Restarting our becalmed property market is seen by many commentators as the solution to failing confidence and boosting all round consumer spending. However, Monday's Pre-Budget Report did little to signal that either the commercial or residential property market will see a recovery for some time to come.
Yes there was help for small businesses with a raft of measures aimed at helping corporate enterprises facing credit constraints, including a new Small Business Finance Scheme and a £1 billion guarantee facility to support bank lending to small exporters as well as a £50 million fund to convert businesses' debt into equity; and a £25 million regional loan transition fund. There was even provision for more generous tax relief for businesses now making losses; measures to enhance small and medium size businesses access to Government contracts; the deferral of the increase in the small companies' rate of corporation tax and a temporary increase in the threshold at which an empty property becomes liable for business rates.
For our beleaguered retailers there was the much vaunted 2.5 per cent reduction in VAT from 17.5 per cent to 15 per cent, the lowest allowed under EU rules and which is hoped will kick-start spending on the high streets.
In addition, the Government is bringing forward public sector capital spending, which will benefit businesses, in particular in the construction sector.
On the residential side the Chancellor announced inter alia an increase in personal allowances as well as help through mortgage rescue schemes for eligible homeowners in difficulty with mortgage repayments, and a commitment from major mortgage lenders not to initiate repossession action within at least three months of an owner-occupier going into arrears.
So far so good but as usual what the Chancellor gives with one hand he takes away with the other. A 0.5 per cent increase in National Insurance contributions for individuals and businesses; a 2 pence increase in fuel duty; increases in taxes for higher earners and increases in tobacco and alcohol duty.
However, whilst some measures are permanent – the NI increase in particular – most are temporary and it is hard to see how any will really kick-start the economy. The cut in VAT is only until the end of next year and the question is whether or not retailers on the high street will pass on the VAT reduction. Retailers have already heavily discounted many items, which has so far failed to reignite high street sales, with many shoppers staying away waiting for even bigger reductions. So will retailers just use the reduction in VAT to rebuild their margins? After all the reduction in VAT will be an administrative nightmare for many shop keepers.
Empty property relief is also just a temporary increase in threshold for one year from 2009/2010 and only applies to properties with a rateable value of less than £15,000, which equates to an annual rental value of approximately £20,000. So the exemption will only apply to properties worth less than around £250,000 at most. Hardly likely to affect empty properties in larger towns and cities!
Two things stand out in the Pre-Budget Report. One is the staggering amount of borrowing the Country is taking on and which the Chancellor is predicting will take seven years to 2015/16 to repay, and only if growth picks up towards the second half of 2009. If this does not happen, it could mean seven years of pain for us all, far longer than we have been lead to believe and longer than even the most pessimistic projections.
The other stand out point is the Chancellor's prediction that inflation will fall to 0.50 per cent by the end of 2009. If so, there is a strong possibility that the Bank of England Base Rate could fall to around 1 per cent. Such an unprecedented low Base Rate would have investors searching around for a haven for their money with property likely to be one of the few to offer a realistic prospect of delivering a return significantly higher than any savings rates offered by a bank. This alone, you would think, would be enough to get the property market restarted. But you would be wrong. Until the banks start lending again there is frankly little prospect of either falling interest rates or the Chancellor's financial stimulus restarting the property market. What we needed from the Chancellor and what the commercial and residential property markets are crying out for is a clear directive to the banks to begin lending again.
Unless this happens we can forget the property mantra of location, location, location. What we need is liquidity, liquidity, liquidity.
