Data blog: Nearly all authorities to see New Homes Bonus reduction

Nearly 80 local authorities are set to see their New Homes Bonus payments reduced by over £1 million in 2017/18 following the government's changes to the incentive scheme, an analysis by Planning suggests.

Finance: provisional local government settlement announced last week
Finance: provisional local government settlement announced last week

Last week, communities secretary Sajid Javid announced that the government would introduce a "baseline" for housing growth - set at 0.4 per cent - below which authorities will not receive New Homes Bonus allocations. "This will help ensure the money is used to reward additional housing, rather than normal growth," Javid said.

Under the New Homes Bonus scheme, the government matches the council tax earned by local authorities from each new home built, converted or brought back into use over a six-year period.

A comparison by Planning of 2016/17 New Homes Bonus payments with provisional 2017/18 payments reveals that nearly all authorities are set to lose out following the changes. Only 36 councils will receive the same or increased payments in 2017/18, the analysis shows.

But 79 authorities will see payments reduced by £1 million or more, the analysis reveals (see infographic, below). Twenty-two of those will see payments reduced by more than £2 million, according to the analysis.

Birmingham City Council tops the table of the authorities set to lose out the most - its 2017/18 payment would be £6.8 million lower than the previous financial year’s under the changes, the analysis show.

Other big losers include the London Borough of Tower Hamlets, which faces a reduction of £4.7 million, and the London boroughs of Southwark and Westminster, and Salford, Manchester and Bristol city councils, which would each see payments fall by £3.5 million, the figures show.

The changes to the New Homes Bonus follow a consultation published at the end of last year, which proposed setting the baseline for housing growth at 0.25 per cent.

The government’s response to the consultation revealed that 80 per cent of respondents had disagreed with the introduction of a national baseline.

"Comments included that it would be inequitable and not take into account varying constraints faced by authorities such as low demand and having a proportion of land with protection, other comments included that it would introduce complexity into the calculation of the bonus and that all growth should be rewarded," the government’s response said.

But the government said that, while it recognised that the proposal "did not achieve majority approval" from respondents, "we need to sharpen the incentive effect of the bonus".

The response added: "The government has chosen to set the initial baseline at 0.4 per cent below which the bonus will not be paid; this reflects a percentage of housing that would have been built anyway.

"It is noted that this is significantly below the average growth rate in the 10 years before the introduction of the New Homes Bonus (0.7 per cent) and below the average growth in Band D equivalent properties for local authorities in 2015/16 (0.94 per cent).

But the District Councils Network (DCN) last week hit out at the changes, which it said would "blunt" the impact of the New Homes Bonus and "have a detrimental effect on acceptable growth, rather than sharpen its focus".

DCN chairman, Neil Clarke, said: "The new deadweight baseline of 0.4 per cent - which will mean that bonus is only paid at growth above this level - is an arbitrary figure which will cut approximately £45 million from bonus allocations to district councils in 2017/18 and is at a higher level than the original consultation proposed."

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