What can the Built Environment sector expect from the next UK government?

Unless the opinion polls are very wrong, the UK general election in July will bring the first change of government in 14 years.

We analyse the likely changes on the horizon for the Built Environment sector over the course of the next parliament. At the top of the list for many businesses will be the need for greater certainty in the business landscape to facilitate effective long-term strategies and investment planning. In light of the predicted result of the election, we focus predominantly on Labour policy.

Tax

Labour have been keen to reassure business that economic growth and fiscal responsibility are at the heart of their outlook for the country. They promise a business taxation roadmap and just one fiscal event each year, acknowledging that the recent period of uncertainty has been frustrating (see our Insight).

Corporation tax and VAT

Similar policies by both the Conservatives and Labour mean that corporation tax is to remain at its current rate of 25% and Labour said they would keep the UK's competitiveness under review and react if necessary to international tax changes. Neither party intend to adjust the VAT rate of 20%, although Labour are seeking to increase the tax-take by extending VAT to private school fees.

Capital allowances

The full expensing regime, heralded on its introduction by the Conservatives as the "largest business tax cut in modern British history" is to be retained, as is the annual investment allowance for small businesses. Labour have further pledged to clarify qualifying expenses which should help business to plan and maximise allowances.

Business rates

Business rates at unviable levels have been blamed for some of the woes facing the British high street. The much-criticised current regime would be entirely replaced by Labour (as opposed to being reviewed under the Conservatives). The intention of both is to raise equivalent revenue by targeting online businesses. However it remains unclear whether the pleas of industry groups will be heard and we will see levels – which have been rising substantially with inflation - return to the original 35% of rental value. Retail businesses in particular will want clarity sooner rather than later on what their business rates liability will look like and whether extension of empty rates relief and more frequent valuations will form part of the reset.

Energy profits levy

Labour have pledged to increase the tax on oil and gas giants by raising the Energy Profits Levy by 3% (to continue until the end of the next parliament) and by removing the investment allowances which currently benefit investors in qualifying domestic oil fields.

Stamp duty land tax

Under Labour, we will see a 1% increase to the Stamp Duty Land Tax surcharge on non-UK resident purchases of residential property. In contrast to the Conservatives who pledge not to increase the rate or level of Stamp Duty Land Tax in their manifesto, Labour leave the door open for potential increases.

Planning and development

Planning reform

Delays and inefficiencies in the UK planning system were identified as the number one blocker for new developments by the recent Competition and Markets Authority report. As acknowledged by deputy Labour leader, Angela Rayner, in a recent speech to industry, obtaining planning permission can be akin to "swimming through treacle" and we are likely to see reform high on the priority list for a new government.

Members of Parliament who are part of the Labour Party tend to represent more urban constituencies which is likely to mean a Labour government would face less in-party opposition to planning change than the current government. Notably, the watering down of local housing targets last year (which was driven through by Conservative backbenchers) was fiercely criticised by Labour who have said that mandatory housing targets for local authorities would be reintroduced at the earliest opportunity with a view to delivering a total of 1.5 million new homes over the five-year parliamentary term.

A further policy that is more palatable to a Labour electorate is green belt development – a move that remains out of bounds for the Conservatives. Labour have been at pains to point out that "brownfield first" is key to their development programme, but they have introduced the new concept of the "grey belt" – poor quality land including disused car parks and wasteland that happens to be located in the green belt. Grey belt land will be released for construction of new homes and accompanying infrastructure with an emphasis on affordable housing.

Part of Labour's approach to solving the chronic shortage of homes involves an ambitious plan for "new towns" similar to the Atlee post-World War II developments. Among their numerous proposals, there are plans to reform compulsory purchase rules to make it easier and cheaper for public bodies to acquire land for development purposes, and a promise to intervene to ensure that councils have up-to-date Local Plans, providing more certainty on which developments are likely to secure planning permission in each council area.

The devil will be in the detail and there is a danger that high targets for affordable housing and environmental standards, paired in the case of new towns with the additional uncertainties of investing in a new location, will make the necessary developments unviable for many private sector developers. There is little in the manifesto that addresses the fundamentals affecting the bottom line for developers in the current climate, such as the shortage of construction workers and supply chain issues.

Protection from terrorism

Whoever forms the next government, we can expect a re-introduction of Martyn's law (legislation which enjoyed cross-party support but failed to get through parliament before the calling of the general election). This is intended to improve protection from terrorism in relation to larger public buildings, and will necessitate planning for regulatory compliance and the necessary operational changes by affected venues.

Residential: first time buyers, renters and leasehold reform

First time buyers

First time buyers currently enjoy a limited mortgage guarantee scheme and an increased threshold of £425,000 before Stamp Duty Land Tax is payable on a first home. The Stamp Duty Land Tax concession would be made permanent by the Conservatives but will revert to £300,000 in March 2025 under Labour's current plans. Instead, Labour propose a more comprehensive mortgage guarantee together with a "first dibs" policy on new developments for first-time buyers.

Building safety

Owners and developers of residential or mixed use schemes can expect a continued focus on building safety with the next government (of whichever party) set to continue the pressure for industry-funded remediation and protections for leaseholders.

If elected, Labour will have to balance public pressure and their commitment for increasing housing supply alongside the stricter regulations around building safety. This will likely have an impact on viability and types of housing schemes brought forward.

Under a Labour government, landlords in the private rented sector can also expect the extension of Aawab's law (currently applicable only to social landlords) which requires mould and damp issues to be addressed.

Leasehold reform

While the Leasehold and Freehold Reform Act squeaked home in the final hour of the last parliamentary session, the omissions resulted in as many talking points as the policies that made it into law (see our Insight). Whoever forms the new government may find themselves dealing with fallout resulting from the (yet to be implemented) reductions in the price to be paid by a leaseholder purchasing their freehold. Freeholders have argued that their legitimate property interests have been taken away without compensation and litigation looks likely.

The controversial provisions relating to the capping and phasing out of existing ground rents in residential leases (which were being considered in the government consultation which closed at the beginning of the year) were dropped in cross-party efforts to get the remainder of the bill through during the last parliamentary session. However, investors in ground rent income streams and their lenders should note that this reprieve is likely to be short-lived as Labour's stated intention is to reintroduce the necessary legislation at the earliest opportunity. The Conservatives committed in their manifesto to capping ground rents at £250 and their reduction to a peppercorn over time.

The ability for a landlord to forfeit a valuable residential lease is widely acknowledged to be draconian and therefore, while absent from the scaled down Leasehold and Freehold Reform Act, we can expect it to be revisited by a new government. This widely considered disproportionate remedy is likely to be abolished as soon as a suitable solution is found to deal with residents who fail to pay their service charges or breach other provisions of their lease.

Abolition of leasehold?

Commonhold may be on the horizon as a replacement tenure for leasehold; again, this is a policy which enjoys cross-party support. Labour have prudently rowed back from their initial pledge to ban leasehold tenure within 100 days of taking office. Introducing the relatively unknown tenure of commonhold will necessarily take time and input from key stakeholders, but the model has been successful in many other countries, and the Law Commission has set out a detailed proposal for the transition, including options for converting current leaseholds to the new form of tenure.

Depending on the priorities of the new government, we may see a consultation on this ambitious measure in the course of the next five years.

Renters' Reform

Shelved due to the calling of the general election, the Renters' Reform Bill is likely to find some of its content revived under a new government.

Labour have been vocal on the need to strengthen the position of tenants and have said they would include a ban on no-fault evictions shortly after taking power and "pass renters reform legislation that levels decisively the playing field between landlords and tenant". The pledge goes further than the now defunct Renters Reform Bill (and the Conservative manifesto) which anticipated time before implementation to enable the current backlog in the courts to be cleared.

An immediate introduction of a requirement to prove "fault" before a tenant can be required to leave a property will concern landlords in the private rented sector. More on the potential implications are considered in this Insight. It is expected that the ability to carve-out regulated Purpose Built Student Accommodation tenancies will be retained.

Osborne Clarke comment

While there were no surprises in either the Labour or the Conservative manifestos, the content remains important. Policy set out in the winning party's manifesto will be considered to have the backing of the electorate, smoothing the passage of implementing legislation through both the House of Commons and House of Lords. The manifesto will also be held up as a yardstick against which to measure the success or otherwise of the governing party.