NEW HOMES BONUS

1. NEW HOMES BONUS • The Government is committed to the provision of incentives for local authorities to deliver sustainable new homes and businesses. • At the heart of the government’s strategy for locally driven growth is a framework of powerful incentives. • These will involve changes to the local government finance system to reward those authorities which provide for growth. • The framework aims to encourage local authorities and communities to increase their ambitions for housing and economic growth by returning the benefits of that growth and allowing local decision making to lead the way in which communities develop.

2. PURPOSE • The scheme is intended to incentivise local authorities to increase housing supply by rewarding them with New Homes Bonus, equal to the national average for the council tax band on each additional property and paid for the following six years as an unringfenced grant.

3. Design - 1 • Powerful – the rewards will escalate over a six year period with year one rewards dropping out at year seven as the scheme progresses in six year cohorts. By year six the total national reward is expected to exceed £1bn. CLG has set aside £200m to fully fund the scheme in 2011/12 and £250m per annum for the remaining three years of the spending review. Funding beyond these levels will come from top sliced Formula Grant ensuring that those authorities that drive up growth will reap the benefit. Those authorities that do not respond to the incentive can expect to see net reductions in Formula Grant.

4. Design - 2 • Simple – additional homes will be rewarded with six years of grant based on council tax • Transparent - easy for all stakeholders to calculate and see the early benefits of growth. • Predictable – the scheme is intended to be a permanent feature of local government funding. The design features will be kept simple and stable to ensure expected rewards for growth are delivered. • Flexible – local authorities can decide how to spend the funding in line with community wishes. It is expected that Councils will work closely with communities to understand their priorities for investment. Examples might include support for front line services or improvements in local facilities such as playgrounds and parks. Section 106 agreements will continue so there will also be this mechanism to improve local facilities.

5. Calculation of Amount • It is proposed to link the level of grant for each net dwelling to the national average of the council tax band for the following six years. • By way of illustration an additional council tax band D property would attract about £1,439 in grant per annum; that is £8,634 over six years. • The number of additional properties delivered each year will be derived from annual council tax valuation lists and will be a net figure that adds new dwellings and deducts those demolished

6. Distribution • It is recognised that for the incentive to be at its most powerful it must be strongest where the planning decision sits – with the district council in two tier areas. • However the upper tiers will have an important role in the provision of services and infrastructure and the contribution that they make to strategic planning. • Consequently it is proposed that the bonus be apportioned 80% to lower tier authorities and 20% to upper tier authorities as a starting point for negotiation. • District Councils have argued that they should receive 100% of the Bonus

7. Possible Role of LEP’s • It is also reasoned that Local Enterprise Partnerships (LEP) can support the delivery of new housing though infrastructure planning and supporting business growth. Pooling bonus at the level of the LEP could have many benefits such as reinvestment in shared priorities supporting long term prosperity, greater transparency and increased potential for alignment with other partner sources of funding such as Regional Growth Fund.

8. Consultation Timetable • CBC’s Cabinet considered this on 16th December. • Our comments were submitted before the deadline of 24th December • No definitive date of final decision yet received but expected befor eteh end of March

9. How Financed • The New Homes Bonus does not represent a pot of new money. The redistribution of former Housing and Planning Delivery Grant will fund the initial £900m costs of the scheme. As the scheme progresses additional costs will be met from the redistribution of Formula Grant. Consequently the overall scheme is cost neutral from the government’s point of view. • In simple terms it follows that those authorities that embrace growth can expect to see their losses in Formula Grant compensated by enhanced New Homes Bonus and vice versa. However, it is not possible at this stage to calculate the precise effect as the Formula Grant model can be adjusted in a variety of ways which cannot be accurately predicted due to the judgmental elements in the model. In addition, as the New Homes Bonus is a consultation document at present its final form may also change. • Undoubtedly there will be winners and losers under the regime. The consultation paper argues that the redistribution must be put into context as the New Homes Bonus will affect the distribution of only a small proportion of overall Formula Grant. Nevertheless the figures involved could be locally significant.

10. Possible Financial Impact on Charnwood • Using the level of affordable homes included in the CLG model and assuming a static net build of 560 new dwellings a year the gross amount receivable each year in Charnwood would be £839k, amounting to £5,034k over a six year period. • Cumulatively, this would amount to £17.6m over six years. However, using the suggested split of 80%:20% between Charnwood Borough Council and Leicestershire County Council the annual amount reduces to £672k and cumulatively to £14.1m. • Based on estimated reductions in Formula Grant this would result in a net gain of £1.55m over the six years. It must be borne in mind that the Formula Grant cuts are front end loaded and the New Homes Bonus would not reverse the loss of Formula Grant until 2015/16.