Prudent housekeeping? Questions over New Homes Bonus reforms

24 Mar 21

The New Homes Bonus needs reform – but government proposals would be better combined with a systematic shake-up of council finances, says Tracy Bingham.

Tracy Bingham

In February, the long-awaited New Homes Bonus consultation finally landed and we are fast approaching the deadline for responses!

I am not really sure I can put into words how the options – which attempt to blend ‘sharpening of the incentive’ with the proposed Planning White Paper reforms – make me feel!

Overwhelmed perhaps?  

NHB was introduced in 2011 by the Cameron-Clegg coalition with the aim of boosting housing supply through additional revenue.

Back then, and in the midst of the financial crisis aftermath, housebuilding had been at its lowest since World War II.

The offer of more money to pay for increased services and/or prevent council tax rises was viewed as a simple way to encourage councils to create opportunity for, and say “yes” to, new housing.

It was funded through a top-slice of revenue support grant, thereby reducing the funding for all to focus it towards those who performed.

So, did it work?

Even in the early days there were rumblings about the schemes failing to achieve new homes, particularly in areas of need.

The first few questions in the consultation, which ask how the incentive has changed council behaviour, are certainly interesting! 

How much control and influence can a council actually have over building rates (notwithstanding the provision of affordable homes or brining empty properties back into use)?

Surely the delivery of completed units relies more heavily on the will of landowners and developers in bringing forward housing schemes for approval and completion? 

Only last year the Local Government Association reported that a backlog of more than a million homes with planning permission since 2010 were yet to be built – and perhaps that number is set to rise as a result of Covid-19, despite economic interventions announced in the recent budget around stamp duty and a new mortgage guarantee scheme. 

Could it be then, that the outcomes over the last 10 years have been, for the most part, organic rather than engineered by design of a local government funding scheme?

Ultimately, I suppose we will never know for sure as the scheme’s successes can never really be objectively evidenced. 

Resilience concerns

A piece of the NHB story that hasn’t been widely understood until recently is that it became part of ‘core spending power’ in 2016/17.

This means that the bonus councils receive now counts as part of the resources available to them to fund service delivery.

This is good news for those who have achieved generous rewards, but perhaps not so much a fairer deal for those who have not achieved growth (despite their efforts). 

This particularly played out in the latest settlement, where the new Lower Tier Services Grant was announced.

This aims to soften the blow of cuts in NHB next year, when legacy payments are planned to be phased out and the funds not recycled back into the NHB scheme itself.

It’s reassuring that this form of transitionary funding is in place, albeit for one year, and it will help to ensure no council falls off a cliff as a result of the changes – these pose a very real threat to those that have achieved growth and who have become accustomed to the reward as part of their core spending. 

But I also cannot quite reconcile the fact that there will be councils who, at the mercy of a blunt bonus scheme, were unable to achieve any increase in CSP in the first place and who equally are probably facing a rough time financially. 

How can this historic gap be put right?

Where do we go from here?

Ultimately, NHB does need to be reformed because it does not and cannot work for all the way it is.

Nobody can deny how critical housebuilding is to growth and its role in kick-starting local economies as we enter pandemic recovery.

But surely the system cannot be tinkered with in isolation from the remainder of the (now extremely wobbly) funding system and certainly not before the Fair Funding Review?

We need to remove the quirks in local government funding rather than embed them further or create more – there are enough already!

  • Tracy Bingham

    Finance policy officer at the District Council Network and head of finance (section 151 officer) at North West Leicestershire District Council

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