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The New Homes Bonus scheme

A six-week consultation on the New Homes Bonus scheme closed on Christmas Eve, and the Government is now sifting through responses with a view to announcing the final details in time for it to come into force for the new financial year in April. So what exactly is it and how is it likely to work?

What is it?

The New Homes Bonus scheme is the Government's answer to the question that has dogged it since plans to devolve responsibility for setting house-building targets to local authorities were unveiled in the run-up to the 2010 general election: what will be the incentive for local authorities to build?

The answer to this question is the New Homes Bonus, a scheme where local authorities will receive a council tax rebate for new builds for the first six years of the houses' lifetime.

Why is it needed?

The Government sees the New Homes Bonus scheme as a way of driving house building. As it states in its consultation paper on the scheme: ‘We have seen a substantial fall in housing development, on average 26,000 fewer homes were built each year from 1997 to 2009 than under the previous Conservative government. In 2009, we achieved just 118,000 completions, that's the lowest level of house building in peacetime since 1924.'

The Government argues that its localism agenda, fuelled by the Localism Bill currently passing through Parliament, will lead to more homes being built, contrary to what its detractors say.

With house building at an historic low, and regional planning targets being removed, the New Homes Bonus is the Government's answer to the charge that the localism agenda will lead to nothing but Nimbyism.

How the scheme would work

The aim of the scheme is to ‘incentivise local authorities to increase housing supply by rewarding them with a 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.' There would also be an enhanced contribution for affordable homes.

The consultation paper confirms that the bonus is intended to be permanent, lasting beyond the six year cycle.

Though money would not be ringfenced, the Government expects ‘local councillors to work closely with their communities - and in particular the neighbourhoods most affected by growth - to understand their priorities for investment and to communicate how the money will be spent and the benefits it will bring'. Examples given of the potential options for the monies include tax discounts, increased monies for frontline services such as waste disposal, or contributions towards improving local facilities such as playgrounds or parks. The bonus would be paid through section 31 of the Local Government Act as an unringfenced grant.

According to the consultation paper, the bonus will be calculated by taking the national average of the council tax band for each new dwelling and providing it for the first six years after completion. This would be done not on a development by development basis, but rather by measuring the increase in dwellings on council tax valuation lists over the course of a year.

According to the Government's calculations, this approach would mean that a grant relating to an additional council tax Band D property would be worth roughly £1,439 per annum, or £8,634 over six years, whilst a grant relating to an additional Band E property would be about £1,759 per annum or £10,553 over the six year cycle.

The consultation also proposes an additional £350 per annum flat-rate for each affordable house built. Over the six year cycle, this would see an affordable house being worth £2,100, on top of the bonus received in-line with its council tax band. The Government proposes using the definition of affordable housing as set out in PPS3. Affordable housing acquisitions by a local authority would receive the £350 enhancement, but not the council tax element for new build.

The other question the consultation paper addresses is who the money should go to in two-tier areas; the district authority, the body which takes the decision on the planning application, or the county authority which looks after various services and infrastructure.

In this scenario, the Government proposes splitting the payment of the bonus so that 80% would be paid to the lower tier - or district authority - and 20% to the upper tier - or county authority. In London the full 100% would be paid to the borough.

This suggests no monies would be made available for parish or town councils, though the suggestion in the consultation paper is that district and county members should use the available monies following consultation with the local community, which would presumably include such bodies. The Localism Bill also contains provision for the Community Infrastructure Levy to be paid to town or parish councils by the district council, which would receive it in the first instance.

Calculation and timings

The Government proposes to calculate the grant using the Council Tax Base. The figure from the preceding year would be taken along with the figure from the current year, which would both then be converted to Band D equivalents.

The annual change from the preceding year would then be calculated, using the Band D equivalent calculations. The grant could then be calculated by multiplying the relevant figure by the average Band D council tax in England for the previous year.

The grant would be payable for that year and the following five years, repeating each financial year with a new amount of grant being added to the amount of grant payable in the preceding year. From the seventh year onwards the grant calculated six years earlier would no longer be payable.

The grant would be paid in April, where authorities would receive monies for new builds between the October of the preceding year and the October of the year preceding that. For example, a development built in March 2011 would be payable in April 2012. The provisional settlement would be announced in December of the preceding year (in this example December 2011), with the final settlement announced in February of the year the monies are payable (February 2012) ensuring local authorities could include it in their budgets.

There is still some debate as to when ‘year one' of the scheme will be paid. The schedule in the consultation paper suggests the first payment would be April 2011, which, if using the formula given, would mean authorities would be given monies for new builds between October 2009 and October 2010. However, in the Q&A section on the Department for Communities and Local Government website, it states that the ‘final parameters will be announced when all responses have been received and considered'.

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