So, shockingly, it turns out that the government’s ‘powerful new incentive’ to councils to approve more homes may not be working out quite like that.

A damning report on the New Homes Bonus published today by the National Audit Office (NA0) is deeply embarrassing for the DCLG and former housing minister Grant Shapps but it hardly comes as a huge surprise.

The flaws were pretty clear right from the beginning. As I argued when the first allocations were made, it is not really a bonus and it amounts to a mechanism for transferring funding from deprived areas of the north to affluent areas of the south for homes that would have been built anyway.

However, some of the detail revealed by the NAO is still deeply shocking and the report almost amounts to a textbook example of how not to implement evidence-based policy. Here’s a flavour of criticisms that are all the more powerful for being made in the NAO’s usual measured language:

  • The DCLG’s estimate of the potential increase in new housebuilding is ‘unreliable’ – the assumptions were ‘unrealistic’ and correcting a calculation that included a ‘substantial arithmetical error’ reduces the estimate by 25 per cent.
  • ‘The department’s approach to monitoring and evaluating the Bonus and its effects is neither timely nor adequate.’
  • It’s too early to say whether the bonus will increase new housing but ‘we found little evidence that the bonus has yet made significant changes to local authorities’ behaviour towards increasing housing supply
  • ‘The Bonus has so far mainly rewarded home creation that was not incentivised by the Bonus.’
  • ‘We found little evidence that the influence of the Bonus is reflected in increased planning approvals for housing.’
  • The department was aware that the bonus could result in large cumulative losses for some authorities but did not include that in the impact assessment and it has done no analysis of the impact on individual councils.
  • Despite introducing a scheme designed to change the behaviour of local authorities and communities, the department did not even consult the Cabinet Office’s Behavioural Insight Team (or Nudge Unit).
  • The department’s risk register mentioned pressures on the availability of rented housing and ‘associated impacts from welfare reform’ but these were not mentioned in the impact assessment. The NAO found ‘no evidence’ that it the DCLG and DWP had considered the impacts of their respective policies.

Housing minister Mark Prisk made a valiant attempt to defend his predecessor’s policy to the BBC:

‘This report is unduly negative and unfair. Housing supply is up and planning approvals are up. We are getting Britain building. The reality is that the New Homes Bonus has already rewarded councils for the delivery of 450,000 homes and we are confident that it has the potential to increase supply by at least 100,000 homes over 10 years.’

However, Labour’s Jack Dromey said ministers had been ‘extraordinarily irresponsible’ in not checking whether the scheme was value for money:

‘The New Homes Bonus symbolises the government’s failing housing policies. They are failing to increase housebuilding and the government has grossly overestimated its impact, promising much and delivering little.’

On the plus side for the government, the NAO did find ‘some evidence that the Bonus has given local authorities resources to allow them to protect activities relating to new and empty homes’. I’ve also seen for myself how it has encouraged my local council to get much more serious about developing a register of empty homes and working with the owners to bring them back into use.

Overall, though, the verdict from the head of the NAO, Amyas Morse, is that:

‘Some local authorities could face significant cuts in their funding as a result of the New Homes Bonus scheme. While it is too early for the scheme to have had a discernible impact on the number of new homes, the signs are not encouraging. “The Department must now urgently carry out its proposed review of the scheme to ensure that it successfully encourages the construction of much-needed new homes.’

It’s not hard to see that the £500 million of grant and £1.1 billion of redistributed formula grant that the government is planning to spend on the bonus over the next two years could be better spent in any number of other ways.

And the whole episode raises serious questions about another, potentially even bigger policy disaster in the making: the £15.5 billion Help to Buy scheme.

Critics including most serious economists warn that the scheme could just further inflate a house price bubble that could leave the taxpayer with multi-billion liabilities when it pops. As Julia Unwin of the Joseph Rowntree Foundation argues, the result could be economic disaster followed by human tragedy.

At the Treasury select committee yesterday, George Osborne was denying it all even as the Office for Budget Responsibility, the independent watchdog that he created, was warning that the scheme would drive up house prices while having a limited impact on supply.

Are the mistakes of the New Homes Bonus about to be repeated on an epic scale?


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