Planning matters

In December, DCLG published the Government’s response to the New Homes Bonus consultation confirming a number of changes to ‘sharpen the incentive’[1]. Key changes include the introduction of a threshold for housing growth below which the New Homes Bonus would not be paid – and a reduction in the scale of payments from 2017/18. These changes are significant as, based on 2016 figures, 26 local authorities as a result would not benefit from any New Homes Bonus payments, as their housing growth was below the 0.4% threshold.

The New Homes Bonus was introduced by the Coalition Government in 2011 and provides councils with payments equivalent to the Council Tax raised by new dwellings for a six year period. The original purpose of the scheme was to incentivise a net increase in housing delivery nationwide, through rewarding authorities financially, and to compensate them at least to some extent for funding cuts. The Coalition’s ‘Localism Agenda’ ensured that the monies were not ring-fenced and could be spent as each council desired, in consultation with local communities. Since its introduction over £6 billion has been paid to local authorities through the New Homes Bonus.

The New Homes Bonus system has however been subject to criticism since its introduction, which one can assume has in part driven the recently-announced reforms to the system. The UK Housing Review Briefing Paper (June 2014) concluded that the scheme had ‘little impact on new housing supply’. It is apparent from public consultations and Planning Committee meetings that the public and elected members often see the New Homes Bonus as irrelevant and at worst, a form of bribery. The mention of the Bonus is regularly greeted with hostility by objectors, trepidation by councillors and is often not properly taken into account through the decision-making process.

DCLG research[2] has found that around 60% of planning officers didn’t think that the Bonus had resulted in officers and members being more supportive of housebuilding, with just 10% of the view that the benefits of the Bonus translated to community support for development. Additional concerns over whether the funding for the scheme comes from ‘top-slicing’ local authority budgets have been prevalent, as its introduction coincided with large-scale cuts to Council funding streams.

The key change being introduced in 2017 is the introduction of a national baseline for housing growth of 0.4% – below this baseline the Bonus will not be paid. This is intended to ensure that the Bonus is paid only where substantial additional growth is achieved and that councils are rewarded for this accordingly. The 0.4% baseline is an increase from the 0.25% originally consulted on but is below the 0.7% ‘average’ growth rate in the 10 years before the introduction of New Homes Bonus. To provide some context, between 2011 and 2015 housing stock growth was between 0.54% and 0.73%, with 2015 experiencing the highest growth percentage. This raises the question of whether the baseline is high enough, particularly in the context of the Government’s ‘1 million homes by 2020’ target. The Government has the option however to amend the baseline in future years ‘to reflect significant and unexpected housing growth’, leaving this incentive as a flexible tool capable of being adjusted.

In addition to this, from 2017/18, payments will be reduced to match five years of Council Tax receipts, followed by four years from 2018/19. Cumulatively these two measures are likely to result in less money being paid out through New Homes Bonus nationally, which is designed to hit under-delivering authorities the hardest. The Government also acknowledges that these changes will ‘release funding for other Local Government spending priorities such as adult social care’. This doesn’t necessarily represent a cut to council planning budgets, as the New Homes Bonus can be spent as each authority sees fit, however it’s likely to create holes in Council budgets that will need to be addressed.

Whilst initially considered in last year’s DCLG consultation, the Government will not withhold New Homes Bonus from local authorities without a submitted Local Plan, or from new homes which are only allowed following an appeal. However, both of these areas will be reconsidered from 2018/19, according to the Government Response.

The mooted changes which are not being implemented are potentially a missed opportunity, as withholding New Homes Bonus for schemes won on appeal would provide further incentives for officers and members to ensure that their decision-making is robust. Removing New Homes Bonus for authorities behind on their local plan production would have represented a suitable ‘stick’ to speed up the adoption of plans, on which the planning regime – and the National Planning Policy Framework are dependent. Financial incentives linked to positive planning outcomes would also provide local authority planning chiefs a stronger hand in arguing for a larger share of the budget for their departments.

The amendments to the Bonus system are a mixed bag – on the one hand the introduction of a baseline promotes rewards for authorities supporting additional housing growth whilst on the other, the shorter payment period reduces the financial incentive the Bonus previously represented. The measures that are not being taken forward could have been very effective in driving better decision-making and swifter local plan adoption.

The New Homes Bonus system has clearly not had the desired impact and the changes made do not go far enough to create the effective tool to encourage additional housing growth and to counter funding cuts that the New Homes Bonus could be.