“New Homes Bonus is a key part of our ambition, set out in the Local Growth White Paper, to create a fairer and more balanced economy through encouraging growth.”
Grant Shapps, 4 April 2011
Cathy Newman checks it out
Ministers think they’re laying the foundations for a housebuilding boom. And not before time. There are fewer new homes being completed than at any time since before the war, so there’s a massive housing shortage. The Government’s answer is a so-called “new homes bonus”, which gives councils extra cash for each new house built. The Housing Minister, Grant Shapps, says this will create a “fairer and more balanced economy”. The trouble is, we’ve unearthed new figures which cast doubt on that. They appear to show the Government is robbing Peterlee to pay Poole. The FactCheck team has been crunching the numbers.
In 2007 Gordon Brown promised to tackle Britain’s housing shortage by building 240,000 new homes a year. But last year saw the lowest number of house completions since 1923 – just 103,000.
Few would disagree that Labour’s policy of top-down targets failed to deliver, and now the Coalition has launched a radically-different, market-based incentive scheme.
But the way the New Homes Bonus scheme is funded has sparked accusations that the Government is effectively redistributing wealth from the deprived north of England and other inner city areas to the more affluent south.
The Government wants growth. And it wants local councils to help by giving the green light for more new homes.
But there’s a problem. The Department for Communities and Local Government (DCLG) notes that “increased housing in communities has meant increased strain on public services and reduced amenities”.
That’s traditionally led to hostility to new housing developments among local residents and the councillors they elect, particularly in the leafy south of England, where new housing is badly needed.
The new policy aims to change all that, to “help engender a more positive attitude to growth, and create an environment in which new housing is more readily accepted”.
The New Homes Bonus will encourage local authorities to approve building projects by giving them cash equal to the council tax they charge on new houses, every year for the next six years.
So the more new homes a council approves, and the bigger those properties are, the bigger the windfall for the local authority. It effectively creates a competition between councils to see who can grant the most planning permissions.
Housing Minister Grant Shapps says the extra cash, which is not ring-fenced, could be used to improve everything from rubbish collection to children’s playgrounds, encouraging local people to back new housing developments on their doorstep.
Ministers are making a virtue of the fact that the new policy is tied to council tax, saying that means that areas where demand for housing is highest – as reflected in property prices – will have an incentive to build the most new homes.
But critics like the National Housing Federation (NHF) say the bonus will reward wealthier areas that build larger executive homes and act as a disincentive to build higher density accommodation like flats and social housing, which tend to be in a lower council tax band.
The Federation says a Government incentive of an extra £350 for every affordable home won’t redress the balance.
New figures released by Labour’s Shadow Housing Minister Alison Seabeck make clear that Britain’s poorest areas will lose out.
The new stats, seen by FactCheck and available here, use the Government’s most recent assessments of which areas of the country are wealthier than others – the Indices of Multiple Deprivation 2010 – to work out who will be hit the hardest.
A clear trend emerges: the more deprived the area, the less money per home it will receive from the New Homes Bonus.
If we look at the ten most deprived areas – Hackney, Newham, Tower Hamlets, Manchester, Liverpool, Islington, Waltham Forest, Barking and Dagenham, Sandwell and Blackpool – the average payout per home is £1,268.
The ten least deprived local authorities – Wokingham, Surrey Heath, South Northamptonshire, Elmbridge, South Cambridgeshire, Waverley, Harborough, Rushcliffe, West Oxfordshire and St Albans – will get an average of £1,567 per new build. That’s about 23 per cent more.
And poorer areas could take a double hit because of the way the scheme is funded.
This year, a Whitehall grant of £200 million will cover the cost of the bonuses. But in the next five years, the costs are expected to exceed the annual subsidy of £250 million set aside by the Government.
By 2015 the DCLG expects to be paying out more than £1 billion to councils, leaving a £750 million shortfall to be paid for by the formula grant, the main funding stream that councils get from Whitehall.
The Government has said this will simply reduce the main grant it gives councils – the “Formula Grant” – across the board. There will be no weighting to take into account the enormous disparity in funding between different parts of the country.
Poorer areas tend to get a much bigger proportion of their total revenue from the main government grant, while more affluent areas rely more on council tax.
That reflects the fact that wealthier areas are populated by people with bigger salaries and suffer lower unemployment. FactCheck has explained before how this has meant big urban areas in the north and Midlands have been harder hit by the local government spending cuts.
The way the New Homes Bonus is funded will compound the problem.
The NHF estimates that councils in the north will lose around £104 million, while authorities in the south will see a net gain of £324 million.
Of course, these figures are all projections. We don’t know how many houses will be built in 2015 and there are in fact serious doubts in local government and construction industry that the policy will work at all in terms of encouraging new builds.
Ms Seabeck told us the Commons figures show “just how unfair and disproportionate” the New Homes Bonus was.
“It’s a scandal that this policy diverts government funding from more deprived communities to wealthier areas and that one part of the country, Richmondshire, has been given 2,033 per cent more in New Homes Bonus money per home than has Scarborough,” she said.
David Orr, chief executive of the National Housing Federation, which represents 1,200 housing associations in England, backs her up.
He told FactCheck: “Leafy Surrey has higher council tax and attracts more executive homes. It will eat more of that money. Low value inner city areas and areas in the North will lose out in some cases not just proportionately, but in some cases there will be money lost to those local authorities to pay the affluent local authorities in and around the South East. That’s not fair.”
The figures also compare the percentage every local authority gets from the total formula grant paid out by the Government with the percentage they will get from the New Homes Bonus pot this year.
That illustrates which councils are most reliant on the formula grant, and compare that to what they stand to gain from the new system.
Again, there is a clear trend. The more deprived the area, the smaller the share it will receive of the New Homes Bonus and the more it stands to gain from a cut in Formula Grant.
In those ten most affluent areas, the average share of the New Homes Bonus is just over seven times the size of its share of formula grant.
But in the ten most deprived areas, the ratio is almost exactly 1:1 – about the same amount from each source.
So if the New Homes Bonus proves a success, with big sums paid to the biggest housebuilders, it seems inevitable that more deprived areas will lose out.
A Communities and Local Government spokesperson said tonight: “The Government is committed to ensuring communities have strong incentives to support growth. The New Homes Bonus will ensure for the first time that local people see the benefits of bringing new housing to their area so developments can go ahead with their backing rather than in the teeth of their opposition…The first payments for this year have already been made with three of the five top earners in the north and Midlands.”
Cathy Newman’s verdict
It’s all very well to argue that the South East should benefit handsomely from the New Homes Bonus because that’s where the housing shortage is most acute. But when you look at the figures and see that parts of Greater London are getting half the bonus of parts of Surrey, something has to be wrong. Linking the New Homes Bonus to council tax is flawed. What’s worse though is the way the scheme is funded once the initial £1bn from the government runs out. Because the shortfall will be met from the government’s main grant to councils, and because the poorest areas are more dependent on that main grant, the Government is quite literally robbing inner-city Waltham Forest to pay leafy Waverley. And that doesn’t seem very fair to FactCheck.
The analysis by Patrick Worrall
Research produced by Alison Seabeck and the House of Commons library