UK: Autumn Statement 2011

Last Updated: 6 December 2011
Article by Pranai Karia

George Osborne's Autumn Statement further downgraded the UK's growth forecasts.  Massive cuts in public expenditure will follow over the next few years, with the private sector expected to triple its contribution to GDP.  However, the Government is keen to support private sector growth through guarantees to allow credit to flow more easily and through partnerships with private sector money to promote investment in our infrastructure, where we are far behind the G20.  Further adjustments to the planning system are to be made to speed up the development process.

Some of the measures that will impact the Real Estate sector seem helpful at headline level, although inevitably there will be detail to follow which will flesh out the real effect of these proposals.  Here are some highlights along with our analysis:

Infrastructure - The Government is to introduce a National Infrastructure Plan and has identified 500 infrastructure projects for investment.  Funding for these projects will come from a mixture of public funds and private pension/infrastructure funds.  A memorandum of understanding (therefore not binding) has been signed with the UK's largest pension funds, which will provide up to £20bn of investment.  Innovative financing models will be explored, such as borrowing against the Community Infrastructure Levy, loan guarantees from the Government on specific projects and tolls.

The infrastructure plan has 35 key infrastructure projects, including the Battersea Northern Line extension, a new River Thames crossing at Silvertown, work on the Tyne & Wear Metro and a Bristol link road.  Whilst adding a third runway at Heathrow has been dismissed, all other options for expanding aviation capacity will be considered.

These measures are to be welcomed as they will help solve the lack of investment in infrastructure that has been a critical issue in the past.  These are long term and complex projects that will take time to get off the ground; however, the measures and the Government's new Cabinet Infrastructure Committee might produce the necessary momentum.

Mortgage indemnity scheme - The Government is to introduce a mortgage indemnity scheme, which aims to increase the availability of affordable mortgages on newly built properties.  The Government and house builders will assist in providing security for the loans up to 95% of the value of the property.

The scheme aims to encourage new residential developments, as it only applies to purchases of newly built homes.

Whilst the Government is to take on the risk of 9% of the mortgage, developers will also be required to take on 3.5% by contributing to an indemnity fund, with developers' contributions being first in the firing line in the event of borrower default.

This may well deter some developers, as they will need to pay a 3.5% premium to achieve sales.  The Government guarantee is capped at £1bn, so will only help the first 100,000 sales; the annual requirement for new homes substantially exceeds this.  The scheme may, however, help marginal projects to take off, but only when developers feel confident that banks will lend to 95% LTV (82.5% in net terms with the guarantee).

Get Britain building – The Government has announced plans to provide a £400m fund to aid stagnant developments that have planning permission in place but have stalled due to a lack of funding.  The detail will follow in a prospectus to be issued to interested developers at the end of the year.

Support new developments – The Government has announced that it will encourage proposals from developers and local authorities that have strong local support.  More details are to follow next year.

Planning reform – The Government has announced plans to continue to improve the speed and efficiency of the planning system.  This will be welcome news to developers looking to speed up projects.

The immediate introduction of a 13-week maximum time limit for non-planning consents will also provide some welcome certainty to development timescales.  These non-planning consents include those which have to be obtained alongside or after, but are separate to, planning permission in order to complete a development.  More effective provision will be made to allow developers to seek costs of appeal where a statutory consultee has acted unreasonably.  Appeal procedures are to be reviewed with new, faster, more consistent processes introduced by next summer.

The main difficulty with these measures will be the resources required by local and other authorities to meet these challenges; council tax is to be kept at existing levels in 2012/13 with a Government subsidy to local authorities of around £600m, which is unlikely to cover the resource shortfall unless the cost of planning applications is increased.

Enterprise zones – The Government will consider turning Nine Elms into an Enterprise Zones in connection with the redevelopment of the Battersea Power Station, and, subject to due diligence, the Enterprise Zone in the North East will be expanded to include the Port of Blyth.

A full copy of the written report can be found here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 01/12/2011.

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