Workers removing cladding from a tower block. ©  AFP Contributor via Getty Images.
Workers removing cladding from a tower block. © AFP Contributor via Getty Images.

Will rising supply costs wipe out gains from new residential tax?

posted by Peter Crush
in Law
27 October 2021

High costs of materials and supplies are predicted to absorb funds gained from the UK's new residential property tax 

​A r​esidential property developer tax ​has been​ formerly announced ​by the ​UK ​Chancellor​ of the Exchequer in this year's second budget report. 

This latest speech confirmed the tax would be rolled out to rais​e​ much-needed ​funds to remove unsafe cladding from high risk buildings, including high-rise flats and tower blocks.
 
The tax will be levied at a rate of 4% on ​property ​developers with profits of more than £25m.
 
But already, it has been estimated ​that ​the money ​rais​ed will be all but wiped out by the rise in supplier and labour ​expenses brought about by supply chain pressures.

According to construction consultant, Robinson Low Francis, the cost of working on cladding projects has risen by 8% since last year, with some even reaching double-digit increases.
 
​While government hopes the mon​ey​ will cover this initial rise, extreme shortage​s​ of labour and building materials ​are predicted to add an extra £1.2bn to the estimated £15bn cost of updating properties. ​

Therefore, the rise in expenses alone will wipe out the £2bn ​the property tax is expected to bring in.
 
Speaking in the Telegraph, Jon Curtis, head of the building and engineering division of Ringley Group, which manages 300 buildings across England, said: “Escalating costs of construction materials caused by supply chain disruption, including those required for cladding remediation, are disproportionately adding to an ever-greater cost burden.”
 
Money was pledged by the government to update unsafe buildings in the aftermath of the Grenfell ​incident​, where cladding materials were deemed a major contributor to the spread of the fire and the resulting fatalities​. 

Following the tragedy, the government pledged to help replace ​cladding buildings at high-risk. However, many cladding replacement programmes involve steel​,​ the price of which has “gone crazy” according to Ian Cooper DWF, head of construction at legal and business services provider, DWF.
 
​As such, critics argue the ​new property develop ​tax will barely cover the rise in supply​-​side costs.
 
So severe is the shortage of materials and labour that some cladding improvement projects have encountered ​delays of ​more than six months.
 
​C​ampaigners now fear that without additional ​g​overnment funds, the escalating costs could be borne by leaseholders.

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