Public Accounts Committee seeks urgent review of £7.5bn Government scheme to encourage building of new homes

Damning report found that policy has benefited areas where houses are already in plentiful supply

The Public Accounts Committee has called for an urgent review of a £7.5 billion Government scheme to encourage the building of new homes after a damning report found that the policy has benefited areas where houses are already in plentiful supply whilst penalising the local authorities in greatest need.

Eric Pickles, the Communities and Local Government Secretary, set aside an initial £1.3 billion to fund the New Homes Bonus, a payment-by-results incentive paid by central government to local councils for increasing the number of homes.

The Bonus, to be paid each year for 6 years, is based on the amount of extra Council Tax revenue raised for new-build homes, conversions and long-term empty homes brought back into use.

However the PAC found that, two years after its launch, there was no credible data to assess whether the scheme was working. The figures made available suggested that the Bonus was actually exacerbating the UK's housing shortage by benefiting areas where the need for new homes was the lowest.

Margaret Hodge MP, Chair of the PAC, said: "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.

Mrs Hodge said: "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 (DCLG) 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."

Sir Bob Kerslake, Permanent Secretary at the Department for Communities and Local Government, said he was "disappointed" by the report and expressed "significant disagreements with its findings."

Sir Bob said: "We have made very clear that our review of the New Homes Bonus is underway and will be completed by Easter 2014 as we have always promised.

"The whole point of the New Homes Bonus - which the committee fails to recognise - is to recognise housing growth where it occurs, with money going where those homes are needed most.

"That's why we've committed £1.2billion over five years towards this scheme, which the National Audit Office themselves found has the potential to deliver up to 100,000 additional homes over 10 years."

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.

To partly fund the Bonus, the Department (DCLG) 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 DCLG'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.

The Government's decision to fund a large part of the Bonus from a deduction from the Department's main formula funding for local government is seen by some local authorities as unfair.

"Local authorities that can earn only low levels of Bonus will not make up their share of the sum deducted from the formula funding," the PAC found. "These local authorities are usually in areas where developers are less likely to want to build housing, which are more typically in deprived parts of the country or in areas where land can be more expensive to develop."

The DCLG told the committee that the redistribution of local authority funding from north to south through the Bonus was off-set by other policies, such as the Regional Growth Fund, which targets funding at the north.

The Government now plans to make councils hand some or all of the cash to their area's Local Enterprise Partnership to support economic growth projects.

Labour-run Derbyshire County Council complained that it would now lose some or all of the £466,000 bonus it was due to receive for helping bring empty homes back into use in Derbyshire.

Richard Bacon, a Conservative member of the PAC, said: "The need to undertake a robust and thorough evaluation of the New Homes Bonus is now urgent so we can see if the scheme is working as intended and what adjustments might need to be made."

Housing Minister Kris Hopkins said: "Today's report demonstrates a complete lack of understanding about the New Homes Bonus and what it sets out to do.

"The New Homes Bonus is designed to ensure that areas with increased housebuilding get the financial benefits of development, and that new homes go where they are needed most. The report also fails to take into account the National Audit Office's own findings that the scheme is incentivising bringing empty homes back into use and protecting delivery of new homes."

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