Alex Colyer on the New Homes Bonus, business rate retention and empowering S151s

Alex Colyer is executive director and S151 officer at South Cambridgeshire District Council. He previously held the same role for East Cambridgeshire and was assistant treasurer at Milton Keynes.

Room 151: You have a large council house-building programme underway with up to 1000 homes to be built over 30 years. How is South Cambridgeshire doing on New Homes Bonus? Do you think the system is working?

Alex Colyer: I think we are number four in the country in terms of New Homes Bonus and we’re right up there in the house-building league as well. We were big recipients of housing and planning delivery grant in the previous regime and were getting funding through the housing growth fund as well.

We were getting almost £2m worth of resources through those streams as a regular piece of funding, so in reality we have had less money through New Homes Bonus than we were getting through those streams up until March this year. I’d argue we are a big chunk down on resources and that only starts to change around the financial year coming up.

We are putting £1.9m as a contribution to revenue expenditure into the pot but above that we are putting New Homes Bonus into a marked reserve to use for major infrastructure projects.

Room 151: What sort of proportion of NHB is the £1.9?

AC: Next year we should receive £2.7m; that’s our forecast. So £1.9m will go into revenue and £800,000 into the reserve.

Room 151: How do you feel about that?

AC: Wholly uncomfortable really, in a lot of ways. Broadly speaking this is what cabinet have agreed with me. One of our first reports said that this was too good to be true and the big strategic question is will it survive the next government?

We aren’t building any long term plans based on whether New Homes Bonus will be with us or not. That is one of the reasons that we’re not using it to fund the revenue budget to any large degree other than replacing the grant streams we have already lost.

One of the things that government is asking us to do – which they aren’t asking many others to do – is to fund the A14 upgrade. That is a huge funding gap. It’s a major, strategic road infrastructure and it’s almost unheard of for local government to be asked to part fund that.

Room 151: Why are they asking you to part fund it?

AC: Because there’s such a large funding gap I think. It was in the Labour government’s highways plan but when this government got elected it fell at the first review. Government has now accepted that it is a major growth project and it needs to happen so it is going to come forward with a combination of road tolls, local contribution and exchequer funding. As I say, that is pretty unheard of for a major road project.

If we have to put money in there New Homes Bonus money seems to be the logical thing. We have got a summit the week after next where the councils involved are all going to have to put a number in a proposal to government. It will be a big number, the broad thrust from government is that they are looking for local contributions of 30-40% of the project as a whole. It is across the sub region so it includes Cambridgeshire, Bedfordshire, Northamptonshire, Suffolk and Norfolk to a degree as well. It may be 40-50% local contribution.

Room 151: South Cambridgeshire Housing, your arms length housing company, has now been set up. What sort of revenue should that bring in to the council?

AC: We haven’t got any hard and fast plans yet. There is both a strategic opportunity and a revenue generating opportunity that we see. The first one is that we are in an area of high housing demand and we are looking to take forward some opportunities to meet that demand in a way that perhaps the private sector isn’t doing at the moment.

Clearly we are a large landlord already and we can see a strategic opportunity there. The county council is also very interested in taking these sorts of schemes forward and obviously own bits of land they want to develop. They’re trying to decide whether that is something they want to do on their own or in partnership with other developers.

Our thoughts are very much that we can take forward building projects ourselves, manage them, offer a whole range of ownership structures and rental structures that perhaps the private sector doesn’t want to offer at the moment. But also we can generate a return that is better than the financing costs that we are likely to have to take out.

So the fact that we can access funding relatively cheaply and use that to generate return will mean that we can not only support the general fund but that we can meet local housing need as well. There’s a mutuality there.

Room 151: Do you have any plans for other trading companies now?

AC: There are some opportunities coming our way for a joint waste project with our neighbours which may have some commerciality built within it. That is at a very early stage of discussion but we’re looking at applying this sort of disclipline to that process. Waste is a big spend with a big strategic issue behind it.

Room 151: You have a ‘thriving economy’, (according to a recent press release). Can you tell me a little about how business rates retention will work for you?

AC: There is so little incentive for us; it is a great disappointment. I have responded to CLG on cabinet’s behalf along those sort of lines. The incentives just don’t seem to be there but we are having to bear a fair chunk of the risk.

The lines of the graph aren’t as acute as they were but if we don’t manage to beat our baseline the downward path to the safety net is quite steep, but the graph on the other side – of how much do we benefit from the growth – is a fair bit shallower. So if you draw a graph around that point it is really disappointing, the point where the incentive is. Any growth we do get evaporates the following year, so that even if we think there will be a decent amount of business rates growth, the amount that is retained is a very flat projection. It surprised me how flat it was and just shows that the system isn’t going to give that sort of incentive.

In one regard that doesn’t make any difference. As a council we are committed to promoting growth and to see growth in the housing economy we need jobs for that within the district. As a council that is open for business and wanting to promote business growth nothing has changed: we will do that. But is business rates retention a driver for that? No it isn’t, and that is one of the huge disappointments really because it certainly isn’t going to create any new funding regime to meet growth.

Room 151: You need to make £4-5m in savings over the next five years. Are there any particularly interesting or innovative plans for saving or bringing in revenue that you can tell us about?

AC: We hope that the housing company will be in a position to bring in resources over the medium term. Certainly we’re looking for something with five noughts on it relatively quickly.

Others are doing that, the Birminghams and South Hollands, but it still feels a bit of a lonely place in terms of who is doing it. We’ll be looking in other places to save as well though. We’ve just brought our contact centre back in-house and that will generate a fair bit of saving over the current model. It’s not about reducing people but acquiring software in a different way to how we’ve done it in the past; we’re going to the cloud for software. It is generating a sizeable saving over the traditional model of buying a bit of software, licencing it, paying huge maintenance fees and running it on your own systems.

We’re going to test that model on all of our systems over the next few years and look at whether we need these legacy systems. Are there better ways of delivering data management in the future? We’ll do that over a two to three year period and are very encouraged by what we have seen with the contact centre. That has been live for eight weeks now and seems to be working.

Room 151: You recently attended the Association of Certified Chartered Accountants (ACCA) conference on rebalancing public sector finances and boosting growth. Was there a main, or particularly interesting point on rebalancing finances that you took away?

AC: The message they were putting out was we all need to improve our transparency. It was with an international focus and one of the challenges from the ACCA’s point of view was that not every jurisdiction follows IFRS therefore it is difficult to have transparency, understanding and engagement with the efficiency agenda in certain economies.

For me it is more about skills and about empowering and giving chief finance officers what they need as public sector accountants to be able to take the opportunities that are there and not just look to cutting spending as the first answer.

Perhaps I am a bit too Keynesian for the current flavour of ACCA but I’d advocate doing it in a way that adds value rather than just restricting. That’s the dilemma isn’t it? If we spend money in the public sector we force money out of the private sector but I think that there is a way that is ‘good spend’.