Gavin Mason is an operations director at multidisciplinary consultancy Pick Everard
It’s been a gloomy time for the humble taxpayer in the run-up to this year’s Autumn Statement. Almost every day the chancellor appears to have dipped her toe into the waters to test another tax proposal in the press – and suffice to say nothing is mentioned about tax reductions.
In fact, the increase in the tax burden has been a constant issue over the past 20 years. In 2002 the UK’s tax burden (percentage of GDP) was just over 32.6 per cent and in the last financial year was 35.3 per cent (2022/23). Alarmingly, it is forecast to rise to 37.7 per cent by 2027/28, although this is still not as eye-watering as the 45 per cent-plus rates in France, Denmark and Belgium.
The backdrop of budgetary ‘black holes’ and potential targeting of capital gains tax and property tax on second homes has not helped decision making within the construction sector. It bears the question, what is needed to spark growth in the industry?
At the forefront of plans should be increasing the number of skilled people in the sector. As an industry that attracts predominantly male workers, it is concerning to read from the OECD that just under 20 per cent of the UK’s male working-age population is sat out of the labour market. This is the highest rate of the world’s most developed economies, representing an 18 per cent increase in inactivity since 2020.
Furthermore, median male real income in the UK is less than it was 21 years ago, so clearly there needs to be a focus on making participation in our industry more financially rewarding for all our workers.
Viability incentives
The expectation is for capital gains taxes to increase, which although a more voter-friendly option for politicians, is not pain free. It is vital that additional tax receipt creates new growth or profit opportunity, otherwise the tax rise simply makes investment in construction less attractive.
The plan to build 1.5 million homes over the course of this parliament will remain a pipe dream unless significant changes take place to improve the viability and deliverability of housing and regeneration schemes. The government can’t allow investors to believe that unexceptional profits are a variable cost on a viability appraisal, adding additional risk to the viability.
Whatever happens, the chancellor needs to create a stable tax platform; a message reinforced by our survey last month of construction and property professionals, who saw continued market uncertainty ahead of the budget as being the biggest single limitation on investment spending.
The government also wants to unlock the grey belt, an ambition that the local electorate generally support, but for someone else’s neighbourhood. And this is fundamentally the issue: how to encourage positive development that makes the development a vote winner, without removing too much incentive from the schemes.
A big target for the government will be on the schemes that come with jobs and industry, such as the proposed Universal Studios theme park in Bedfordshire, where tangible economic benefits can be realised and the growth adds to the sector and the exchequer.
A tax increase on carbon, especially pump price carbon, also seems inevitable given that the price of a barrel of oil is forecast to continue falling. In October last year, the UK’s average petrol price was 156p per litre. We’re now at 133p per litre, so a significant tax increase would be met with less resistance than other taxes. This, however, does have an indirect effect on the cost of construction, and to increase growth we need to see a good period of price stability in the construction market.
At around 6 per cent of GDP, construction is an important industry to UK Plc, and it is hoped that the chancellor does not impose too many tax increases that affect investment in the sector.
