Auditors cast doubt on impact of New Homes Bonus

27 Mar 13
The National Audit Office has slammed the Department for Communities and Local Government’s management of the £1.3bn New Homes Bonus programme, warning that many councils would lose out.

By Richard Johnstone | 27 March 2013

The National Audit Office has slammed the Department for Communities and Local Government’s management of the £1.3bn New Homes Bonus programme, warning that many councils would lose out.

Auditors found the department had not adequately monitored the impact of the scheme and the signs were ‘not encouraging’ that it would lead to extra homes.

Launched in November 2010, the scheme was intended to provide a funding boost to town halls that approved new housing developments. Ministers said it was expected to lead to 140,000 additional homes over ten years.

The bonus is paid to local authorities for every home added to their council tax register, minus any homes that have been demolished. Whitehall matches the additional council tax from new homes until 2016/17. Both new build homes and empty properties brought back into use qualify for the funding.

However, the NAO said the scheme posed a ‘substantial’ financial risk to authorities whose areas were not attractive to developers.

Around £600m has been taken from the local government formula grant to fund the payments, in addition to using £700m already provided to boost housebuilding.

This meant that councils whose location was in less demand would lose out twice due to the ‘redistributive nature’ of the bonus scheme, auditors said.

For example, authorities in the south of England generally receive more bonus per household than in the north. The 2013/14 average per household is £45.12 in London, compared with less than £20 in the Northwest and Northeast of England. This reflects the strength of local housing markets, but lower payments also increase the financial risks faced by some councils.

Auditors also found that the government’s estimate of 140,000 new homes was over-stated as it included an arithmetical error that increased construction rates by 32,000.

Even after correcting this error, the projection was produced using ‘very limited evidence’, and the signs were not encouraging that the programme would lead to a discernable increase in homes, auditor general Amyas Morse said.

Ministers have planned to carry out a review of the New Homes Bonus during 2013/14, and Morse said this should be done ‘urgently’ to ensure the scheme successfully encourages construction.

He added: ‘Some local authorities could face significant cuts in their funding as a result of the New Homes Bonus scheme. While it is too early for the scheme to have had a discernible impact on the number of new homes, the signs are not encouraging.’

However, housing minister Mark Prisk said the report was ‘unduly negative and unfair’.

He added: ‘The reality is that the New Homes Bonus has already rewarded councils for the delivery of 450,000 homes and we are confident that it has the potential to increase supply by at least 100,000 homes over ten years.

‘The New Homes Bonus provides a real incentive for communities to grow, to provide more affordable housing and to get empty homes back into use. It is simple and fair to all parts of the country. Councils which build more homes receive more funding.’

The Local Government Association urged ministers to re-examine the bonus scheme ahead of the June 26 Spending Review so that any alterations could be made.

A spokesman said: ‘Mistaken forecasts and a lingering uncertainty over future income from the New Homes Bonus are hampering councils’ efforts to plan their medium- to long-term budgets.

‘While some areas have done well from the scheme, it needs to be remembered that most of the New Homes Bonus is not new money, but a redistribution of existing funding for local government. Government needs to ensure that the scheme is achieving its aim of creating more new homes in all parts of the country.’


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