Government fiddles while New Homes Bonus burns

One of the few positives to emerge from the National Audit Office's investigation into New Homes Bonus - other than its acknowledged stimulus to local authority efforts to bring empty homes back into use - was that it was easy to understand.[1]

Obviously that couldn't be allowed to continue so the government has come up with a raft of proposals about how to make it more complicated as laid out in the recent 'Technical Consultation' on the 2018-19 local government finance settlement, where the majority of questions concern the New Homes Bonus . 

Baseline threshold

Actually, the first such complication has already been implemented in the 2017-18 NHB payments i.e. the baseline threshold of 0.4%.  This meant drastic reductions in the amounts of NHB earned by all local authorities, but by some much more than others.  As far as financial planning went, it didn't help that the government had only consulted on a 0.25% threshold but then introduced the baseline at the higher figure.

This year, the threshold is going to be.... um .... well, we don't actually know what it is going to be because there is neither a proposal being consulted on, as there was last time around (even if it was then ignored), nor an actual figure. Instead the government says:

decisions on the baseline for 2018-19 will be made following a review of the data when it is published in November. Confirmation of the baseline to be used for 2018-19 allocations will be made at the time of the provisional settlement.

This approach allows the government to take money in and out of the New Homes Bonus pot at will and at short notice and rather undermines any lofty ideas it might have wanted to promote about the virtues of financial planning.

The implication that the baseline is now subject to annual review makes operational planning difficult as well. If you are hovering around the 0.4% threshold, then just conceivably you are 'incentivised' to encourage new house-building by granting planning permissions that you would not otherwise grant (let's hope not, for the sake of the integrity of our planning system). But if, by the time the homes are built, the threshold has moved up to say 0.5% then your efforts will prove to have been in vain. The bribe you were hoping for has been snatched away after you have already done what you were bribed to do. Bad!! as Mr. Trump might say. Or, as the Local Government Association noted in its slightly more decorous response about the 'planning' changes described next.

The proposal to remove payments from developments allowed on appeal unfairly prejudices the planning process and runs the risk of bringing the planning system into disrepute.

Planning

Last time around, the goverment pulled back for removing the reward for homes built on appeal. This time, they have consulted on a new approach that reduces the money according to the ratio of appeals to grants of permission. The more the appeals as against grants of permission, the bigger the reduction in NHB.  The unit here is the planning decision/appeal, not the number of units, so refusal of a single dwelling would presumably count the same as the grant of permission for a thousand dwellings. The consultation describes this as measuring the 'quality of decision making by planning authorities'. (p.12, 3.3.3)  In summary:

This approach would link Bonus allocations to the ratio of successful appeals to residential planning decisions (major and minor) over an annual period using data collected by PINS.  At the time the allocations are made, the number of successful appeals/appeals allowed by PINS divided by the number of decisions made, in the last financial year, would result in a percentage reduction to be applied to the New Homes Bonus allocation for the following financial year

The ratio is always likely to be more than 0% (unless there were no appeals at all), so on this methodology, all authorities would see their amounts of NHB reduced, assuming the money is not retained in the NHB pot and redistributed. Finally the role of NHB as a punishments regime becomes more obvious, while the link with housing is broken as the figures are for all decisions not just residential applications.

To gauge the amounts involved, see the relevant Live Tables P152 and P154 on the government Planning statistics website. The numbers are mostly pretty small - which in itself calls into question the the extent to which local authority planning departments can be viewed as an obstacle to house-building - so that financially the proposal seems likely to be treated as a symbolic gesture rather than a meaningful incentive to action. This would particularly be the case if the money saved is retained in the RSG pot and redistributed as formula grant. (The consultation does not say what is intended to happen with the money saved.) 

Counties, National Parks, and Development Corporations

So the final piece of complication lies in the position of shire counties, who get 20% of the New Homes Bonus but aren't responsible for relevant planning decisions, and Parks and Development Corporations, which are responsible for planning decisions but currently don't get any of the New Homes Bonus. The consultation wants to know how that contradiction should be addressed i.e. innocent parties losing out because of the sins of another party.

More to come

The government promises to consult on other aspects of NHB and planning for 2019-20.

Empty Homes

It must be emphasised that none of the proposals directly affect the way that empty homes are factored into the New Homes Bonus calculations.

But as the trend in amounts of New Homes Bonus have so far been downward, there is, nevertheless, a useful practical lesson for local authorities around their empty homes work, which is to ramp up efforts now as the money may not be there in future: laissez-faire is risky. [2]

Local authority members should also note our justification for empty homes work having the first call on NHB in our Practitioner's Guide. [3]


Notes

[1] The NAO report is accessible via our Library from here. See page 9, point 9.

[2] For a detailed discussion around 'additionality' with worked-up models see our NHB Practitioner Guide particularly section D04 (Full Members and Library Subscribers only - you'll need to be logged in).

[3] See our Practitioner Guide (link above - login required) Section D03.

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