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New Homes Bonus used to offset cuts

The New Homes Bonus is being used primarily to offset cuts in local authority grants, and not to help increase affordable housing supply.
That’s the conclusion to be reached from the latest piece of propaganda from the Department for Communities and Local Government, which reports (I think we are meant to be impressed) on the uses to which the first payments of the New Homes Bonus – £200m in April 2011 – have been put.
There have already been complaints that the distribution of the bonus is unfair and does not help deprived areas as much as it should.  As a report on progress, the latest document includes no statistics and it has no overall analysis.  However it claims that the Government wants to ‘encourage innovation’ and it includes a ‘ready reckoner’ which makes it clear that the Government does not expect the NHB to be used to boost housing investment but to offset and defray cuts in mainstream service grants.  The ready reckoner tells us

  • 800 new homes could ensure two Sure Start children’s centres remain open;
  • 180 new homes could pay for a day centre to care for the elderly to be kept open;
  • 100 new homes could cover the cost of two trained child social workers and two full time hospital nurses for one year;
  • 30 new homes could save your small public library from closure;
  • 15 new houses could pay for two cricket training nets to be installed.

The document mainly uses ‘case examples’ to show how the money has been used or is proposed to be used.  Examples include:

  • Elmbridge – includes ‘funding for other charitable groups … affected by the cuts in government funding’ and ‘funding for public libraries under threat of closure’,
  • Wychavon – 40% passed to parishes to spend on community facilities – for example, village hall improvements, flood protection, bus subsidies, play areas, allotments and green initiatives.
  • The Vale of White Horse District Council – ‘using the Bonus to introduce free car parking to the three market towns’
  • Bath and North East Somerset Council ‘used the Bonus to help tackle a £12m savings target and protect priority frontline services.’ Includes street cleaning, libraries, paying for foster care places.
  • Rugby Borough Council – NHB ‘has meant that front line services have been maintained and in some cases enhanced.’ Includes refuse collection and Leisure Centre.

Two councils show how the NHB could be used to further enhance housing and other investment:

  • Sheffield City Council – use NHB ‘to promote housing and economic regeneration and minimising the number of long term empty properties.’
  • Plymouth City Council – ring-fence NHB as part of the Plymouth Growth Fund which ‘aims to increase the city’s population by 50,000; create 42,000 new jobs; and deliver 30,000 new homes.’.

Although the Government has always said the money will be not be ringfenced, many people believe that a housing-related payment should be used for housing-related purposes.  Using most of the money to offset cuts in such a blatant way is an abuse of the scheme.  I wonder if Eric Pickles and Grant Shapps actually noticed that affordable housing starts fell by more than 90% in the first 6 months of this year compared to the previous year? 

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New Homes Bonus deeply unfair says Seabeck

The Tories seem to have invented the New Homes Bonus in a panic when they realised that stripping away Labour’s regional infrastructure for housebuilding would leave them with no policy at all, see our previous comment here.  But the NHB is proving even more bizarre than we predicted. 
Yesterday, Shadow Housing Minister Alison Seabeck published her research on the distribution of the Bonus, showing the wild variations in payments across the country.  The research, confirmed by the House of Commons Library, shows that Richmondshire, in William Hague’s constituency, qualifies for a New Homes Bonus of £56,449 for adding just nine homes to their housing stock, whilst Scarborough is entitled to just £7,356 despite adding nearly three times as many.  For each additional home, Richmondshire will receive 2033% more in New Homes Bonus money than will Scarborough.
Rather like the general cuts to local authorities, the richer parts of the country do better than the poorer parts.  The 10 least deprived local authorities in the country receive over 20% more in NHB funding for each new home than do the 10 most deprived authorities.  This matters because in future years the bonus will be funded by ‘top-slicing’ the main council formula grant – so some of the country’s most deprived areas will lose out on grant in order to pay large bonuses to wealthier areas – and by 2016 the cost will be £1.2bn each year!  Research by the National Housing Federation indicated that the net impact of this policy will see the North losing £100m in funding each year.
Here are Alison’s examples:

New Homes Bonus ‘Losers’

New Homes Bonus ‘Winners’



NHB per Home

Local Authority

NHB per Home





South Lakeland


West Berkshire




Three Rivers










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A nice little earner – or not?

<strong><span class="has-inline-color has-accent-color">Steve Hilditch</span></strong>
Steve Hilditch

Editor and Founder of Red Brick. Former Head of Policy for Shelter. Select Committee Advisor for Housing and Homelessness. Drafted the first London Mayor’s Housing Strategy under Ken Livingstone.

The New Homes Bonus 

As a country we have failed to build enough new homes for more than 30 years.  The coalition’s scrapping of Labour’s system of regional housebuilding targets, which was only starting to have effect, has caused great concern.  Now a little flesh has been put on the bones of their proposed alternative – the New Homes Bonus – in a consultation paper published on 12 November. 

The core proposal is that each council will make its own decisions on the scale and nature of housing development, but they will be incentivised to encourage building through a grant that will match the council tax raised on new homes for the first six years after development.  The benefit to councils (on current figures) over 6 years would be over £8,000 for a Band D property (using the national average) and over £10,000 for a band E property.  An additional flat rate of £350 a year would be paid if a property falls within the definition of ‘affordable’ in PPG3. 

Communities and Local Government department estimates that the cost will rise to over £1 billion a year in year 6 even on current housebuilding numbers, but it is likely to be significantly more if the scheme has the desired effect and housebuilding increases.  A contribution to the cost will come through scrapping the current Housing and Planning Delivery Grant – about £250m a year for the first 4 years – but all other costs – ie £1 billion or more by year 6 – will come out of local authority Formula Grant, so there will obvious gainers and less obvious losers.  Very little is said in the paper about the losers (ie those that will lose more in Formula Grant than they will gain in NHB) and how much impact the overall reduction in Formula Grant will have. 

Despite the wealth of methodology in the paper, the government has no real idea how many extra homes NHB will generate and how much impact an incentive of say £8k a home over 6 years will have.  Is that enough to overcome nimbyism and genuine local concerns?  An estimate is made that by 2016-17 there might be an uplift of 8-13% from the base, but this is not convincing. 

There is no guarantee that the grant will be used to help communities affected adversely by development or to support infrastructure.  It can be spent in any way the beneficiary council chooses – and the document identifies only non-housing uses like council tax discounts, rubbish collection, and providing local facilities like swimming pools.  Most likely in the current climate, it will be used to offset the general cut in Formula Grant that is taking place anyway as part of the CSR.

Will the scheme encourage affordable homes?  The £350 enhancement for affordable homes appears plucked out of thin air.  Who knows if this is a real incentive or not?  Using the PPG3 definition of ‘affordable’ means that everything that is sub-market will be included, and there is no specific incentive to encourage homes for those most in need. 

The scheme does not distinguish between different areas in terms of the need to build.  The benefit will come to those with the greatest capacity to build on easy sites.  Councils with little developable land or no need to build will be concerned about the overall impact this might have on the finances. 

An interesting oddity is the intention that acquisitions that increase the availability of affordable homes would receive the £350 enhancement but not the core NHB.  It is also suggested that the scheme might cover the bringing back into use of empty homes. 

I would strongly urge everyone to read the consultation paper and to get comments in.  We’d be delighted to report your views here on Red Brick. 

Click to access 1767788.pdf