Why the Government must look again at the New Homes Bonus

Why the Government must look again at the New Homes Bonus

As a critic of the New Homes Bonus, even before its inception, I had very mixed feelings reading the damning report that has emerged from the Government watchdog the National Audit Office.

I find myself battling between the ugly side craving vindication and the better side being concerned for the potential damage done and how things might be improved.

Today the devil has won.

Grant Shapps: You were told, before you launched the scheme, when you launched the scheme and as it started to take effect, that there were dangers.

It was and is unfair. It was and is ill thought through. And it didn’t and doesn’t really address the fundamental problems of getting more homes built. And even now, as the NAO points out, its effectiveness is uncertain.

Despite being a critic I was rather surprised by the intensity of the NAO report.

Such reports and subsequent comments from bodies like NAO tend to be very considered and understate what would probably be said in a pub by a huge margin.

So the words attributed to Amyas Morse, head of the National Audit Office, can be read as extremely strong.

“Some local authorities could face significant cuts in their funding as a result of the New Homes Bonus scheme. While it is too early for the scheme to have had a discernible impact on the number of new homes, the signs are not encouraging.

“The Department must now urgently carry out its proposed review of the scheme to ensure that it successfully encourages the construction of much-needed new homes.”

So how did we get here?

The New Homes Bonus – along with localism and the scrapping of the regional planning regime – was at the heart of the Conservative Parties pre-election housing strategy. It was a particular favourite of the soon to become Housing Minister Grant Shapps.

The problem was local folk saw little benefit from new homes built in their communities. The answer, as Mr Shapps saw it, was to incentivise them. The New Homes Bonus was born.

I first made comment on the notion in October 2009 after Grant Shapps presented his thoughts to the house building community at the Housing Market Intelligence conference.

My comment on the details, scant as they were then, was: “No, as I see it, this is not the way Mr Shapps. It will fail. But I have a variation that might just work – make it a lottery.”

I suggested, tongue in cheek, he should make it a true lottery to increase its chances of  success.

I was a bit surprised, but the attack did elicit this admittedly pleasant response from Mr Shapps.


Read your lottery piece which I thought was fun. Suspect you’re right about game theorists saying it would work!

Was curious that you don’t think our incentives approach will work. It has elsewhere in the world. It’s also cost free for those hard pressed developers in the room. So nothing to lose surely.

All the best

Grant Shapps MP
Shadow Housing Minister

Interestingly the NAO report points out that Mr Shapps, when in office, did not consult on the scheme with the Cabinet Office’s Behavioural Insight Team, specifically set up to support departments to apply behavioural change insights to relevant policy areas.

But it was not simply the concept that I felt was at best questionable.

The NAO’s take is: “We found little evidence from our local authority visits that the Bonus has influenced local authority planning decisions.”

But in fairness the NAO team did find evidence that the scheme was reinforcing behaviour among pro-development authorities.

For me the greater question was whether the scheme was fair. I was not convinced by Mr Shapps assertions that it was “cost free” and that there was “nothing to lose”.

As the scheme details emerged after the Coalition took office I checked out some scenarios. That led me to conclude that:

“Even if local authorities in the North do all that might reasonably be expected of them with regards to building new homes, they face losing out and losing out more heavily as and if those in the South respond to this new regime and deliver more homes.”

Some rough and ready calculations for the latest allocations rather make the point. The City of London will receive according to my crude estimations a bit more than £18 per resident for their contribution in the latest year and £55 for their contribution to date in increasing the council tax base.

Compare this with the pro-development local authority of Burnley. Its council will receive for each resident less than £3 for this year’s contribution and less than £4 for their pro-development stance to date.

But ultimately, whichever way you cut it, the pot of money is related to the total pot available to fund local councils. The average take per head is about £24 for the contribution to date. If you get more you’re a winner. If you get less you’re a loser.

So despite taking a pro-development stance Burnley folk seem to be net losers to the tune of about £20 per head.

But while it is an unfair scheme and its effectiveness is in doubt, the central problem is that it fails to recognise the central problem with delivering houses.

Planning may be a frustration, but the failure of underbuilding homes in England is not that simple.

And while nudge techniques may well have their place, the answer is not in brushing with a tickle stick those councils where you want to encourage development while you batter with baseball bats those where you don’t.

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