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Budget speculation Matthew Warburton - 14/03/2014

osbo_300What surprises will George Osborne's Budget speech next Wednesday hold? Some of its contents should come as no surprise, even if their details are not yet public. The Chancellor's decision to continue plans to reduce Government debt to 2018/19 means that further dramatic cuts in public spending are planned, despite the better economic news.

 

The Institute for Fiscal Studies estimates that even with £12 billion a year of additional cuts to social security spending, the Chancellor's plans would imply cuts of more than 30% in "unprotected" public service budgets since 2010.

 

In fact, the challenge could be even greater than these headline figures imply, since the government has already made additional spending commitments of more than £6 billion a year after 2015-16 - implying additional cuts elsewhere.

 

The population is projected to grow by about 3.5 million between 2010 and 2018, and over the same period, the number of individuals aged 65 and over, who, on average, place greater demands on the NHS, is set to grow by two million. This implies a rising demand for public services which will put pressure even on those budgets, like the NHS, which are supposed to be protected.

 

The likelihood of a major new initiative on housing that costs money is therefore low. Existing schemes, such as Help-to-Buy, which are due to end during the next three years are unlikely to be extended without good reason. Already the House Builders Federation has issued a pre-emptive warning against ending the Help-to-Buy scheme in March 2016 as planned, and the Chancellor is reported to be considering a phased wind-down of the scheme. 

 

The Royal Institution of Chartered Surveyors makes the more interesting suggestion that the government should consider adapting Help to Buy to suit individual regions' needs. Sixty per cent of RICS members surveyed believe that adjusting the scheme on a regional basis would make the market more sustainable.

 

Furthermore, half of those who are in favour believe that the funding should be limited purely to first time buyers. RICS would like to see the government reassess the scheme with a view to providing the relevant help according to an individual region's needs. 

 

RICS also calls for reform of stamp duty to replace the current "slab" system, which hikes the tax percentage payable at prescribed thresholds - which then become effective price limits - with a fairer, marginal rate to replace the current structure which sees few homes come onto the market at between £250,000 and £275,000 whether or not they are worth that price. 

 

It seems unlikely that the Government will risk major reform of Stamp Duty this time around, but RICS's intervention is a timely reminder that reform of housing taxation is a neglected topic in current debates about future housing supply, prices and tenure. 

 

The one exception is some recent work commissioned by the Joseph Rowntree Foundation. In a paper published last week exploring the possible future replacement of council tax by a tax based on actual property values, the authors report that econometric modelling suggests that a property tax could also play a "supporting role" in reducing house price volatility.

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