UK Budget: Infrastructure spend can reinvigorate UK regions
By James Thornton, CEO of Mayfair Capital
We welcome today’s Budget, particularly in relation to the provisions to counter the effects of the coronavirus on the economy. In particular, the rates support for small businesses in the hospitality and leisure industries should cushion the negative impact of reduced consumer spending as a result of lower footfall. We also welcome the announcement of a review of rates in the autumn, while an increase in capital allowances is also positive.
A common theme of the announcement was a significant increase in government spend, forecast by the OBR to add 0.5% per annum to UK GDP growth. A large proportion of this spend is targeted to the regions, with 22,000 civil servants set to be relocated, the creation of regional Treasury hubs, a new economic campus in the north, increased R&D investment across the UK and a new metropolitan mayor for West Yorkshire. Big increases in road and rail improvements are also planned, with regions the primary beneficiaries as part of a ‘levelling out’ of the economy between north and south.
In recent years, we have seen the opening of government hubs in high-quality office space within regional cities, which can be used to support regeneration, have a transformational impact and drive rental growth. We expect there to be attractive investment opportunities in those centres that are chosen for new public sector campuses and clusters.
Regional cities that see improved transport and digital connectivity as a result of the increased infrastructure spend can be expected to experience stronger rates of rental growth than elsewhere and will be well placed to outperform.
These policies are supportive of Mayfair Capital’s investment strategy, which has infrastructure as a key theme and favours regional investment.
We also welcome the measures introduced to combat climate change – with £5.2bn allocated to flood defence and further measures to encourage changes in consumer behaviour.
However, absent from the Budget was any mention of funding for social care, at a time when demographic change is putting pressure on the provision of care for the elderly. While the proposed increase on the national living wage is to be welcomed as a means of helping the low paid, in the absence of further funding for social care, a number of operators will be squeezed. With so many of these being owned by private equity, without reform this could create a problem in the future.
Overall, this was a positive Budget statement, with increased government borrowing met by gilt issuance at record low rates. While this will be supportive of commercial property pricing, the effect on the market of the coronavirus will be felt in the short term by weaker economic growth. The speed at which the spread of the virus is brought under control, coupled with the ability of the government to enact its investment plans quick enough to make a difference will be key.