So in the end the Chancellor bit the bullet. Not all the way through, mind you, but enough to claim that the Government has made a substantive response to the Rogers report on inner cities. The reduction in VAT for residential conversions to 5% has not met Rogers' full prospectus because the good lord had sought the imposition of VAT on new build to achieve a comprehensive harmonised 5% rate. But Gordon Brown has chosen to offer the carrot while renouncing the stick.
Although presented as a component in the package of measures to help the inner city it is important to recognise that the VAT concession applies right across the country, in villages as well as towns. The conversion of commercial premises to homes is already zero-rated. What the Government seems to be targeting now are those big Georgian and Victorian houses which could be converted into flats. But conversion the other way - for example, from bed-sits into flats, will also qualify.
It is easy to see why the Government is anxious to promote conversion. Those by-now notorious statistics on household formation 1996-2021 spell it out. Over this period the number of single person households is expected to increase by 50% from around 5.5m to somewhere over 8m. In other words, around 2.7m out of the expected increase in households of 3.8m will be single people.
The DETR fought to persuade the Treasury to go the whole hog and harmonise VAT, including introducing it on new build on greenfield sites. However much it might have won the intellectual argument it never looked likely to win the political battle. Brown was not going to offer his opponents the charge that he was taxing the aspirations of would-be home-owners. He would have offered the Tories the irresistible (if contradictory) ammunition of accusing the Government both of wanting to concrete over the green fields of England and then taxing aspirant homebuyers.
The Government must be hoping that the regeneration measures in the pre-Budget statement coupled with the proposals on planning and design in the Urban White Paper will make the housebuilding targets for the South East more digestible.
The abolition of stamp duty on property sales for Britain's most disadvantaged communities is likely to have little practical impact on individual sales in the inner city where £60 000 (the level at which stamp duty cuts in) can buy whole terraces.
But the Government seems to have in mind the market for blocks of flats. It may have some impact as it applies to commercial as well as residential property sales.
The 100% capital allowances for creating flats over shops is another useful measure to try to push along a programme which has been a regeneration stalwart for years. It is essential to try to build populations in the cities in order to create a marketplace not only for public services but for businesses like shops, cafes, play-groups and banks.
Much more important - and perhaps the pick of the package - is the proposal to give investors immediate tax relief on the cost of clearing up contaminated land. The existing rules which give no relief until an investor sells are plainly a big disincentive. Any tour of development land in the inner city or corridors like the Thames Gateway is a pilgrimage in industrial archaeology: old munitions factories, gas works, chemical plant - even abattoirs and auction marts - are the staples of the landscape. The laws on liability are pause for thought enough without the dead weight of clean-up costs sitting on the balance sheet.
There are some things we have to wait for. John Prescott has promised changes in the law on compulsory purchase. This will need legislation and will obviously not see the light of day until well into the new parliament. He also announced a fundamental review of PPG1 which sets out the broad principles of planning policy as a way of placing the urban agenda more clearly at the centre of policy-making.
The plans for community investment tax credits are still under consideration (code for admitting that the Treasury is digging in its heels) as are proposals for community venture capital funds where the Government will have to clear its fences with Brussels.
The Government also needs to revisit policies in other areas which may militate against the urban agenda (for example, Housing Green Paper proposals to limit housing association rents to RPI) but the "urban renaissance" programme is beginning to assume a structure and a coherence.
Knowing the difficulty of prising money out of the Treasury even a Conservative ex-minister may offer two-and-a-bit cheers!
Source
Building Homes
