New Homes Bonus: the new frontline funding?

Section 151 officers around the UK are questioning how they should spend their New Homes Bonus, allocated originally, according to the belief of many CFOs, as extra money to help develop areas where new homes are being built.

The December 2012 settlement saw start-up funding for local authorities cut by an average of 13% over the next two years. However, if the New Homes Bonus is included many authorities find themselves as well off, if not better off, than before.

But the widespread belief is that New Homes Bonus is not there to be spent on frontline service provision. Finance officers have largely assumed that, as the name would imply, the scheme is to provide a bonus to help increase the number of available homes, and, as a consequence, Council Tax.

Vic Allison is S151 and deputy managing director of Wychavon District Council, which won government recognition for its New Homes Bonus protocol. The council now has two letters with the Department for Communities and Local Government’s settlement consultation asking how NHB should be spent. When Allison posed the question for Minister for Local Government, Brandon Lewis, at a recent conference the Minister responded that New Homes Bonus is part of councils’ spending power and what they do with it is their own choice.

“When I asked Lewis the question he gave me a really rubbish answer,” said Allison. “He said that ‘spending power’ captures everything and it is up to councils what they do with the money. But my question was: “Is New Homes Bonus for core services?

“Even though we have had our grant cut massively, the government is saying that our spending power has only gone down by tuppence ha’penny, and the reason they can say that is because they have rolled New Homes Bonus into the figure for next year,” said Allison. “The government is being shifty in its response because, I think, it knows the original policy was clear about what the bonus was for. By claiming that spending power has only gone down by tuppence ha’penny, it is inferring that actually policy has changed.”

At East Devon District Council head of finance Simon Davey has drafted into the 13-14 budget that the New Homes Bonus will start to be used for frontline services. The Leader of the council recently asked Brandon Lewis in a telephone conference whether government was happy with NHB being spent this way and was told that, as NHB had never been ring-fenced, it was up to individual councils how they spent it.

“We’re concerned with a number of things,” said Davey. “First of all it is a reward grant. At the moment it is still growing as it was a six-year, growth each year thing. But you are basing core service funding on a grant that you have been rewarded (based) on housing growth. Also, we have seen similar grants in the past just cease almost overnight. PDG disappeared, we’ve had the Local Authority Business Incentive Growth Scheme disappear, and it’s a worry.

“New Homes Bonus is definitely un-ring-fenced, definitely revenue, so it wasn’t specified, but it did come with the understanding, from my recollection, of rewarding those communities that had seen growth in their area. Examples were given of spending towards housing and additional schemes like recycling.”

When Room 151 asked the Department of Communities and Local Government to comment spokeswoman Sian Williams said: “This isn’t new and has always been the case.” One of the original announcements from February 2011 made clear, Williams said, that “communities themselves will decide how to spend this extra funding, whether [on] council tax discounts for local residents, boosting frontline services like rubbish collection or providing local facilities like swimming pools and leisure centres.”

Steve Bishop, finance director for South Oxfordshire and Vale of White Horse district councils counts his councils as among those in the “affluent South East facing lots of housebuilding.” If NHB is included alongside baseline funding and RSG, he says, “then we’re all quids in – we’re getting more money than we built into our medium term financial plans.” However, he added: “When NHB was launched the government said it was additional grant aimed at investing in infrastructure, to put extra bits into the places where there are new communities…If government is changing the message and suggesting that total grant – which includes NHB – is sufficient to deliver services then that is a change of message and national policy.”

In an interview last week with Room 151 Alex Colyer executive director and S151 officer of South Cambridgeshire District Council, which receives the fourth largest amount of New Homes Bonus in the UK, said that £1.9m his £2.7m NHB would go into revenue expenditure. He worried that the ‘bonus’ could be cut by the next government: “We aren’t building any long-term plans based on whether New Homes Bonus will be with us or not,” he said. “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.”

At Wychavon Allison agreed: “It’s not okay, because we’ll be building into our base a reliance on an income stream that is not necessarily there forever,” he said. “But also there was a clear expectation that this was additional resource to reward communities that had new homes. So there is a financial argument that this is not a good idea, but also a moral one. This scheme was about rewarding communities, so we are unhappy on two levels really.”

Allison’s council is waiting for a response to its second letter sent into the settlement consultation on January 14. In it the Leader asked whether government policy had shifted to allow New Homes Bonus to be used to pay for core council services. “Please can you confirm that it is the government’s intention that we now use this money to pay for our core services in order that we can revisit our Protocol and advise our communities accordingly,” he asked. Councils await government’s response to the settlement consultation to see whether it sheds any further light on the matter.