Spending Review 2010: property implications

Practical Law UK Legal Update 6-503-6717 (Approx. 8 pages)

Spending Review 2010: property implications

by PLC Property

Background to the SR 2010

On 20 October 2010, the Chancellor of the Exchequer, George Osborne, set out the government's four-year public spending plans in its Spending Review 2010 (SR 2010).

The June 2010 Budget set out the overall level of public spending for the four years from 2011-12 to 2014-15. The SR 2010 now sets out the allocation of these resources across all government departments, according to the government's current priorities. The budgets announced for each department are fixed but departments have the power to decide how best to manage and distribute this money within their areas of responsibility.

The June 2010 Budget announced that public spending, and not taxation, was where the most dramatic reforms to reduce the deficit lay, with a proposed reduction in public spending of £83 billion by the end of 2014-15. For more information on the June 2010 Budget, see Legal update, June 2010 Budget: property implications.

The allocation of public resources in the SR 2010 is designed to reflect the government's overall objectives as set out in the coalition agreement. These prioritise:

Spending that supports long term economic growth, introducing structural reforms to enable a private sector led recovery and building a low carbon economy.
Fairness and social mobility, providing sustained routes out of poverty for the poorest.

For information on the coalition agreement, see Legal update, Coalition agreement final version: property implications.

This legal update covers the main measures in the SR 2010 affecting the property industry. For information on other aspects of the SR 2010, see:

Infrastructure investment

In his statement, the Chancellor announced that the government will prioritise investment in infrastructure that underpins economic growth, in particular transport and green energy infrastructure. Funding will be given to capital projects that will have high long term economic value.

For information on announcements relating to green energy infrastructure, see PLC Environment, Legal update, Spending Review 2010: environmental implications.

In the June 2010 Budget, the Chancellor announced that the government would publish a national infrastructure plan in the autumn. The SR 2010 confirmed that this will be published next week. For more information, see Legal update, June 2010 Budget: property implications: Infrastructure and development.

Transport

The government proposes investing over £30 billion in transport projects over the next four years. The Secretary of State for Transport will be setting out how this money will be allocated next week. In the meantime, a number of capital projects have been announced, including:

Continuation of plans for a new high speed rail network from London to Birmingham, and then to Manchester and Leeds. The government intends to bring forward legislation during this Parliament to allow the project to proceed. For more information, see Practice note, Proposed high speed rail link between London and Birmingham.
Funding to enable Crossrail to go ahead. The Department for Transport's Spending Review Press Release states that substantial, engineering-led savings have been identified, which will involve lengthening the delivery programme for the central tunnel works by about one year. For more information on Crossrail, see Legislation tracker note: Crossrail Act 2008.
Funding for upgrades to the London Underground network.
A new suspension bridge over the River Mersey between Widnes and Runcorn.
An extension to the Midland Metro and redevelopment of Birmingham New Street station.
Widening of the M25 between ten junctions.
Improvements to roads including the M1, M4/5, A23, A46 and the A11.

Other infrastructure projects

Other projects that have been announced include:

Maintenance of existing prisons and funding of essential new-build projects. However, plans for a new 1,500 place prison have been deferred.
Maintenance and investment in the post office network, and protection of community post offices.
A major improvement in flood defences and coastal erosion management to improve protection for 145,000 homes by 2014-15.
New hospital schemes, including St Helier in Surrey, Royal Oldham in Greater Manchester and West Cumberland in Cumbria.
Extensions to the Tate Gallery and British Museum in London.
Investment in superfast broadband for rural areas.
Funding to rebuild or refurbish over 600 schools. New capital spending will be focused on providing new places in areas of severe demographic pressure.

Homes investment

The Chancellor announced that the government will support long term and sustainable growth by investing in and increasing housing supply. This investment will be introduced alongside a major reform of the social housing system.

For information on the social housing announcements, see PLC Public Sector, Legal update, Spending Review 2010: local government implications.

Affordable homes

The government proposes investing £4.5 billion to allow 150,000 new affordable homes to be built over the next four years. This investment, together with the social housing reforms, is intended to make social housing more responsive, flexible and fair and increase the number of people who can access such housing.

New Homes Bonus

The government also announced that it proposes introducing a New Homes Bonus, commencing in April 2011, which aims to encourage and reward local authorities who support housing growth.

The bonus will be the equivalent of matching the additional council tax from every new home for each of the following six years. Details of this scheme will be announced in a consultation at the end of November 2010.

Efficient use of property

The SR 2010 contains reforms to improve value for money across the public sector. This involves disposing of surplus assets and ensuring that government functions are delivered as efficiently as possible.

Sale of assets

The March and June 2010 Budgets contained proposals to sell key assets. The SR 2010 highlights that:

Substantial progress has been made in respect of key asset sales including, for example, introducing legislation on 13 October 2010 to enable the privatisation of the Royal Mail.
The government will take decisions by Budget 2011 on the future of the Tote, and whether to proceed with sales of its interests in NATS (the air traffic controller) and the student loans portfolio.
It intends to hold an auction in 2011-12 for 800MHz and 2.6GHz spectrum suitable for delivering the next generation of mobile broadband. At least 500MHz of public sector spectrum below 5GHz will be released over the next ten years for new mobile communication uses.

In addition, the Department for Transport has issued a press release that it does not currently intend to sell the Dartford Crossing owing to its strategic importance (see Department for Transport press release, Transport Spending Review, 20 October 2010).

For information on the government's proposals in the March and June 2010 Budgets, see:

Strategic property management

The government aims to make savings through improved property management. This involves the following measures:

Central government functions will be subject to a new efficiency regime that will be monitored by the Cabinet Office's Efficiency and Reform Group. The government will use its scale as effectively as possible in relation to spending on property and other contracts.
The government will introduce a new system of national property controls across the central civil and operational estate.
The government believes that it could make substantial gains from a more co-ordinated approach to property asset management in the public sector. It has established a Government Property Unit, which in the first instance will set up property vehicles for the Central London and Bristol office estate from 2011-12.
The government will use online and digital telephony to deliver more of its services. It will rationalise its face to face and telephone services, including using Post Offices for front office services.
The Ministry of Defence will reduce the use of artificial lighting on its estate.

Relocations

As announced in the March 2010 Budget, the government aims to make significant savings by disposing of surplus government buildings. In summary:

The Ministry of Justice will reduce its London estate from 18 buildings to four.
The cost of the Crown Prosecution Service's headquarters will reduce significantly.
The Ministry of Defence will rationalise the defence estate. It will sell off surplus land and buildings, resulting in annual savings of up to £350 million by 2014-15.
The Foreign and Commonwealth Office (FCO) will reduce the costs of its overseas estate, and look for opportunities to reduce its London estate. This includes rationalising the government's overseas operations, such as moving into single premises in countries where the FCO, Department for International Development and other government bodies occupy separate buildings.
The Treasury will maximise the use of its building at 1 Horse Guards Road through subletting. It aims to halve the net cost of its building.
The Cabinet will rationalise its estate and back office services.

Other measures of interest to property practitioners

The SR 2010 includes further measures that may also be of interest to the property industry:

The government will simplify the CRC Energy Efficiency Scheme to reduce the burden on businesses. For more information, see Legal update, Spending Review 2010: environmental implications: CRC.
The SR 2010 includes a number of measures to support the low carbon economy. For more information, see Legal update, Spending Review 2010: environmental implications.
The government has confirmed that it will shortly be publishing the Localism Bill that will set out significant new freedoms, powers and responsibilities for councils and communities and include reforms to the planning system. For further information on the bill, see Legal update, Queen's Speech 2010: implications for property.
The government plans to overhaul the system of funding to local authorities, giving them greater choice over how to use their money. Proposals for local authority powers to implement Tax Increment Financing will be set out in a forthcoming White Paper.
Following responses to a consultation published in July 2010, the Regional Growth Fund is to be extended for three years and increased in size from £1bn to £1.4bn. The government intends Local Enterprise Partnerships to co-ordinate this funding, which will be used to help areas and communities particularly affected by reductions in public spending and will operate in England only.
The government will extend, for a further year, the temporary change to the Support for Mortgage Interest (SMI) scheme, to reduce the waiting period for new working age claimants to 13 weeks and increase the limit on eligible mortgage capital to £200,000. For more information on the SMI scheme, see Practice note, Help for residential borrowers struggling with mortgage repayments.
New social tenants will be offered intermediate rental contracts that are more flexible, at rent levels between current market and social rents. For more information, see Legal update, Spending Review 2010: local government implications: Department for Communities and Local Government.
The government will maintain the funding package for the Olympic and Paralympic games 2012. It will also continue to work with the Mayor of London to ensure the games leave behind long-lasting benefits, including new housing and recreational facilities. For further information, see Legal update, Spending Review 2010: construction industry implications: Olympic and Paralympic games 2012.

Further measures to follow

Further details of reforms are expected next month when each government department is due to publish a business plan.

In addition, the Office for Budget Responsibility will produce an updated economic and fiscal forecast on 29 November 2010. The Chancellor will then make a statement to the House of Commons presenting the contents of that updated forecast.

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