Bonus verdict

The New Homes Bonus, the government’s flagship policy on housing supply, is listing badly. Does it deserve to stay afloat?

Labour has pledged to scrap the policy introduced by Grant Shapps as a ‘powerful new incentive’ for local communities to support new homes. The National Audit Office delivered a damning verdict last year. And a Conservative member of the public accounts committee memorably described it as a Rolls Royce idea that ended up as a Reliant Robin in practice.

Now, the government has finally published an evaluation, which summarises the results of internal DCLG and externally commissioned the research. So what’s the verdict?

The good news for the government, trumpeted by Brandon Lewis is that almost half of planning officers think the New Homes Bonus is a ‘powerful incentive’ for councils to facilitate housing growth. A quarter disagreed and 22 per cent neither agreed nor disagreed. From his place on the bridge, Lewis boasts that councils have now received £3.4 billion through the bonus to support ‘building over 800,000 more homes’ between 2011/12 and 2015/16. Provisional allocations were also announced for next year.

However, planners were more evenly split on whether it has helped ‘increase overall support for new homes being built in my council area (39 per cent agreed v 37 per cent disagreed). Only 10 per cent of local authorities agreed that the bonus had increased support for new homes within the overall community (compared to 59 per cent who disagreed). And the impact was seen as much more limited on plan making and planning decisions in general.

These results are perhaps not so surprising when you consider that the accumulation of bonus payments is worth £917 million to local authorities this year but the results seem much more obvious inside council offices than outside. An accompanying analysis of the financial impacts on local authorities confirms what was clear from the start, that affluent southern areas have benefitted at the expense of more deprived northern ones. That alone would probably be enough in itself to seal its fate under a Labour government.

The top 10 losers (all seeing a reduction of more than 1 per cent in their spending power for 2014/15 as a result of the bonus) were: Knowsley, Blackburn with Darwen, Oldham, Kingston upon Hull, Liverpool, Kensington & Chelsea, Wirral, Sunderland, Gatesehead and Cumbria.

The top 10 winers (all seeing an increase of more than 17 per cent in their spending power) were: Uttlesford, Sedgemoor, Test Valley, South Cambridgeshire, Aylesbury Vale, Tewkesbury, Corby, South Norfolk, Basingstoke and Deane, Forest Heath.

Even a cursory glance will tell you that the beneficiaries are overwhelmingly shire districts in the south of England with the Conservatives in control or the largest party, while the losers are overwhelmingly Labour urban districts in the North. The two exceptions to the rule are Kensington & Chelsea and Corby.

On a different measure – the difference between the estimated financial position with and without the New Homes Bonus – Uttlesford was 88 per cent better off and another 10 Conservative-controlled councils were more than 50 per cent better off. Overall, three-quarters of councils are better off and a quarter worse off.

Outside London, there is some evidence that the money is going to areas with the highest housing need, as measured by affordability, families in temporary accommodation and population growth.

Other results from the evaluation include:

• Bonus receipts have largely been used to support core local authority services rather than to benefit communities in the vicinity of new homes:

‘There was very little evidence that authorities were raising awareness of the Bonus within the community, or communicating what activities the fund was being spent on. This raises questions as to the extent to which Bonus receipts are being spent “in line with local community priorities” as was intended by the policy.’

• The research did not find any evidence that the enhanced bonus for new affordable homes had provided an additional evidence for councils to support them.
• There was evidence that the bonus offers significant incentives for authorities to do more to bring empty homes back into use. Some had used money from the bonus to fund empty property officers and to match fund funding from other sources.

The mixed results are not so surprising when you consider the context for the policy: housebuilding was at a record low when it was introduced; and local authorities have faced unprecedented austerity. That makes it very difficult to disentangle the impact of the bonus from other economic factors and other policies.

The government has also found other ways to increase the financial benefits for authorities that agree to new homes. This year was the first in which authorities get to keep more of the increased council tax from new homes without having their funding settlement automatically adjusted downwards.

The report concludes:

‘Although the external researchers found the policy was delivering to the key stated policy principles of being “powerful”, “simple”, “transparent” and “flexible”, there were some questions raised around the extent to which the community was aware of the Bonus and what it was being spent on. Although the government had set out a clear funding approach for the first four years of the olicy, looking forward there was less evidence the policy was fulfilling its “predictable” element, with some authorities sceptical as to the long term future of the policy.’

They are probably right to be sceptical. The fact that it benefits Conservative districts at the expense of Labour ones makes the New Homes Bonus an obvious candidate for abolition under a new government. It may have been a powerful incentive, but for what exactly: for pro-development councils to deliver new homes or for desperate ones to try to secure whatever funding is available?

Above all, perhaps, the evaluation does not attempt to assess one of the NAO’s key criticisms, that ‘the bonus has mainly rewarded home creation that was not incentivised by the bonus’.

The New Homes Bonus has had some positive impacts, especially on empty homes. The idea of offering incentives to communities to support new homes may still be worth exploring. But is that good enough for a £3.4 billion flagship?