The writer is head of UK research at global real estate advisor CBRE

The UK’s Autumn Budget, the first from a Labour government in 14 years, was widely expected to be tax-heavy. With a so-called £22bn ‘black hole’ in public finances to address, it was not surprising that Chancellor Rachel Reeves’s announcement this week met these expectations. 

But the money raised by the country’s biggest tax hike since 1993 is well intentioned. It aims to restore economic stability and boost public investment by more than £100bn over the next five years. Coupled with the government’s launch in October of its new industrial policy and a successful investment summit, we hope the Budget will stimulate more private sector investment in the UK. 

Investing in infrastructure

Real estate is among the key recipients of the Budget’s investment commitments, which include £1.4bn to make state schools fit for purpose and £500m in funding to help build up to 5000 social homes. While this is welcome news, the latter barely makes a dent in the needed supply of housing across the UK. CBRE’s data shows the Budget commitment would account for just 10% of annual affordable housing completions. 

Along with real estate and infrastructure more broadly, the housing industry needs both private and public capital to reach its growth potential. Development viability — meaning the extent to which the value generated exceeds costs —  faces constraints. However the government’s Budget was full of promises to improve this, including by extending the HS2 high-speed rail link to Euston and committing £235m to upgrade the road network. 

The right infrastructure — plus clear decision-making processes and a stable planning system — will give investors and developers confidence that regeneration schemes and major developments can actually be delivered, and better yet, profitable.

Funding regeneration

The chancellor’s promise to put Greater Manchester and the West Midlands first in line for local government funding as part of its devolution commitments is a further boost for regeneration schemes. The geographic areas overseen by these two combined authorities are among the most successful across the country in terms of city and regional regeneration. 

By granting combined authorities greater control over government spending, the chancellor is working to maximise the impact of public finances. It allows for a local, informed view on whether this money should flow into residential development, manufacturing, education, life sciences or elsewhere. 

The newly announced ‘investment rule’, which changes the way UK public debt is measured, and will see it fall as a proportion of gross domestic product, will allow the government to borrow more to make investments. Crucially, this new fiscal rule — which ​​accounts for both government assets and liabilities — recognises the value created by its investments. This will support growth policies in a fiscally sustainable way. This new rule is also important given the UK has not so far truly capitalised on government-issued loans, equity and guarantees to deliver growth and generate a positive return to the taxpayer.

Investment momentum

But what does this all mean for would-be investors from the private sector? Through the Budget, and in particular its corporate tax roadmap, the government has recognised the importance of tax certainty in supporting long-term investment. What’s more, it comes just weeks after the government launched its modern industrial strategy — Invest 2035 — and held an Investment Summit that drew in more than £63bn in capital commitments which the government forecasts will create around 40,000 jobs across the country. 

Of course, the Budget presents potential downsides to investment. Businesses are among those bearing the brunt of tax hikes. Those facing the 1.2-percentage-point increase to their National Insurance payments may, at least in the short term, pare back investment plans while they adjust to their cost base.

But the Budget’s manifestation of a growing shift from a central government view to that of a regional perspective can stimulate inbound investment. In tandem with the Invest 2035 programme’s commitment to further develop eight growth-driving sectors — such as life sciences, clean energy and technology — the Budget should make investors confident that the UK is a viable destination for capital deployment over the long term.

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