Including commentary from Vivienne King, a member of our Operating Board
Source: CoStar News, October 24, 2022
Rishi Sunak is to replace Liz Truss as UK prime minister.
Sunak, a former Goldman Sachs banker and hedge fund manager, was anointed as the leader of the Tory Party after his last rival Penny Mordaunt failed to secure the requisite 100 backers from her own party. The move has lifted financial markets, which have welcomed both the clarity and Sunak’s reputation as the most fiscally conservative candidate.
But that relative calm may be shortlived as the Labour Party and the Scottish National Party are demanding a general election immediately, on the basis that Sunak, like Truss, does not have a mandate to govern from the electorate.
As Chancellor of the Exchequer he has left a large imprint on business and real estate which gives some very clear markers as to what his time as prime minister could mean.
Sunak said he will “deliver on the promise” of Boris Johnson’s 2019 manifesto when he confirmed he would run to replace Truss, whom he had lost to in a leadership vote of Conservative party members just six weeks ago.
“I want to fix our economy, unite our Party and deliver for our country. I served as your Chancellor, helping to steer our economy through the toughest of times.
“The challenges we face now are even greater. But the opportunities — if we make the right choice — are phenomenal.”
The former chancellor has all along pitched himself as the fiscally sensible candidate and dismissed as “comforting fairy tales” his rivals’ plans to raise borrowing to pay for tax cuts. Those comments have proved powerfully accurate as his rival Truss’s so-called mini Budget caused immediate financial and political chaos.
He has promised to “deliver tax cuts that drive growth” in a “way that’s responsible” and only after getting a grip on inflation.
The position is a direct contrast to Truss, who appealed to the right of the party by promising immediate cuts to income and corporation tax.
Sunak is noted for forcing Boris Johnson to go ahead with an increase to national insurance payments in April, which Truss reversed. But in July Sunak promised he will cut the basic rate of income tax from 20% to 16% by the end of the next parliament if he became prime minister.
This would amount to a 20% tax reduction, he said the “largest cut to income tax in 30 years” and a policy that’s part of his so-called “radical” tax vision, but builds on his previously-announced 1p cut to income tax in April 2024.
On the issue of sustainability he is committed to reaching net-zero emissions by 2050 and has pledged to keep the ban on building new onshore wind farms.
He was a Leave voter in the Brexit referendum, and has promised to scrap or reform all EU law or bureaucracy still on the statute book by the time of the next general election during his time on the hustings against Truss.
On the critical issue of business rates, Sunak is felt by the industry to have done far too little as Chancellor. His intervention during the pandemic in the landlord-tenant relationship by introducing a long-running moratorium on tenant evictions has been unpopular with landlords, but seen as a vital measure by retailers and leisure operators looking to keep afloat.
In his last Spring Statement as Chancellor, there was little of immediate impact for the industry but his focus on real living costs and rising inflation had broader implications for the industry.
At the time, Altus Group immediately lambasted the lack of change on business rates saying retail, leisure and hospitality businesses in England face a “dangerous cost of doing business crisis” citing a £3.1 billion business rates rise on 1 April as the government continued its path to taper off its financial support.
Sunak’s previous Budgets and Fiscal Statements have necessarily been rooted in the government’s response to the COVID-19 pandemic and its impact on the economy.
Sunak has very much sought a phased recovery plan from the blow caused by the pandemic, with the government’s role focused first on protecting jobs and livelihoods rather than making harder decisions on measures for paying back debt. Sunak’s interventions did focus on investing in the UK economy in new areas in sustainability and innovation where it sees opportunities for growth, and in the so-called “levelling up” of the country in terms of economic benefits.
A lot of the focus has been on extending support to struggling businesses, particularly in retail and leisure where so many were unable to function during the pandemic. Sunak will always be associated with the furlough scheme for businesses which was extended during the lockdown periods.
On a broader note, Sunak is significant as he is the first Asian prime minister.
Barnie Choudhury, editor-at-large at the Eastern Eye newspaper, speaking to BBC Radio 5 Live, said: “Role models like Rishi Sunak will be viewed by South Asians who want to enter politics, and if Rishi Sunak were to become prime minister, glass ceilings would be utterly broken and that can only be a good thing for people of colour.”
Sunak has certainly accumulated a large real estate portfolio. He is worth an estimated £200 million and owns a number of luxury properties estimated to be valued at around £15 million.
These include a Pacific Ocean-facing penthouse apartment in celebrity hotspot Santa Monica, a Georgian manor house in North Yorkshire and a five-bedroom mews house in Kensington in London as well as a smaller apartment in South Kensington’s Old Brompton Road.
His personal wealth is a matter of increasing scrutiny as he moves into the country’s top job. Earlier this year it emerged that his billionaire heiress wife Akshata Murty’s non-domiciled status meant she had not been required to pay UK taxes on her income derived from outside the UK, something that the family decided to repair by agreeing to pay up in April.
Melanie Leech, chief executive, British Property Federation, said in a statement: “The last few months have damaged the UK’s international reputation and economic standing, the country urgently needs strong and competent leadership to rebuild confidence. The new prime minister needs to confirm their leadership team as soon as possible and provide clarity on their strategy for stabilising the economy and their policy priorities.
“The property industry stands ready to work with Rishi Sunak in creating a thriving economy and addressing regional inequalities through the delivery of new homes, work and leisure spaces that are essential to revitalising our towns and high streets.”
Dr Walter Boettcher, head of Research and Economics at Colliers commented: “Sunak represents the strong economic hand that is needed to steady the seas and bring confidence back to the UK markets. Unifying the Conservative Party on the other hand will prove more challenging to the new PM given recent history. Doubling down on the much delayed ‘levelling up’ agenda might be one way forward given its central role in the 2019 Conservative Manifesto.
“Public finances will of course remain constrained. Hence, fostering public private partnerships to progress this agenda will be key. Such partnerships were always key and offer great opportunities for UK real estate as it navigates its way through a period of volatility and uncertainty, especially in the very regional markets that have the greatest to gain from levelling up. Let’s wish the new PM every success.”
Vivienne King, Chair of the Shopkeepers’ Campaign, said: “Rishi Sunak has won praise from his peers for his economic credentials, but we are waiting to see if he can be the champion of the high streets that he presented to Conservative voters during the hustings. As the Medium-Term Fiscal Statement approaches, he can prove his commitment to high streets and town centres and the neighbourhoods who depend on them, as a first step by abolishing downwards transition and by stopping rates going up at the rate of inflation.”
Peter Hardy, Real Estate Partner at Addleshaw Goddard, said: “I’m hoping the appointment of Rishi Sunak will provide the industry with the level of certainty it needs to operate effectively.
“A couple areas I would like to see the new government prioritise are affordable housing and a well thought out policy for unlocking development,” he said. “Further, I think the Building Safety Act is a very good thing for consultants but doesn’t necessarily do a lot to enhance safety. In practice, I worry that many of those responsible under the act will simply be incapable of dealing with all of the requirements. I think a few sensible reforms here would actually make the legislation more effective and prevent unnecessary delays to construction.”
Lawrence Bowles, director of research at Savills, welcomed the appointment. “The uncertainty of the last few months has had a material impact on gilt rates: the rate at which the UK government can borrow. In turn, this impacts the cost of borrowing for the rest of us. It affects mortgage rates for home buyers, development debt costs for housebuilders, and refinancing costs for property investors.“Anything that helps bring certainty and confidence back to the market is likely to reduce borrowing costs. That, in turn, will reduce affordability pressure for households.”
Ryan Jones, partner in rating at Cluttons said: “Business rates need to be looked at again and in depth. Over the past three years, businesses have faced many challenges from Brexit to Covid, the acceleration of online retail and latterly the energy and talent crisis the latter two causing many retail and hospitality businesses in particular to close part-time in a bid to save on costs or because they cannot operate. Many other businesses have adapted and sought to be innovative to cope with these changes.
“It will be interesting to see who Rishi will appoint as Chancellor, as now is the time to help them flourish and enjoy a prolonged period of operation during a time when the British public are embracing physical retail and getting to grips with the return to the office.”
Darren Zitren, head of network estate management at Cluttons said: “The UK cannot afford to abandon levelling up, no matter what it is called or how it is presented. Connectivity is key to levelling up the UK because this fuels economic growth, investment from businesses, talent, jobs, and access to social benefits and healthcare amongst many other things, including access to energy infrastructure which is going to be ever more crucial going forward.
Grainne Gilmore, director of research and insight at Cluttons said: “Today’s appointment of a new prime minister is a much needed step away from the political instability of the last few months. There are still economic headwinds ahead, but a clear and sustained message on how policymakers are going to tackle these challenges should help calm the money markets and improve sentiment. This could have a material knock-on impact on the pricing of loans as a reduction in political upheaval allows gilt rates to fall and interest rate expectations to be revised down.”
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