Budget 2010: public sector announcements

Practical Law UK Legal Update 7-501-8398 (Approx. 10 pages)

Budget 2010: public sector announcements

by PLC Public Sector

Operational efficiency program

Sale of assets and property

The Government intends to raise £16 billion from asset and property sales by the end of 2014. The 2010 Budget announced that:

The process for the sale of the Tote will start in summer 2010 and be concluded by spring 2011.
Advisors will be appointed to develop a proposal for the sale of the £25 billion student loans portfolio.
The Government is considering the Dartford Crossing sale options.
The process for the sale of High Speed 1 will start in summer 2010 and complete within a year.
The Government is exploring options to realise value from its stake in the URENCO group.
British Waterways will move to mutual status. A report will be published in the near future.

For more information, see Legal update, 2009 Pre-Budget Report: implications for Property.

Strategic property management

The Government will create strategic property vehicles by April 2011 to assist the Government in managing its estate. The vehicles will help the Government to achieve substantial savings in running costs and raise £20 billion through disposals by 2020.

To encourage more effective asset management, the DCLG will test a depreciation-based funding scheme with a small group of local authorities in 2010-11.

Relocations

The Government intends to relocate 15,000 civil service jobs from London, and the Ministry of Justice will move at least 50% of its posts out of central London by 2015. The Ministry of Justice will reduce its London estate from 18 buildings to four, resulting in annual savings of £41 million. It will explore opportunities for creating regional hubs.

Infrastructure

Infrastructure UK

The 2009 Pre-Budget Report confirmed the establishment of Infrastructure UK, a body that would identify and manage the UK's infrastructure needs.

On 24 March 2010, Infrastructure UK published Strategy for national infrastructure (the strategy). The strategy looks at the UK's infrastructure networks, which enable people, goods, energy, information, water and waste to move around the UK, and even across its borders in some cases.

Infrastructure UK and others have identified a possible lack of equity capital for large complex infrastructure projects within the next few years, leading the Government to announce its intention to establish a Green Investment Bank (GIB). The GIB will invest in the low-carbon sector, in particular energy and transport projects.

For more information on Infrastructure UK and the strategy, see Legal updates:

Transport

The March 2010 Budget contained a statement that the Government continues to support the local transport needed to maintain growth and help regenerate the UK's cities and regions. The plans for improving transport include Crossrail, and a high-speed rail link between London and the Midlands.

The low-carbon growth measures discussed in the March 2010 Budget include ones aimed at promoting green transport, including low-carbon cars and buses and a new test centre that could help to reduce road congestion. These measures may have an impact on both existing and future developments.

Roads

The Government has announced that £100 million will be provided to fund repairs to local roads damaged by the snow and ice at the end of 2009 and the beginning of 2010. Many local highways authorities were thought to be facing problems paying for extensive repair work, so this money will be welcomed not only by them and drivers, but also by developers and retailers who rely on road users for custom.

The 2010 Budget also announced a £285 million investment to enable further progress on the Managed Motorways programme and other major road projects. The Managed Motorways programme is a Highways Agency scheme designed to increase the capacity of the UK's motorway network. The 2010 Budget Report also refers to "investing £250 million in the road network to improve capacity", but it seems likely that this sum forms part of that £285 million.

City-regions and Total Place

The 2010 Budget refers to the proposed publication of Total Place: A whole area approach to public services on 25 March 2010. This is intended to "set a new direction for public services", and the March 2010 Budget details the Government's commitments to the new approach. The Government has announced:

Its intention to strengthen the role of city-regions to deliver economic growth. Regional ministers will play a stronger role in regional planning and the allocation of funds to regions and city-regions. For more information on city-regions, see Legal updates:
- 2009 Budget: implications for property: Pilot City-Regions; and
- 2009 Pre-Budget Report: implications for Property: City-regions.
Following successful pilots of Total Place initiative, that it will remove ring-fencing in respect of over £1.3 billion of local authority funding and reduce the number of funding streams from central to local government from 110 to 94. Alongside this, the Government has also reduced the set of indicators for local authorities by 18.

Regional Development Agencies

A regional growth fund will be established by the Regional Development Agencies (RDAs) within their capital budgets for 2011-12. The fund will promote high-value investment in support of regional and national growth and industrial policy.

Regional growth

The Government has announced that £120 million will be made available for the introduction of an Accelerated Development Zone (ADZ) pilot programme in 2011-12.

The aim of this pilot is to support infrastructure investment in cities. The Government will use the pilots to assess the impact of investment on business rates growth within the defined ADZ areas to further understand the case for the introduction of Tax Increment Financing.

Public procurement and SMEs

The Government intends to agree departmental targets to increase the proportion of central government procurement spend that goes to SMEs by 15% throughout the supply chain. In addition, the Government will continue to deliver on the Glover Committee's recommendations (see Legal update, Competition and regulation in 2008 Pre-Budget Report). In particular, by requiring departments to publish contracting and sub-contracting opportunities through a single portal, challenging departments to make more use of SMEs and providing direct training support to SMEs (see Legal update, BIS announces free online procurement course) and working with main contractors to open up supply chains to SMEs. The Government is also launching a set of ten key "Procurement for Growth" principles, calling for effective industry engagement before procurement, to better enable suppliers to meet the Government's forward demands.

Housing

Local Housing Allowance

The March 2010 Budget announced that, from October 2011, the highest rents across the country will be excluded from the calculation of Local Housing Allowance (LHA).

The LHA was introduced in April 2008 to give Housing Benefit recipients more control over, and responsibility for, their choice of housing.

Prior to the introduction of the LHA, tenants had their maximum benefit entitlement restricted by an individual assessment of their accommodation made by rent officers. Under the LHA, restrictions are no longer based on individual rent officer assessments but on typical rents for the area. If the recipient can find accommodation at less than this rate they can keep the difference, up to £15 each week.

However, the way that rates were calculated in the LHA meant that very high payments were being made to a small number of tenants living in the most expensive areas.

This discrepancy was blamed for driving up the costs compared with the previous housing benefit scheme. In order to control these rising costs, the 2009 Budget announced that from April 2010, households would no longer be able to retain any of the surplus if the LHA that they received was higher than their rent.

However, further consultation suggested that there could be disadvantages to withdrawing the excess and in the 2009 Pre-Budget Report the Government decided to reconsider the options and delay that reform until April 2011.

In December 2009, the Department of Work and Pensions (DWP) issued a further consultation on its approach to housing benefit reform and affordability, see DWP: Supporting people into work: the next stage of Housing Benefit reform.

Following that consultation, the March 2010 Budget announced that, from October 2011, the highest rents across the country will be excluded from the calculation of LHA in each area. In respect of London that will mean that the most expensive 8% of properties will be removed from the calculation. It is estimated that this will result in a saving of £125 million by 2014-15.

Improving the supply of housing

The Government remains committed to improving the supply of housing. The Government will:

Consult on plans to replace the council housing finance system with a self-financing system.
Work with industry to address the challenges facing the housing industry. For example, it recently published consultations on improving housing standards and encouraging investment. See Legal updates:
- Raising standards in the private rented sector: next steps; and
- Consultation on investment in the UK private rented sector.
Withhold part of the Housing and Planning Delivery Grant in 2010-11 from local authorities that fail to produce satisfactory five-year land supply assessments.
Consider introducing targets for the number of homes to be built on public land.
Reduce regulatory costs for the house building industry.
Work with local authorities to ensure that local requirements do not unduly restrain development. It will shortly consult on how a scaled back section 106 agreement would operate.

(See paragraphs 5.48-5.51 of Chapter 5: Achieving fairness and providing opportunity.)

Business rates

Multipliers

The Department for Communities and Local Government in England (and the Welsh Assembly Government in Wales) have set the multipliers for business rates for 2010-2011, which take effect from 1 April 2010. For a brief explanation of multipliers, see Legal update, Business rates: consultation on transitional arrangements following 2010 revaluation (England): Multiplier.

There are two multipliers, one for qualifying small properties, and the other for all other properties. For more information on small business relief, see the Valuation Office Agency website.

For 2010-11, the multiplier is:

40.7 pence for qualifying small properties.
41.4 pence for all other properties.

For more information, see 2010 Budget - Press Notice 02: Rates and allowances in 2010-11.

Empty property relief

The 2010 Budget announced that empty commercial properties with rateable values of up to £18,000 will continue to be exempt from business rates.

The Rating (Empty Properties) Act 2007 (REPA 2007) removed business rates relief for most unoccupied properties with effect from 1 April 2008. REPA 2007 was widely criticised by the property industry as an additional strain on businesses in a time of economic difficulty.

In response to this criticism, the 2008 Pre-Budget Report announced that empty properties with rateable values of up to £15,000 would be exempt from business rates for the year 2009-10.

The exemption was implemented with effect from 1 April 2009 by the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2009 (SI 2009/353) and the Non-Domestic Rating (Unoccupied Property) (Wales) (Amendment) Regulations 2009 (SI 2009/255) .

This resulted in an estimated 70% of empty commercial properties being exempt from paying business rates.

The 2009 Pre-Budget Reportannounced that the temporary increase in the threshold for empty property relief would be extended for a further year and the threshold increased to £18,000. See Legal updates:

The Non-Domestic Rating (Unoccupied Property) (England) (Amendment) Regulations 2010 (SI 2010/408) provided that the threshold would reduce to £2,600 for financial years beginning on and after 1 April 2011 for properties in England and to £2,200 for properties in Wales (see the Non-Domestic Rating (Unoccupied Property) (Wales) (Amendment) Regulations 2010 (SI 2010/272).

Small business rate relief

Revaluation of business rates takes place every five years and the next revaluation will take effect from 1 April 2010. For guidance on the 2010 revaluation, see Legal update, Guidance for 2010 business rates revaluation.

The 2010 Budget also announced that the Government will fund a temporary increase in the level of small business rate relief in England, so that eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October 2010. Small businesses that benefit from the rate relief taper (that is, rateable values up to £12,000) will be entitled to significant reductions.

For more information on small business rate relief, see the Valuation Office Agency website.

HMRC estimates that around three quarters of all small business units, two thirds of smaller shops and over half of offices and smaller industrial premises, occupied by an eligible business, will qualify.

Environment

Landfill tax

Rate of landfill tax:

The standard rate of landfill tax was increased to £48 from 1 April 2010 by the Finance Act 2009.
The standard rate will increase by £8 per tonne (bringing it to £56 per tonne). HM RRC's Budget Note 52 states that the new rate of £56 per tonne will apply to disposals made on, or after, April 2011. However, the 2010 Budget Report itself (section 1.28 in Chapter 1 and section 7.47 in Chapter 7) states that the increased rate will apply from April 2014. It is not clear whether the latter date is a typographical error.
The lower rate of landfill tax will be frozen at £2.50 per tonne in 2011-12.
The Government confirmed in the 2010 Budget that the standard rate will not fall below £80 per tonne in future.

Reform of the landfill regime:

The Government has been consulting on an overhaul of the landfill tax regime. A summary of responses to that consultation was published in December 2009.
The Government has announced in the 2010 Budget that:
- the list of wastes that will qualify for the lower rate will remain broadly the same;
- it will publish a new set of qualifying criteria for the lower rate in autumn 2010 (see 2010 Budget - BN54 - Landfill Tax: Criteria for Determining Material to be Subject to the Lower Rate); and
- it does not plan to go ahead with changes to the definition of taxable disposal.

Landfill Communities Fund:

The Landfill Tax (Amendment) Regulations 2010 (SI 2010/924) were made on 23 March 2010 and will come into force on 1 April 2010. They amend the Landfill Tax Regulations 1996 (SI 1996/1527) to change the maximum credit a landfill site operator can claim against annual landfill tax liability from 6.0% to 5.5%, for contributions made to environmental bodies enrolled under the Landfill Communities Fund.

For more information on the landfill tax regime, including the proposals for reform, see Practice note, Landfill tax.

Green Investment Bank

The Government intends to establish a Green Investment Bank (GIB), involving both public and private sector capital, to invest in the low-carbon sector, focusing initially on offshore wind.

The Government plans to start by investing up to £1 billion from the sale of government-owned infrastructure-related assets (such as the Channel Tunnel rail link), and hopes to match this with at least £1 billion from private sector investment.

The establishment of the GIB will be managed by the recently created Infrastructure UK, which will consult on this in summer 2010. For more information on Infrastructure UK, see Infrastructure UK above.

For more information on the GIB, see Legal update, March 2010 Budget: Strategy for national infrastructure: Enabling long-term investment: Green Investment Bank.

Reducing the Government's own carbon emissions

The Government has announced that it is committed to reducing greenhouse gas emissions from central government departments by at least 30% by 2020.

All central government departments will shortly be publishing individual carbon reduction plans. They will then be required to show how they intend to deliver on these departmental carbon budgets in the next Spending Review.

Income tax

Relief for carers of children under special guardian and residence orders

The Government intends to introduce legislation in the next Parliament to provide income tax relief for particular payments to special guardians and certain carers looking after children placed under a residence order (that is, certain kinship carers). The exemption (which will be similar to the current tax exemption for payments to those who have adopted a child) will only apply to qualifying payments to qualifying carers and will have effect for payments received on or after 6 April 2010.

Qualifying payments are payments made in relation to a special guardianship order or residence order:

By the child's parents or payments by, or on behalf of, the local authority.
To a qualifying carer.

Qualifying carers are those who care for a child or children placed with them under a special guardianship order or a residence order (where the carer is not the child's parent or step-parent). Kinship carers looking after a child who has not been placed under a residence order are not qualifying carers for the purpose of this exemption but will be entitled to the new income tax relief for shared lives carers, announced in the 2009 Pre-Budget Report (see Legal update, 2009 Pre-Budget Report: key private client tax announcements: Measures to assist shared lives carers).

Currently, there are special income tax rules for foster carers, those who have adopted a child and shared lives carers. The decision to tax carers who take on legal parental responsibility for a child in a similar way to those who have adopted a child follows informal consultation about the new income tax relief for shared lives carers.

(See 2010 Budget - BN 37 - Special guardianship orders and residence orders.)

Unemployment

Future Job Fund

The Future Job Fund is part of the Government's Young Person's Guarantee to provide a job, work experience or training place for any young jobseeker unemployed for six months or more. The aim of the Guarantee is to ensure that short term unemployment does not become long term inactivity.

The Government intends to extend the Young Person's Guarantee for another year to March 2012. The extension will be funded through underspends in money already set aside for the Department for Work and Pensions (DWP).

(See paragraph 6.8 of Chapter 6: Protecting public services.)

Public sector pay

Pay cap until 2013/14

Budget 2010 states that the Government will:

Seek to impose a 1% cap on basic pay uplifts for public sector employees for 2011/12 and 2012/13.
Introduce a new code of practice on senior pay-setting, with greater use of independent remuneration committees and escalation of decisions to ministers, or audit and regulatory bodies, where there is a proposal to pay above certain levels.

This follows the Government announcement on 10 March 2010 that there will be no pay uplift in 2010/11 for senior public sector staff including the senior civil service, the judiciary, consultant doctors, senior managers in the NHS and self-employed GPs and dentists. At the same time, the Government announced that, excluding those on three-year deals, basic pay uplifts for other public sector workforces will be capped at a maximum of 1% in 2010/11.

Source

For a copy of the full Budget 2010 report, see HM Treasury, Budget 2010 Documents.

Budget 2010: public sector announcements | Practical Law