COMMONS

No credible data to show New Homes Bonus is working

31 October 2013

The Public Accounts Committee publishes its 29th Report on New Homes Bonus.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“The New Homes Bonus was introduced as a financial incentive for local authorities to encourage the building of new homes.

 

“The scheme is funded from existing local authority grants. £7.5 billion will have been redistributed between councils by 2018-19, so there is a lot of money at stake. It is clearly vital that the incentives work and the Government achieves its aim.

 

“It is therefore disappointing that after more than two years of the scheme being up and running, no evaluation is in place and no credible data is available to show whether the scheme is working or not.

 

“So far the areas which have gained most money tend to be the areas where housing need is lowest. The areas that have lost most tend to be those where needs are greatest.

 

“The Department has yet to demonstrate whether the New Homes Bonus works. Is it helping to create more new homes than would have been built anyway? Is it the best way for Government to use its limited resources to create more homes where they are needed most?

 

"Its planned evaluation of the Bonus scheme is now urgent.”

Margaret Hodge was speaking as the Committee published its 29th Report of this Session which, on the basis of evidence from the Department of Communities and Local Government, examined the implementation and the achievement to date of the Bonus.

The Government estimates that 232,000 extra households will need homes each year to 2033 but in 2012 only 115,600 new homes were built in England. The New Homes Bonus is a non-ring-fenced payment the Department has made to local authorities since April 2011 for every home added to the council tax register.

To partly fund the Bonus, the Department allocated £950 million in specific grant for the four years to March 2015. In addition, each year the Bonus is financed by redistribution from within the Department’s main formula funding for local authorities, with £599 million redistributed so far. Some local authorities are net gainers from the redistribution of formula funding, whereas others lose out.

More than two years into the scheme, the Department has not evaluated whether the New Homes Bonus is changing how local authorities approach the creation of new homes. It is important to assess whether policies are achieving their objectives and providing value for money as early as possible in order to refine the policy or its implementation where appropriate or counter any unintended consequences.

But the Department has not yet started its planned evaluation and does not aim to complete it until Easter 2014. It will be essential, albeit challenging, for the evaluation to disentangle the direct impact of the scheme from the effects of other interventions, such as Help to Buy and the Empty Homes capital grants programme, and from other changes to local authority funding arrangements.

Recommendations

Recommendation: The Department should set out its evaluation plans now, including methods, data sources, indicators of success, and how it will seek to isolate the specific impact of the scheme from other factors. We will ask the NAO to review the Department’s evaluation plan for the Bonus and its findings in Spring 2014.

As we emphasised in our report on financial sustainability of local authorities, it is important that the Department understands the combined impact of the range of government policies affecting local authorities’ finances. The Department told us that areas losing funding because of the redistributive nature of the Bonus may gain from other schemes, such as the Regional Growth Fund. However, the Government’s response to our earlier report cites only its summary measure of local authority ‘spending power’, which does not capture area funding such as the Regional Growth Fund, and provides limited insight into the movements of even major individual elements of local authority funding like the Bonus or their cumulative impacts.

Recommendation: When the Department makes and reports its assessment of the cumulative impact of changes affecting local authority funding, it should work with local government to develop a better understanding of major funding movements and impacts, including those resulting from the New Homes Bonus.

Some local communities do not have relevant information in a form that enables them to judge their local authorities’ progress in meeting local need for housing and attracting funding through the New Homes Bonus. The Department relies on there being enough transparent data on meeting housing need to enable challenge at a local level. Since the introduction of the Bonus there is some evidence of more mature debates between local authorities, local communities and developers about housing development, but some communities still lack the necessary information in a clear format that supports local challenge. Such information would include: the number of new homes planned, approved and under construction; numbers of empty homes returned to use; funding received through the scheme; and how the community has benefited from the funding.

Recommendation: The Department should ensure that consistent, comparative information on local authorities’ progress in creating new homes and meeting housing need is readily available.

There may be scope to make small adjustments to the incentives in the New Home Bonus to enable it to better complement other government initiatives. There is much to be said for the simplicity of the Bonus scheme in directly rewarding local authorities with a predictable amount for each home added to the council tax register. We do not suggest a wholesale shake-up of the scheme, but some adjustments may be beneficial.  For example,  a premium for homes exceeding standard energy efficiency requirements for new builds might complement wider sustainability objectives. 

Recommendation: The Department should examine the scope for straightforward adjustments it could make to the Bonus to complement other government initiatives, such as energy efficient homes.

Further information

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