Budget: Government commits £5bn of capital investment to ‘grow and modernise’ infrastructure

More than £5 billion of capital investment is to be made in 2019-20 to deliver on the Scottish Government’s aim to “grow and modernise” infrastructure, finance secretary Derek Mackay has announced.

Presenting his Scottish Budget 2019/20 to the Scottish Parliament yesterday, Mr Mackay said the funding include a new £50 million Town Centre Fund to support the future of high streets.

Budget: Government commits £5bn of capital investment to ‘grow and modernise’ infrastructure

The Budget also includes an investment of more than £825m to deliver on its target for 50,000 affordable homes over the course of the Parliament, and initial funding of £130m towards the establishment of a Scottish National Investment Bank.

The Federation of Master Builders Scotland (FMB Scotland) said the Budget includes positive measures that will help Scottish builders deliver the homes the country needs.

Gordon Nelson, director of FMB Scotland, said: “(Yesterday’s) Budget comes hot on the heels of the latest Quarterly Housing Statistics for Scotland that revealed a 4% increase in the number of new build homes in Scotland over the year ending June 2018, compared with 2017. Although a step in the right direction, this constitutes just 695 additional homes and such an increase will not solve the housing crisis. We’re therefore pleased that the finance secretary has recommitted the government to establishing a Scottish National Investment Bank as this will help provide finance to the small building firms.

“A further £50m to support lending to the house building sector has been announced through the Building Scotland Fund and this is also welcome. Many small-scale house builders are experiencing real difficulty in accessing the finance they need to build homes, with fees, overdraft limitations and meagre loans posing a significant barrier to house building. This new funding will help to speed up the delivery of homes and lead to a more diverse and resilient housing supply.”

Nelson added: “It’s also positive that the Scottish Government has announced a £50m capital fund and has acknowledged the importance of investing in our high streets. There is a dire need to re-invest in Scotland’s floundering town centres in light of changing patterns of retail and leisure. The government should therefore be commended for its ambition to safeguard the vitality of our high streets. All in all, this was a good budget for Scottish builders.”

Mr MacKay made a number of announcements relating to the reform of Non-Domestic Rates including confirmation of a lower than inflation increase in the Uniform Business Rate next year and that a new Non-Domestic Rates Bill will be introduced early in 2019 proposing significant changes to the business rates regime in Scotland.

The bill will take forward some of recommendations of the Barclay Review in 2017 - these include three-yearly revaluations from 2022.

The cabinet secretary also announced that the New and Improved Property Relief scheme will continue in 2019/20, as will the transitional relief for the hospitality and office sectors in Aberdeen, which was introduced to help those who witnessed significant increases in their rates bills after the 2017 Revaluation.

Brian Rogan, head of business rates in Scotland for CBRE, said: “The news that the 2019/20 Uniform Business Rate is going up by less than the usual RPI uplift is somewhat welcome, however bills are still going up. Further relief for hospitality properties and office occupiers in Aberdeen being carried forward is a token gesture as there will be a limited number of recipients who qualify for the transitional relief due to cap levels and state aid rules. What businesses in those locations are telling me is that this is a sticking plaster, and that a much clearer and fairer appeal system which unequivocally allows bills to reflect the current reduced rental values, caused by changes in circumstances in the local economy, is what’s required. Hopefully the new Bill being brought forward next year will address this.

“The Scottish Government has failed yet again to listen to North East businesses on this aspect and, by failing in this budget to take the opportunity to reform the appeal legislation or at least bring the 2022 Revaluation forward in line with the rest of the UK and have a Revaluation in 2021 will cause further pain for businesses in the North East of Scotland. Furthermore there will be significant administrative challenges for all businesses operating on both sides of the border with the Scottish Revaluation being out of sync with the Rest of the UK.

“On a more positive note the New and Improved Property Relief legislation is innovative and can significantly help occupiers planning to move to new builds or refurbish existing premises, but the qualification requirements for this relief are extremely complex. Therefore, anyone who thinks they might be entitled to it should take professional advice immediately, as the regulations governing entitlement require expert navigation.”

David Melhuish, director of the Scottish Property Federation, added: “Overall there are two key incentives for development and investment that we are pleased to see retained in the Scottish Government’s Budget. These include the business growth accelerator business rates incentives for new development and business occupiers; and the exemption from the Additional Dwelling Supplement for large scale Private Rented Sector investments, intended to support the new build to rent market. These are important incentives to stimulate housing supply and economic growth.

“Business rates reform remains an important issue for our members and we welcome the Scottish Government’s decision not to implement the out of town supplement which would have done little to support town centres. This news, coupled with the introduction of a new £50mn fund and the decision to cap the CPI poundage increase will be important mechanisms for encouraging diversification on our high streets and supporting hard-pressed retailers and others.

“On the issue of the LBTT changes affecting non-residential properties we regret the removal of the marginal advantage which was offered to Scottish commercial investments.  In a time of uncertainty, this is yet another cost that will impact pricing and investment decisions negatively.”

The Royal Institution of Chartered Surveyors (RICS) said there were “many positives to take” from Mr Mackay’s statement but warned that the second home supplement increase causes a “significant concern”.

Hew Edgar, RICS interim head of policy, said: “Providing a more favourable tax regime for Scotland’s commercial properties, and significant commitments to capital investment in infrastructure, are welcome steps to boost Scotland’s economy. Introducing a reduction in non-residential LBTT for two-thirds of Scotland’s commercial properties, and reducing business rate increases, will be welcome news for those operating in Scotland’s commercial sector.

“The Scottish Government commitments to city region and growth deals, coupled with significant infrastructure spends, should provide the impetus for many of Scotland’s shovel-ready projects to start, and invigorate further development and investment.

“The Scottish Government has finally recognised the need for a cross tenure approach to tackling the housing crisis by committing £50m to the Building Scotland Fund. This fund should unlock much needed finance for private developers and housing associations (and others) to support development of housing across all tenures.”

He added: “However, a significant concern is the increase in the second home supplement. Not only will this potentially be brought in within a short, six-week period - it will further disincentive investment in the private rented sector at a time when more and more of the population are reliant on it – whether through choice or necessity.”

The sentiments were echoed by property management firm DJ Alexander Ltd.

Managing director David Alexander said: “Although many will believe that those buying second properties can afford any level of tax that the Scottish Government wishes to impose on them the truth is that increasing the rate of this tax at a time when many landlords are exiting the private rented sector market could have serious implications.

“The latest official figures show that the PRS accounts for 15.2% of the Scottish housing stock comprising just under 400,000 homes. Recent cuts to tax reliefs by the UK government have resulted in many landlords leaving the market so if these property investors are to be replaced then a more benign environment is required to encourage them. Taxing them a 4% higher rate in addition to the existing higher Scottish LBTT rates is unlikely to attract many property investors to Scotland who will be able to buy cheaper properties just across the border.

“Although Mr Mackay undoubtedly sees this as a progressive tax on wealth the results could be the loss of a substantial part of the private rented sector which is not being replaced in any meaningful way with social housing. Quite where the Finance Minister expects the people currently living in the PRS to live if more landlords leave the market and none come in to replace them is not explained. Making Scotland a less attractive place to invest in property is likely to result in lower government revenues rather than higher ones over the medium to long term.”

Mr Mackay said: “This is a budget of stimulus and stability. It delivers for today and invests in tomorrow and does so with fairness, equality and inclusiveness at its heart.

“It provides an increase of almost £730m for our health and care services, invests more than £180m to raise attainment in our schools and gives a vital boost to our economy through a £5bn infrastructure programme.

“As a result of these decisions, we have been able to invest in essential public services, particularly the NHS, while ensuring 55% of income taxpayers in Scotland pay less tax than those earning the same income in the rest of the UK. Taken together with the personal allowance, 99% of taxpayers will pay less income tax next year on the same income.

“This budget delivers the public services, social contract and economic investment people expect while mitigating, where we can, the impacts of the UK Government’s policies of austerity and Brexit that are causing so much harm.”

Assessing the impact of ongoing uncertainty around the UK’s exit from the EU on this year’s budget, Mr Mackay added: “Our spending plans for 2019-20 include a commitment to mitigate the risks of Brexit as best we can, to enable our economy to thrive in any circumstances, now and in the future.

“It is disappointing that we are facing the prospect of having to revisit these plans in the event of a chaotic no-deal outcome. If leaving the EU can be avoided, those resources currently being directed towards essential preparations can be reinvested into our public services and economy.”

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