The boom in business growth currently gripping the UK is certainly good news for the economy, but growth limitations for businesses are preventing many from achieving their full potential as the recovery takes hold. One of the key issues, of course, is the rising cost of energy. Others involve tax, pensions and planning.
Fortunately, this is something which the Chancellor addressed in his latest Budget, as he announced measures for businesses to help cut around £7 billion in energy costs. This will not only help manufacturers and small businesses cut their monthly costs, but will hopefully allow energy firms to drop the price for consumers as taxes on electricity and gas production are either lowered or frozen.
One of the most significant factors to be announced is the freeze on the Carbon Price Floor (CPF), a green levy which polluting firms must pay in order to emit carbon. As coal and gas fired power plants fall into the category of “polluters”, the freeze of £18 per tonne of CO2 emitted will ease the tax burden on energy suppliers and allow them to pass savings on to their customers – had this step not been taken, official estimates state that businesses and households would have seen an increase of between £30 and £50 on their energy bills by 2020.
Steelmakers and the cement and chemicals industries, otherwise known as Energy Intensive Industries (EII’s), are also set to benefit from slightly more specific measures. A new £1 billion plan detailed in the Budget will see them become exempt from costs relating to the Renewables Obligation and Feed-in Tariffs, two green energy measures which have seen EII’s penalised up until now.
EII’s will benefit from a four year extension to a policy which supports low carbon and renewable investment. Industry experts believe that this will save an average firm around £19 million between now and the 2019-2020 financial year.
Manufacturers’ organisation EEF welcomed the announcements as it believes the government has now recognised the dangers of rising competition from overseas as a result of high energy costs facing UK firms.
Head of climate and environmental policy at EEF, Gareth Stace, says; “The freezing of the Carbon Price Floor will translate into greater clarity for manufacturers’ energy bills through to 2020 and provide much needed investment certainty.
“The Renewables Obligation compensation for energy intensive industries will also help to level the playing field [which] these companies need to compete effectively with others around the globe, and to keep production here in the UK.”
Fortunately, energy bills were not the only issues tackled by the Budget in the drive to make the UK a more business-friendly location. The British Property Federation (BPF) welcomed several moves relating to tax and planning which should help small businesses consider expansion options and encourage investment into the commercial property market.
One of the BPF’s biggest campaigns this year has involved the seeding of property authorised investment funds (PAIFs) in relation to Stamp Duty Land Tax (SDLT). Traditionally, Tax Transparent Funds of this kind have been based in competing jurisdictions to the UK, such as the Channel Islands, but the BPF believes that bringing such investment vehicles on-shore for management within the UK will stimulate regions outside London – something which is badly needed in order to ensure economic recovery retains balance.
Under terms revealed in the Budget, a consultation into the SDLT treatment of the seeding of PAIFs will be held, examining various possibilities regarding the future for the commercial property sector in this regard as a means of generating higher levels of investment. Changes to pensions will also play a role in this according to the BPF, as the freedom to spend pension pots is likely to lead to greater investment in bricks and mortar.
BPF chief executive, Liz Peace, says; “Perhaps the most fundamental reform in the Budget that could impact upon UK real estate is not an obvious one and will only occur over the long term, but the radical reforms to pensions, particularly allowing people greater say over how their pension pot is spent, could have some impact on existing property based annuity investments, but also create new opportunities for property based investment products.”
Another review set to have big implications for the commercial property market is that of the General Permitted Development Order, which could see a three-tier system established to simplify the process of granting levels of permission. Not only would this shorten the time it takes for developments to get off the ground, it would allow local authority planning departments to focus on infrastructure, regeneration and plans around strategic sites – thus improving the business environment in economically important areas.
Unfortunately, Lambert Smith Hampton’s national head of business rates Richard Wackett does not agree that the Budget has been wholly beneficial to the commercial property industry, largely due to the fact that no decision to change the business rates system was taken.
He claims the Chancellor “should have done more to address underlying issues in the interests of growth”, calling the failure to address business rates “another missed opportunity.”
He continues; “George Osborne’s decision to extend the business rates discounts for companies in enterprise zones is a welcome move but isn’t enough to help the wider commercial property market.
“A combination of full empty rate charges and the failure to revalue has unfairly affected those sectors of the economy that most need help.
“In addition, the 100 per cent charge to owners of empty commercial and industrial buildings has left the most buoyant sectors without high quality, grade A accommodation – businesses have been forced to make do with poorer second hand stock, which is slowing the economic recovery and pushing up rents.”
Do you think that the Chancellor was right to make energy costs and tax a priority in this Budget, or should he have addressed business rates as a matter of urgency?
