Place-based Budget to revive high streets and boost social housing

Chancellor John Healey announced “the most radical act of fiscal devolution in a generation” in yesterday’s Budget speech with a commitment to allow regional leaders to retain 20% of local business rate revenues starting next year, increasing to 100% of rates by 2030.

The Budget’s accompanying fiscal devolution roadmap also plans to assign some income tax revenues to mayors.

 

The funding changes are expected to secure longer-term, recurring investment into local places, services and infrastructure as councils gain more power to use the funds to upgrade and revive high streets and city centres.

 

Subject to legislation, the first wave of Mayoral Strategic Authority Business Rates Retention Zones will be introduced for Greater Manchester, East Midlands, Hull and East Yorkshire, Liverpool City Region, Tees Valley, West of England, North East, and York and North Yorkshire Strategic Authorities and the Greater London Authority. 

 

The funds will give cities more fiscal power – and an increased dependence – on tax revenues. But some commentators expressed concern that non-mayoral areas were being left behind and wouldn’t benefit from redistributed wealth from more successful cities.

 

Leader of Medway Council, councillor Vince Maple, also chair of Key Cities – a network of urban local authorities, says, “A third of our leaders identified the risk of non-mayoral areas being left behind as the biggest challenge associated with Local Government reorganisation. Cities and towns across the UK have a vital role to play in delivering national growth and should have access to the powers and resources needed to realise their potential.” 

 

At the moment, fiscal devolution is limited to areas with existing devolved arrangements. “Powers such as the overnight visitor levy and income tax assignment are largely limited to mayoral strategic authorities, leaving standalone councils entirely excluded,” says Maple. 

 

The chancellor committed to an additional £1.5bn in devolved loans for Mayoral Authorities and also announced ring-fenced funds for specific regeneration and infrastructure projects.

 

In a further bid to revive high streets, Healey promised to lift a greater proportion of smaller shops and cafes out of business rates by increasing the relief threshold. This is expected to see a further 70,000 retail, hospitality and leisure venues pay no rates at all. 

 

According to the Office for Budget Responsibility, the change is expected to reduce receipts by approximately £1bn across 2027-28 and 2028-29. 

 

Vape shops will not be eligible for rates relief.

 

In other announcements, Local Government Pension Schemes will get Stamp Duty Land Tax Relief for transactions from 28 October 2026 to 1 April 2032. The change is intended to remove financial barriers and make it easier and more desireable for large council pension funds to pool their money and invest in UK infrastructure and regional growth projects. 

 

At the same time, Healey announced a new statutory tax for foreign sovereign investors to bring “real estate income and gains into UK tax.” 

 

These announcements in tandem suggest an intent to capture some of the uplift in value from urban regeneration and ensure some of the profits of property development are recouped and stay local.

 

 

The decision to bring foreign sovereigns into tax was controversial for some: Andrew Teacher, a founding partner at Lauder Teacher Associates and formerly spokesman for the British Property Federation, says: “This proposal risks adding further fuel to the perception that Britain does not want foreign investment. Andy Burnham should act quickly to change that perception, because every one of his proposals requires capital. We must not turn off the tap. One thing remains certain: adding avoidable barriers to investment is no way to dig ourselves out of the hole marked tepid growth.”

 

As for social housing, Healey announced an additional £1.5bn to be added to the Social and Affordable Homes Programme, described as “great news for the sector, given how oversubscribed the first round of bidding was earlier in the year” says Paul Turner, Chief Executive Officer of the National House Building Council. 

 

“The wider industry is stretched, with demand for affordable housing at record levels and NHBC’s Q3 registration figures showing the pipeline of new homes continues to shrink. With new home registrations down 13% year on year, this kind of intervention is essential.”

 

The programme will prioritise housing for social rent with the ambition to deliver 10,000 homes. An additional £432m was announced for the next two years to fund homes for rough sleepers.

 

Jonathan Legg, Partner at Mishcon de Reya also welcomed the government’s decision to zero-rate VAT on land sales to registered social housing providers from April next year describing it as “a welcome step towards simplifying the delivery of affordable housing.”

 

“Under the existing rules, developers often need to reach the ‘golden brick’ stage of construction before transferring land to a registered provider, adding complexity to transactions. Removing this requirement should make it easier for registered providers to acquire sites, while reducing administrative burdens for developers and landowners involved in delivering affordable housing.

 

“The relief is targeted specifically at registered providers, so it won’t benefit all residential investors. However, it could help simplify the affordable housing element of larger development schemes, particularly where developers are required to deliver affordable homes as part of their planning obligations.

 

“While this won’t resolve the wider funding and viability challenges facing affordable housing, removing unnecessary complexity from land transactions is a practical step towards helping schemes progress.”

 

While the chancellor’s commitment to avoid major changes to building regulations during this parliament (with the exception of safety changes or implementing the Grenfell inquiry recommendations) has come as a relief to some, others expressed concern at the relaxation of planning rules to accelerate development, specifically Biodiversity Net Gain. 

 

Under the changes, the chancellor announced that residential developments on brownfield sites of up to 1.5 hectares will be exempt from Biodiversity Net Gain requirements. The Wildlife Trust raised concerns that the change would disproportionately reduce opportunities to bring nature back into urban communities.  

 

Dom Higgins, head of health and education at The Wildlife Trusts, says: "Exempting brownfield developments from Biodiversity Net Gain reduces access to nature in the communities that need it the most and will remove one of the biggest opportunities to bring trees, ponds, wildlife and parks back into towns and cities. 

 

"Access to nature should not be a luxury. We know that designing housing and infrastructure with trees, parks and space for nature is proven to improve mental and physical health and boost people’s pride in their communities. These habitats also provide vital shade and cooling effects during heatwaves, along with helping to reduce the risk of flooding."

 

A spokesperson for the BNG Federation said: "The Government’s decision to exempt brownfield sites from Biodiversity Net Gain is a serious mistake. It is the latest in a string of U-turns on a flagship nature policy that ministers have repeatedly failed to stand behind.

 

"Nature and new homes can be delivered together, and BNG proves it. The market has already secured thousands of hectares of habitat and recorded more than £1bn in transactions on the national register. But months after the 0.2-hectare exemption, ministers have pulled the rug out again.

 

"Landowners, habitat bank operators, and investors put hundreds of millions of pounds into nature recovery in good faith, under the Government’s own rules. Every U-turn tells them England’s nature market can’t be trusted. That money will go elsewhere, and the UK’s reputation as a place to invest will suffer."

 

In contrast, Turner described the removal of biodiversity net gain requirements for brownfield sites as  “another welcome measure today that could help unlock development on land that has previously been difficult to bring forward, supporting regeneration and the delivery of much-needed new homes.”

 

However, Turner was qualified in suggesting this move alone would speed up development. “While these measures are encouraging, there is still a significant challenge ahead” – calling on skills and training to bridge construction workforce gaps.

 

Chloe Howard-Smith, Partner in the Transactional Real Estate team at national law firm Michelmores, said some of the announcements in the Budget were promising – particularly the Your First Home scheme for first-time buyers: 

 

“One key priority for the industry is to drive up sales rates and get people moving. The Your First Home scheme should help stimulate the market – and it can’t come soon enough.

 

“It will not solve all the viability issues for the sector but is a step in the right direction. The budget announcements suggest that there is a recognition by government that they need to step in and help.”

 

Healey also announced a data centre covenant, which will force centres to invest in local communities, jobs and project water supplies. 

Perhaps the most systemic and influential amendment in the budget is a measure that will ringfence money for preventative policies – , according to Heather Stewart, who wrote in The Guardian this weekend – with potentially consequential addition for those working towards healthy places. 

Preventative departmental expenditure limit or PDEL would enable the Treasury to ringfence funds for policies that would save the state money in the longer term – such as rough sleeping or child health.

 

Healey didn’t define PDEL but indicated that departments can argue for projects to be deemed preventative and highlights rough sleeping as one area under consideration.

Given the long arm of the built environment and especially housing in affecting future costs of welfare and social services, PDEL investment could make a positive impact on places.