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Paul Jones welcomes the government’s decision not to increase the New Homes Bonus baseline. But changing circumstances mean a fundamental rethink of the funding stream is required, he says.
Before Christmas, I met with local government minister Rishi Sunak to represent district authorities to raise issues of concern.
I would like to think my meeting with the minister had some influence, although I am a realist.
However, I was pleased that the government listened to the views of many local authorities and decided not to increase the New Homes Bonus (NHB) baseline as originally planned.
This was confirmed in this week’s final Local Government Finance Settlement for 2019/20.
The baseline introduced from the start of 2017/18 means that housing growth falling below 0.4% of the existing council tax base is no longer paid.
However, we do not agree with the principle of a baseline and have concerns about the level of NHB paid and its continued funding from revenue support grant (RSG).
The baseline methodology rewards authorities that increase their dwelling stock most in percentage, rather than absolute, terms.
This means that the amount of grant received for each additional property brought into use, although the same for each additional Band D property over the baseline, differs for each local authority.
Consequently, the mechanism unfairly affects authorities with higher numbers and values of properties, such as Cheltenham, Gloucester and many other small urban districts..
The council is penalised using this methodology compared to many shire districts as it has a “higher” starting point in terms of the number and value of existing properties.
Therefore, it has to deliver significantly more homes above the baseline to achieve similar levels of NHB compared to a rural authority starting with fewer, lower value properties, despite having considerably less development land.
In the government’s response to the NHB consultation on first introducing a baseline in 2017/18 it stated that 80% of respondents were opposed to the introduction of a proposed baseline of 0.25%.
Should the government wish to disregard housing growth that would have occurred “anyway” in order to increase the incentive effect, it should instead consider reducing NHB by reducing the top-slice from RSG.
As a wholly urban area with tightly drawn boundaries, Cheltenham has much less capacity for increasing its dwelling stock than rural areas.
As a result the council is being unfairly affected by the top-slice of RSG to fund the NHB, which is effectively distributing more grant to rural authorities or those with more space for new homes. The latest settlement indicates there is a disparity in excess of £3m between what some Districts receive.
Although we recognise the “contribution” from departmental budgets, we believe the funding for the NHB should be provided from additional government money and not by top-slicing RSG.
By phasing out RSG but continuing with the NHB, the government is effectively removing an (albeit imperfect) needs and resources based formula which measured the need to spend and ability to raise council tax.
Its replacement is a grant which, although incentive-based, has no significant link to the need for an authority to spend or its ability to generate council tax.
It is somewhat perverse that there will be a full business rates reset based on need, yet NHB has no correlation.
Due to the top-slicing of RSG, an authority such as Cheltenham should not need to make significant savings and reductions in services simply because it has not increased the number of new homes as much as other, often more rural, authorities due to the shortage of development land within its area.
The council supports the NHB in principle and is committed to the growth agenda and the principle of being rewarded for achieving growth targets, but considers the NHB has far too high a weighting.
The current NHB rewards authorities for the number of new homes brought into use but at the levels set (average Band D council tax) provides much more grant than an authority will need to spend as a result.
This is particularly the case in an urban area (like Cheltenham) with overspill development adjacent to its boundaries.
In this situation, the neighbouring authority receives the NHB for each new home built but the urban area has to provide many of the services the new homes receive, such as environmental, recreational, economic and community facilities.
We believe authorities should be rewarded with a fixed amount for each additional property brought into use (of say £500), regardless of its council tax band or proportion of an authority’s dwelling stock (with affordable homes continuing to attract a bonus).
It is difficult to see why an authority should benefit by the equivalent in grant of the council tax collectable from the new home (which it will also receive), with more grant payable the higher the band the property is placed.
This skews the grant in favour of areas with higher tax bases, with each additional new home receiving more grant in some areas than in others.
Many authorities have encouraged the building of low cost homes in the A–C bands, however due to the grant being based on band D equivalents, see limited NHB benefit even though it is supposed to reward growth in housing numbers.
The current calculation is thus likely to encourage the building of higher banded homes rather than affordable ones, with the differential between bands often greater than the £350 bonus for the latter.
Paul Jones is executive director of finance and assets at Cheltenham Borough Council
