2012 Autumn Statement: property implications

Practical Law UK Legal Update 1-522-8785 (Approx. 14 pages)

2012 Autumn Statement: property implications

by PLC Property

2012 Autumn Statement

On 5 December 2012, the Chancellor of the Exchequer, George Osborne, delivered the 2012 Autumn Statement.

This update analyses the key implications for the property industry. For an analysis of other aspects of the 2012 Autumn Statement, see Further reading.

Defined terms

The following defined terms are used in this update:

Autumn Statement: 2012 Autumn Statement.
Implementation Update: HM Treasury and BIS: Plan for Growth: Implementation Update (December 2012).

Business rates: empty property rates

Subject to consultation, the government proposes to exempt from empty property rates all newly-built commercial property completed between 1 October 2013 and 30 September 2016. The exemption will apply:

For the first 18 months following completion.
Up to the state aid limits (for more information on state aid, see PLC Competition, Practice note, Competition regime: State aids).

The proposal is an attempt to encourage new construction projects and will be welcomed by the property industry.

(Autumn Statement, paragraphs 1.135 and 2.85.)

Energy and buildings

CRC Energy Efficiency Scheme

The government has announced that the:

CRC will be simplified from 2013, rather than scrapped.
CRC Performance League Table will be scrapped.
Price of CRC allowances will be as follows:
- £12 per tonne of carbon dioxide (tCO2) in 2013-14;
- £16/tCO2 in 2014-15; and
- from 2015-16 onwards, the price will increase in line with the Retail Prices Index (RPI).
Government will review the effectiveness of the CRC in 2016 and consider whether the same policy objectives could be achieved in a different way.
Tax element of the CRC, introduced in the Spending Review 2010, will be a high priority for removal when the public finances allow. The Autumn Statement does not explain what this means. This might mean that the government is planning to reintroduce recycling payments. It was originally envisaged when the CRC was first launched that the revenue from the sale of CRC allowances would be recycled back to participants based on their rankings in the Performance League Table. However, the government announced in the Spending Review 2010 that this would no longer be the case and that the revenue would instead be used to support public finances (see Legal update, CRC: Government scraps recycling of revenue from the sale of allowances). If the Performance League Tables are scrapped (as announced in 2012 Autumn Statement), presumably the reintroduction of recycling payments would require a new mechanism for deciding how those payments should be allocated to participants.

The Department of Energy and Climate Change says on its website that details on the changes will be set out in the government's response to the consultation it carried out in March 2012 on proposals to simplify the CRC, and that it plans to publish that response "shortly" (see DECC: CRC Energy Efficiency Scheme (5 December 2012)). For more information on the March 2012 consultation, see Legal update, CRC: detailed analysis of DECC consultation on proposals to simplify the scheme).

For more information about the CRC in general, see:

(Autumn Statement, paragraphs 2.87-2.88.)

Supporting households

Council tax

For the third successive year, the government will provide a grant to local authorities in England that freeze or reduce their council tax for 2013-14. £450 million is available, over the next two years, for this purpose.

(Autumn Statement, paragraph 1.148.)

Housing and local development

As first announced on 6 September 2012, the government has confirmed the following additional funding:

£280 million for the FirstBuy equity loan scheme to help first-time buyers in England.
£300 million for the Affordable Homes programme, to deliver more affordable homes and bring empty homes in England back into use.
£200 million to support building private-sector rented homes.

For more information on the government's housing strategy, see Legal update, New housing strategy launched.

The Infrastructure (Financial Assistance) Act 2012 (IFAA 2012) was passed on 31 October 2012. The IFAA 2012 authorises private and affordable rent housing guarantee schemes. Nearly 60 potential sites that the guarantees could support have been identified and the government has begun the procurement process.

The government is keen to speed up the delivery of large housing developments, and has promised significant funding for investment in local infrastructure and to help prepare surplus or derelict public sector land for disposal. £60 million will be available specifically to support the development of infrastructure in specific Enterprise Zones.

(Autumn Statement, paragraphs 2.32-2.37, 2.39 and 2.64-2.65.)

Housing benefit

In the June 2010 Budget, the government announced that from the financial year 2013-14, Local Housing Allowance (LHA) would be adjusted in line with the consumer prices index, see Legal update, June 2010 Budget: property implications: Housing benefit.

The government announced that it will adjust LHA in line with this policy in April 2013, but will cap increases to 1% in most areas in 2014-15 and 2015-16, to ensure that housing benefit remains affordable.

To reflect the fact that rental markets differ across the country, the government will use 30% of the potential savings to exempt rates in those areas where rent increases are highest.

(Autumn Statement, paragraphs 1.158 and 2.64.)

Support for Mortgage Interest

The government has announced that the Support for Mortgage Interest (SMI) scheme, which was due to end in January 2013, will be continued to March 2015.

The SMI scheme is available as an additional benefit to homeowners already receiving Income Support, income-based Jobseeker's Allowance or income-related Employment and Support Allowance. SMI is currently available after 13 weeks at 100% of eligible mortgage interest on mortgages of up to £200,000. For more information, see Practice note, Help for residential borrowers struggling with mortgage repayments: Where can the borrower get financial help?.

(Autumn Statement, paragraphs 1.166 and 2.65.)

High income tenants in social housing

The government published a consultation in June 2012 on its proposals to introduce an income threshold for social housing above which tenants will pay full market rents, see Legal update, DCLG consults on dealing with high income tenants in social housing.

The government has announced that it will respond to this consultation by the 2013 Budget.

(Autumn Statement, paragraphs 1.167 and 2.37.)

Planning reform

In the 2011 Autumn Statement, the UK's planning and consent regime was identified as a major reason for infrastructure being more expensive to build in the UK compared with other European countries. The regimes were also blamed for causing significant delays. The Autumn Statement sets out progress made to date.

Growth and Infrastructure Bill

In December 2009, Adrian Penfold (the head of planning and environment at British Land) was invited to review the regimes for obtaining non-planning consents for property development projects. In March 2010, he submitted an interim report, which concluded that the framework for non-planning consents was overly complex. In his final report, published in July 2010, Mr Penfold made 12 recommendations that aimed to increase certainty, make decisions speedier and reduce duplication and bureaucracy in determining non-planning consents. For further information, see Legal update, Penfold Review: final report published.

On 6 September 2012, the government announced a series of proposed measures which were intended to boost housebuilding, jobs and the economy (see Legal update, Government's proposals for housebuilding and extension of permitted development rights.

On 18 October 2012, the Growth and Infrastructure Bill 2012 (Bill) was introduced into Parliament. The Bill is largely an amending piece of legislation, taking forward both the recommendations from the Penfold Review and the government measures announced in September 2012 as part of a bid to boost economic growth by streamlining the planning system. The majority of provisions extend to England and Wales, with certain provisions extending to Scotland. The Bill had its second reading on 5 November 2012. For further information, see Legal update, Growth and Infrastructure Bill: an overview.

(Autumn Statement, paragraph 2.147.)

National Planning Policy Framework

In January 2011, the government announced a review of planning policy in England designed to consolidate circulars, planning policy guidance notes and planning policy statements into a single national planning policy framework (NPPF).

The NPPF was published on 27 March 2012 and is in force.

The NPPF:

Consolidates over 1,000 pages of planning guidance into a single 59-page document.
Sets out the government's planning policies for England and how they are expected to be applied.
Must be taken into account in the preparation of local and neighbourhood plans.
Is a material consideration in the determination of planning applications.

At the heart of the NPPF is a presumption in favour of sustainable development. For further information, see Practice note, National Planning Policy Framework (NPPF): an overview.

In October 2012, the government announced the appointment of Lord Matthew Taylor to lead a review of the existing 6,000 pages of planning practice guidance that supports the implementation of national planning policy, and which the Department for Communities and Local Government (DCLG) owns or has jointly badged with other government departments or agencies. The aim was to produce an accessible and more effective set of practice guidance. Lord Taylor was to report back to the government before the Autumn Statement.

The government has announced that it will shortly set out its response to Lord Taylor's review of planning practice guidance.

(Autumn Statement, paragraph 2.147.)

Streamlining planning consents

In November 2012, the government published two consultations on proposals to extend the nationally significant infrastructure planning regime (see Legal update, Consultations on extending the nationally significant infrastructure planning regime).

(Autumn Statement, paragraph 2.148.)

Environmental impact assessments

The government has announced that it will consult on updated guidance on conducting environmental impact assessments by the 2013 Budget and will consult on raising screening thresholds set out in the Town and Country Planning (Environmental Impact Assessment) Regulations 2011 (SI 2011/1824) later in 2013. For background information on environmental impact assessments, see Practice note, Environmental impact assessments (EIAs): overview.

(Autumn Statement, paragraph 2.149.)

Local development orders and Enterprise Zones

The government will continue to support local authorities in implementing local development orders and setting up locally funded Enterprise Zones. For background information on local development orders, see Practice note, Local Development Orders.

(Autumn Statement, paragraph 2.162.)

Public land

On 31 October 2012, Lord Heseltine, published No stone unturned in pursuit of growth, his personal report on how to encourage UK economic growth by structuring the key drivers for economic success (business, central government and local leadership) (see Legal update, Heseltine review on economic growth published).

Lord Heseltine recommended that the Government Property Unit (GPU) should work with local authorities to identify and publish details of all surplus and derelict public land on the Electronic Property Information Mapping Service (ePIMS) database, so that local enterprise partnerships and local authorities can collaborate to bring this land back into reuse to support the local economic strategy.

The government has announced that the DCLG and the GPU will work with the wider public sector to identify the best way of publishing data in a single database.

(Autumn Statement, paragraph 2.163.)

Progress on the Plan for Growth

In March 2011, the government published The Plan for Growth, which set out reforms in areas that act as barriers to enterprise.

Alongside the 2011 Autumn Statement, the government published The Plan for Growth: Implementation update. This reflected measures included in the 2011 Autumn Statement, but also provides an update on other matters. For more information, see Legal update, Progress on implementing the Plan for Growth.

The government published Plan for Growth: Implementation Update (December 2012), to supplement the Autumn Statement.

Delivery of these commitments remains a priority across government. Over half of the commitments are complete. They include:

The introduction of a new presumption in favour of sustainable development (see Practice note, National Planning Policy Framework (NPPF): an overview).
Legislation to introduce a duty on local authorities to co-operate on planning issues (see Practice note, Localism Act 2011).
Consultation on proposals to allow existing agricultural buildings to be used for other business purposes (see Legal update, Consultation on changes to permitted development and use classes).
The introduction of a package of measures to support thriving town centres (see Legal update, Government response to the Portas Review published).

National Infrastructure Plan: update 2012

The government published National Infrastructure Plan: update 2012 (NIP update 2012) alongside the Autumn Statement, to measure progress against the National Infrastructure Plan 2011 (NIP 2011). For details of the NIP 2011, see Practice note, National Infrastructure Plans: construction, environment and property implications.

The following aspects of the NIP update 2012 will be of particular interest to property practitioners:

Roads

The government is investing in the following projects to improve the road network and reduce congestion including the following specific works:

upgrading sections of the A1 (Lobley Hill and Leeming to Barton) in the North East to bring the route from the M25 to Newcastle up to motorway standard;
expanding capacity by building a new link between the A5 and M1 in the East of England and making the A30 Temple to Carblake in the South West a dual carriageway;
improving junction 30 of the M25 from 2015 and junction 12 of the M40 in the West Midlands from 2013; and
investing £42 million in the Sustainable Transport Fund to create cycling infrastructure.

(NIP update 2012, paragraph 2.5). A summary of the delivery of road programmes to date is set out in Annex B to the NIP update 2012.

Public transport

The UK Guarantees scheme is principally designed to "kick start critical infrastructure projects that may have stalled because of adverse credit conditions". In addition to providing funding for major infrastructure projects, UK Guarantees also includes measures for temporary government lending to public private partnership (PPP) projects and credit support for UK exports. For more information, see Legal update, Government announces boost for infrastructure investment and credit support for UK exporters.

As one of the first projects to benefit from the UK Guarantees scheme, the government is providing a UK guarantee to allow the Mayor of London to borrow £1 billion to support the Northern Line extension to Battersea. This is subject to the completion of a binding funding and development agreement, but would involve the redevelopment of Battersea Power Station and the surrounding areas of Vauxhall, Nine Elms and Battersea. (NIP update 2012, paragraph 4.15.)

The government will:

publish a "Door to Door Strategy" to support a sustainable transport system, encouraging people to make more sustainable choices in their use of the transport network.
ring fence £200 million in the rail high-level output specification for the strategic freight network to continue developing an improved logistics system; and
commit to funding a new rail link from the Great Western main line near Slough to Heathrow.

(NIP update 2012, paragraph 3.5.)

Energy

The government's Gas Generation Strategy will set out its intended approach to achieving increased gas production. Up to 26 gigawatts (GW) of new gas capacity could be required by 2030 on current carbon budgets. If these were revised upwards, and emissions reductions are more gradual, up to 37 GW of new gas plant could be required.

The government has also granted development consent to five power station projects since March 2012, comprising two onshore wind farms, two offshore wind farms and an energy from waste facility. (NIP update 2012, paragraph 3.12.)

For details of the CRC Energy Efficiency Scheme generally, see CRC Energy Efficiency Scheme.

Flooding

The government is allocating an additional £120 million over the spending review period to build new flood defences. Half of this funding will be awarded to the strongest bids from schemes such as those being developed in Sheffield, Ipswich, Leeds, Exeter and Derby. The remainder will be used to accelerate planned schemes within the wider Environment Agency programme. For details of the current initiatives to help manage flood risk in England and Wales, see Practice note, Managing flood risk. (NIP update 2012, paragraph 3.27.)

Broadband speed

Following formal European Commission approval on 20 November 2012, the implementation of local broadband projects is being implemented. The government is working to prioritise projects with particular delivery challenges, such as Northumberland. The relaxation to development requirements for operators could affect landowners. (NIP update 2012, paragraph 3.15).

The government also stated that it supports potential commercial initiatives involving infrastructure providers, such as Network Rail. This could facilitate the sharing of existing mobile communications infrastructure with UK mobile network operators. Specifically, the government intends to include powers in the High Speed 2 Hybrid Bill to provide the capacity for a fixed communications network to be provided alongside the railway in the future.

Development consent for major infrastructure projects

The government will implement improvements identified in its review of the regime for nationally significant infrastructure projects (NSIPs) under the Planning Act 2008, including publishing the following guidance:

new guidance on the pre-application process in December 2012; and
other guidance notes in early 2013.

(NIP update 2012, Annex A, Table A1.)

The government is also reviewing the thresholds for some of the existing categories of NSIP (NIP update 2012, paragraph 4.25). For more information on the proposed amendments to NSIPs, see Legal update, Consultations on extending the nationally significant infrastructure planning regime.

PF2

Alongside the Autumn Statement, the government also published the much-heralded new private finance initiative (PFI) model, A new approach to public private partnerships and the Standardisation of PF2 Contracts. Sometimes referred to as the son of PFI, it will be known as PF2.

The government's aim is for a new, faster and more transparent model of infrastructure procurement, with:

An 18-month time limit on PFI bidding processes. If the process is not complete during this time, the funding may be lost.
PF2 project companies publishing their revenues and profits.
A projects approval tracker, set up by HM Treasury, which will be published online and enable industry to check on progress of bids and see how business proposals are progressing.
Centralised procurement units managing procurement in certain sectors, such as education, health and the armed forces.

The government has indicated that a number of draft forms will be published for consultation, including a standard form services output template, a pro forma payment mechanism and a shareholder arrangement. The new forms will see the government take stakes in the majority of PF2 schemes to ensure any excess profits are shared with the taxpayer. The government equity stakes will be managed by a central unit at HM Treasury, and will see the government take a place on the board of project companies. The Autumn Statement states the first programme to use PF2 will be the £1.75 billion privately financed element of the Priority Schools Building Programme.

(Autumn Statement, paragraph 2.128.)

For more information, see Legal update, 2012 Autumn Statement: PFI reform.

Rural and agricultural land

Rural fuel rebate

The government announced that, following the implementation of the rural fuel rebate pilot scheme for island communities, it will consider seeking European Union approval to support extending the scheme to remote parts of the UK, with similar "cost characteristics".

To reflect the high transportation costs of fuel to the islands in the Inner and Outer Hebrides, Northern Isles, islands in the Clyde and the Isles of Scilly, fuel retailers have received a five pence per litre discount on fuel (petrol and diesel), which they have passed on to their customers since March 2012.

(Autumn Statement, paragraph 2.91.)

Third party certification schemes

The government continues to work with the farming industry to reduce compliance burdens on agricultural businesses through the introduction of earned recognition inspection regimes such as the Red Tractor scheme (see Red Tractor FAQs).

The Red Tractor logo appears on the packs of nearly £5 billion worth of British Food. The mark indicates that the food can be traced back to farms producing under an Assured Food Standards (AFS) licence. The red tractor mark indicates compliance with specific food assurance schemes registered with AFS.

(Implementation Update, paragraph 214.)

Rural Community Renewable Energy Fund

The £15 million Rural Community Renewable Energy Fund is on track to launch by March 2013. The government announced the fund in the 2011 Autumn Statement to help communities meet the up front cost of developing renewable projects.

(Implementation Update, paragraph 219.)

Real Estate Investment Trusts (REITs)

It has been widely reported that the government announced in the 2012 Autumn Statement that it will go ahead with proposals to remove tax barriers, which discourage UK REITs from investing in other UK REITs and that no changes will be made at this stage to encourage UK REITs to invest in social housing. We have not been able to locate a published government statement to this effect and we have seen comment suggesting that the announcement will instead be made on 11 December. We will follow up on this issue and report further shortly.

For information on the April 2012 consultation on these issues, see Legal update, REITs consultation includes proposals to change tax rules for REITS investing in REITs. For background on REITs, see Practice note, UK REITs: questions and answers.

VAT

The 2012 Budget proposed a number of changes aimed at reducing or eliminating anomalies in the VAT system. For more information, see Legal update, 2012 Budget: property implications: VAT: correcting anomalies and closing loopholes.

The Autumn Statement explains how some of those proposals were implemented.

Holiday caravans

The 2012 Budget indicated that large caravans, not used as residences, would cease to be zero-rated for VAT purposes. At that time, the standard rate of VAT applied to caravans that could legally be towed by a family car, which meant that many holiday caravans (including static caravans) were zero-rated. Zero-rating was only ever intended to apply to caravans that could be used as full residences.

Following a consultation exercise, the 2012 Budget proposal was changed slightly. Certain larger caravans, which were not designed for continuous, year-round occupation, will cease to be zero-rated from 6 April 2013. However, these larger caravans will be subject to VAT at the lower rate of 5%, rather than at the standard rate (paragraphs 4 and 6, Schedule 26, Finance Act 2012) (FA 2012). Smaller caravans remain subject to standard-rated VAT.

Alterations to protected buildings

While repairs to protected buildings were subject to VAT at the standard rate, alterations to them were zero-rated. This difference in treatment led to confusion and arguments over whether particular works were alterations or repairs. For the definition of "protected building", see Legal update, 2012 Budget: property implications: Alterations to listed buildings.

The 2012 Budget proposed to remove zero-rating from alterations to protected buildings. This was enacted by paragraph 3 of Schedule 26 to the FA 2012. In view of comments made on the proposals, the FA 2012 contained transitional arrangements that mean that supplies of services and building materials in respect of approved alterations to protected buildings will continue to be zero-rated until 30 September 2015. The transitional arrangements apply if the supplies are made within the scope of either:

A written contract that was entered into before 21 March 2012.
A relevant consent that was applied for before 21 March 2012.

For more information, see Legal update, HMRC guidance on VAT anti-forestalling rules for approved alterations to listed buildings.

Self-storage

The VAT status of self-storage services, where providers allocate their customers with a particular area in which to store items, was not entirely clear. See Legal update, Upper Tribunal reverses ruling on VAT status of storage units.

At the date of the 2012 Budget, approximately 30% of these self-storage facilities were subject to VAT at the standard rate, which allowed the storage providers to reclaim the VAT they expend on constructing or buying their storage facilities. Some of these storage providers are using avoidance arrangements to convert the taxable supplies they make back to exempt supplies, allowing them to keep the VAT that they have claimed back, while charging customers at similar rates to competitors who have not waived the exemption from VAT.

Paragraph 5 of Schedule 26 to the Finance Act 2012 brought self-storage facilities within the scope of VAT and self-storage is now a standard-rated supply. Following a consultation exercise, the Value Added Tax (Amendment) (No. 2) Regulations 2012 (SI 2012/1899) (VATA2 Regulations 2012) included transitional rules allowing owners of self-storage facilities to elect to bring the facilities within the capital goods scheme, even though their value is below £250,000.

For more information on the VATA2 Regulations 2012, see PLC Tax, Legal update, VAT amendment regulations made.

2012 Autumn Statement: property implications | Practical Law