Budget

The Chancellor of the Exchequer’s March budget statement is not what it used to be. Gone are the days when the country was left shocked and stunned by a 10% hike in excise duty or a 2p cut in income taxes. Budgets have, however, become more complex. With half an eye on the financial markets, most big changes have been signposted well in advance, but the devil is, as they say, in the detail.

A closer reading of the budget statement reveals some useful information for those involved in regeneration. This year’s budget is as much about what will happen in the next parliament as it is about the next financial year. If you did not have time to wade through the Treasury’s technical press releases, then here are 10 fiscal measures that are likely to affect you.

1. Removal of the exemption from stamp duty land tax

With effect from 16 March the exemption from stamp duty for non-residential property in designated disadvantaged areas was ended. The threshold below which the 0% band for residential property transactions will apply remains at £150,000.

2. Local Enterprise Growth Initiatives

LEGIs are a government initiative to drive forward business-led regeneration. A budget of £50m has been set aside for 2006/07, rising to £150m in 2008/09. The idea is to provide long-term flexible investment in the most deprived areas of the country. The money will be administered locally to the most deprived areas of England, as has been determined by the Neighbourhood Renewal Fund.

3. Local Authority LEGI support

Recognising that councils are going to have to incur costs to understand how the LEGI initiative is to be implemented, £10m has been allocated to eligible councils to support growth proposals.

4. Land Remediation Relief

The remediation of contaminated sites presently attracts tax relief at 150% of the cost of the work; this is to be reviewed in October. Take up of this initiative has increased substantially over the past 12 months and the review is looking at the impact of the scheme in promoting development as well as the cost to the exchequer.

5. Derelict Land Tax Credit

The budget confirmed the acceptance in principle of Derelict Land Tax Credit. This measure was first proposed in 1993 and was then endorsed in the Barker Review. Details are still being formulated, but it is likely to be similar to Land Remediation Relief.

6. Housing Corporation Funding

A fund of £200m is to be made available to the Housing Corporation to increase the number of affordable homes built. Funding is now being made available to unregistered bodies such as developers and housebuilders.

7. Landfill Tax

The landfill tax credit scheme remains in place, with a budget allowance in line with inflation.

8. Business Premises Renovation Allowance

Proposals for 100% first-year capital allowances on the renovation costs of business premises in disadvantaged areas are being finalised in anticipation of EU approval. This is likely to be a substantial incentive when introduced, but the draft legislation puts a number of constraints on the criteria for making a claim.

9. LESA Scheme Extended

The Landlords Energy Saving Allowance Scheme, introduced in 2004 to encourage investment in cavity wall and loft installation, has been extended to include solid wall insulation.

10. Inclusive Communities Fund

Some £37m from the Invest to Save budget is to be made available to 37 innovative projects encouraging “new and joined-up ways of working that strengthen local communities”.

This budget is further confirmation of Labour’s desire to use the taxation system to “correct market failure”, rather than relying solely on direct grants. There is an inherent difficulty in ensuring that fiscal measures achieve their intended objective. The tax authorities, ever mindful of the cost, tend to try and impose a wide variety of legislative constraints that can often blunt the impact of the budget proposals.

Nevertheless, it is encouraging that there continues to be a focus on the need to reinvigorate run-down areas of the country by encouraging participation of the private sector.

The best examples of successful regeneration schemes in the UK have involved a partnership of public and private resources. The fiscal measures introduced in this budget are unlikely in themselves to kickstart major regeneration schemes, but they should be effective in mitigating some of the risk involved in developing on brownfield sites in economically depressed areas.