top priority, but the economic crisis it has caused now looms imminently as the government assesses the fiscal impact of the emergency measures required to gain control of the virus.
The business community's key ask
For the business community the main ask was to see an extension to the 100% business rates relief for retail, hospitality, leisure and aviation. This ask was granted – albeit for an initial 3 months pending a UK decision to extend their 100% relief scheme for these sectors. Moreover, the Scottish Government is to cut the Non-Domestic Rate poundage to 49p in the pound. This is virtually unprecedented outside of revaluation years.
Commercial property
In further changes to business rates policy, there was a welcome amendment to the business growth accelerator relief to support property improvements involving a change of use, as well as an extension to fresh start relief. Yet, disappointingly, there was no relief for the growing number of empty properties that have become vacant during the pandemic and cannot be let due, in effect, to market failure enhanced by lockdown restrictions. We have resolutely told the government it is wrong to tax properties and businesses unable to trade, and this should include the real estate sector.
Housing market
The Scottish government has also ended two policies designed to support the housing market. First, the residential LBTT (Land & Buildings Transaction Tax) exemption up to £250,000 has been returned to its previous level of £145,000. The government will no doubt point to the strength of the residential market, some £7.4bn in transactions over the last three months of 2020, as justification for ending the holiday. It is interesting to note, however, that LBTT revenues have soared while the discount has been in place.
The second policy was to end the Help to Buy programme early. This was not announced with any great fanfare but covered in financial transactions data. There is little doubt that Help to Buy has been a major fillip to the housing market, and it will be interesting to see the impact of its removal. With growing uncertainty around employment and continued lockdown restrictions, there is a danger that the housing market may retract from its pre-Christmas levels.
Current and near-term challenges
The pandemic has had a far-reaching impact on the way we use and occupy property. These effects have disrupted the sector immensely. The recovery may well lead to a real estate sector that will operate very differently to the one that entered the pandemic, with greater flexibility and approaches to delivering new places to live, work and relax.
Long-term challenges remain including the need to reinvest in older buildings and to improve our infrastructure and urban centres to be sustainable and dynamic destinations that will attract consumers and companies alike. The budget offers some support for these objectives, including £1.16bn of investment in sustainable homes, continued support for city deals and the first tranche of capitalisation for the Scottish National Investment Bank. However, we fear these measures are simply not enough to meet the challenges ahead of us.
