Agenda Item No____10________
NEW HOMES BONUS (NHB)
Summary:
This report presents for approval a policy on use of the
new homes bonus including both the unallocated
balance and the in-year allocations from 2014/15
onwards.
Options considered:
The report discusses models that could be used to
allocate/make use of the New Homes Bonus.
Conclusions:
The New Homes Bonus (NHB) was introduced as part
of the 2010 Comprehensive Spending Review. When
the scheme was introduced national funding nearly £1
billion was set aside before funding would be “topsliced” from the formula mechanism. The Government
recognise the bonus within their assessment of each
Local Authority‟s revenue spending power. This report
makes recommendations for the use of the NHB moving
forward.
Recommendations:
That Cabinet recommends to Council:
1)
The New Homes Bonus is allocated within
the base budget from 2014/15 onwards (as detailed
at section 4 within the report);
2)
Of the unallocated balance of New Homes
Bonus (£1,201,097) 50% is transferred to the general
reserve and 50% remains earmarked within the New
Homes Bonus reserve for the delivery of the
Council’s Corporate objectives in respect of
housing.
Reasons for
Recommendations:
To support the Council‟s financial planning process and
support future delivery of NNDC priority services.
LIST OF BACKGROUND PAPERS AS REQUIRED BY LAW
(Papers relied on the write the report and which do not contain exempt information)
New Homes Bonus allocations and Finance Settlement 2013/14
Cabinet Member(s)
Ward(s) affected
Cllr Wyndham Northam
All
Contact Officer, telephone number and email:
Karen Sly, Head of Finance, 01263 516243, Karen.sly@north-norfolk.gov.uk
1.
Introduction and background
1.1. The New Homes Bonus (NHB) was introduced in 2011/12 as part of the 2010
Comprehensive Spending Review. It is based on the council tax generated
from additional homes and those brought back into use with a premium for
affordable housing and paid for the following six years.
1.2. The main elements of the scheme are:
a)
b)
c)
d)
e)
f)
g)
The grant is payable for six years as an un-ring fenced grant (paid under
section 31 of the Local Government Act 2003).
For each (net) additional home a grant is received based on the national
average council tax1.
An additional supplement of £350 per affordable dwelling is also paid as
part of the allocation.
The payment of NHB is split between local authority tiers; 80% to the
lower tier and 20% to the upper tier.
Allocations are based on the Council Tax Base returns which are
submitted annually to the Government (covering twelve month period
October to September), i.e. once a new home is recorded on the Council
Tax Base return form it becomes eligible for NHB. The calculation of the
bonus does not take into account planning permissions or any other
elements of the planning processes.
Statistics on the gross affordable housing supply are used to calculate
the affordable homes enhancement.
Allocations take into account the net growth (i.e. taking account of any
demolitions and movement in empty properties) for the period October to
September, for example 2013/14‟s allocation is based on the Council
Tax Base data return as at September 2012.
1.3. Allocations of the forthcoming year‟s NHB are made as part of the financial
settlement announcements and are included by the Government in their
assessment of the local authority‟s “revenue spending power” as follows:
Table 1 - 2013/14 Revenue Spending Power Element
Revenue Spending Power Element
Value
£’000
Revenue Support Grant
3,571
Business Rates Baseline
2,376
5,947
Council tax freeze grant 2011/12
143
6,090
Homelessness (Grant rolled in)
120
Council tax support
842
7,052
Council tax – district
5,744
Community rights (to challenge and bid)
17
Council tax freeze grant 2013/14
58
New Homes Bonus
706
Revenue Spending Power
13,577
1.4. The table below outlines the allocations to date for NNDC along with where the
bonus has been used or committed.
1
Amount for 2013/14 is £1,444
Table 2 - New Homes Bonus – Allocations to date
Allocation 2011/12 2012/13 2013/14 2014/15
£
£
£
£
2011/12
349,762 349,762
349,762 349,762
2012/13
261,916
261,916 261,916
2013/14
117,7392
93,857
Total
349,762 611,678
729,417 705,535
Used/
Allocated
(349,762)
0 (100,921) (39,077)
Balance
0 611,678
628,496 666,458
2015/16
£
349,762
261,916
93,857
705,535
2016/17 2017/18 2018/19
£
£
£
349,762
261,916 261,916
93,857
93,857
93,857
705,535 355,773
93,857
0
0
0
0
705,535 705,535 705,535 705,535
1.5. Appendix A provides further detail of the allocations to date along with the
future forecast of allocations from 2014/15 onwards. It also provides a
summary of the amounts received in respect of affordable homes.
1.6. The forecast for potential future years NHB from 2014/15 onwards has been
informed by a number of factors. The Statement of Five Year Land Supply
produced by the Planning Department estimates future dwelling completion
rates based on planning permissions granted, building commencements,
historical rates of completion and the stated intentions of developers. This
estimates that there will be 469 new dwellings in 2014/15, 667 in 15/16 and
637 in 16/17 but this is dependent upon some of the larger allocated
development sites being developed. For the purposes of calculating NHB
payments, account also needs to be taken of properties moving out of Council
Tax, for example to Business Rates (changes of use and holiday homes), and
any net changes in the number of empty homes. Given the inherent difficulties
of forecasting future dwelling completions a cautious (low) estimate has been
used.
1.7. To date, the use of the NHB has been earmarked to deliver projects to support
the Council‟s growth agenda for example £40,000 for developing a Community
Infrastructure Levy programme (Cabinet November 2012) and £100,000 to
support the delivery of new housing and other economic measures (Cabinet
February 2013).
1.8. Given that the Council has received a two year finance settlement and whilst
there are still some uncertainties around the future funding due to the business
rates retention funding regime, the Council is now in a position to recommend
the use of the New Homes Bonus moving forward.
2.
The National Funding Position
2.1. When the NHB was introduced, the government set aside nearly £1 billion over
the Comprehensive Spending Review period (2011/12 to 2014/15) for the
scheme, including nearly £200 million in 2011/12 (year 1) and £250 million for
each of the following three years. Funding above this level comes from “topslicing” the Formula Grant before distribution.
2.2. The final allocation for 2012/13 totalled £431 million and is £668 million for
2013/14, the following table summarises the national allocations made to date
compared to the set-aside funding.
2
Allocation in 2013/14 includes the one-off additional amount to be received in £23,882.
Table 3 – New Homes Bones – National Allocations
Year 1
Year 2
Year 3
2011/12
2012/13
2013/14
£million
£million
£million
2011/12 Actual
199.3
199.3
199.3
2012/13 Actual
n/a
232.6
232.6
2013/14 Actual
n/a
n/a
236.4
Total to date
199.3
431.9
668.3
Cumulative Total
199.3
631.2
1,299.5
Funding Set-aside
200
250
250
Funding Set-aside
200
450
700
Cumulative
Year 4
2014/15
£million
199.3
232.6
236.4
668.3
1,968.8
250
950
2.3. The table above illustrates that the „set aside‟ amount of £950 million for the
spending review period (2011/12 to 2014/15) has already been exceeded by
2013/14 (total allocation for years one to three of £1.3 billion) and therefore
future funding for the NHB is not a bonus but re-cycled formula grant and as
outlined in 1.3 (above) forms part of the „revenue spending power‟.
3.
Developing a model for allocation
3.1. There are varying approaches across the country as to how the NHB is being
utilised. Some authorities have built the total NHB allocation into their base
budget, others have established a community grant fund similar to that of the
Council‟s Big Society Fund supporting community projects.
3.2. In developing a model/policy for allocating the NHB locally, a number of issues
need to be addressed including the following:
a) The loss of core funding i.e. through the „top-slicing‟ mechanism to fund
the new homes bonus as outlined in section 2 and the consequent
impact on the future delivery of council services;
b) The Council‟s forecast funding gap for the next three financial years
(after 2013/14) is £917k (2014/15), £1.552m (in 2015/16) and £2.272m
(in 2016/17);
c) Aligning the use of the NHB with corporate objectives;
d) The principles used to support the Council‟s growth strategy to improve
economic development and housing strategy;
e) Rewarding and encouraging local growth by unlocking barriers in
delivering future growth;
f)
Transparent and straightforward administration;
g) Avoid duplication from existing grant/funding streams e.g. the Big
Society Fund.
3.3. In summary the overriding principles of allocating the NHB funding need to
balance the loss of core funding, continuing to support the delivery of council
services, promoting and encourage growth through rewards or targeted
funding.
4.
Policy for Use
4.1. This section of the report establishes a framework within which the NHB should
be established within the forward financial strategy and budget setting process.
4.2. In deciding upon the recommended framework, consideration has been given
to a number of options whereby the Council could use a formulaic approach to
distribute funds at a Parish/Community level as a reward for growth. The
advantages and disadvantages of such approaches are outlined in more detail
at appendix B.
4.3. However, in researching this approach the following needs to be considered
when setting the framework. The model for distribution needs to consider
administration of the scheme and also how it can be used to deliver the
corporate objectives. It is also important to note the rising costs of the initiative
relative to the overall settlement figures for local government. As can be seen
from the table at paragraphs 2.2 and 2.3, the cost of the scheme is making
significant inroads into the overall formula grant distribution year on year and
whilst it is termed a New Homes „Bonus‟, new funding is not being allocated to
fund the scheme nationally and does form part of the spending power for Local
Authorities. Formulaic allocations would be both complex in terms of the
administration and also potentially duplicate the Big Society Fund grant
process.
4.4. The overriding principals of allocating the NHB funding need to balance the
loss of core funding, continuing to support the delivery of council services,
promoting and encourage growth through rewards or targeted funding.
4.5. Allocating the funds within the base budget, i.e. as part of the Council‟s overall
funding, addresses the issues set out at 3.2 and also considers the principles
discussed above, although it could increase the risks of funding shortfall should
there be any changes to how the NHB is allocated in future years. In order to
mitigate this risk, the level of the Council‟s general reserve would need to be
updated to reflect this and reallocation of the current uncommitted balance
within the New Homes Bonus reserve could be reallocated accordingly.
4.6. The implications of this proposal on the current forward projections for the
period 2014/15 to 2016/17 are summarised in table 5:
Table 5 – Impact on Funding Forecast
2014/15
£000
3
Current Funding Gap
917
Use of NHB
(821)
Revised Funding Gap
96
2015/16
£000
1,552
(936)
616
2016/17
£000
2,272
(1,051)
1,221
4.7. After allowing for the above there still remains an unallocated balance of the
previous year‟s NHB of £1,201,097. As mentioned above, including all of the
bonus within the base budget from 2014/15 onwards does increase the funding
risk should the method of NHB allocation be changed in future years. In order to
mitigate this risk this report is recommending that an element (50%) of the
current unallocated balance in the NHB earmarked reserve be transferred to the
general reserve. This would leave a balance of £600,549 within the earmarked
reserve that could be earmarked for delivery of the Council‟s corporate
objectives in respect of housing.
3
As reported in the 2013/14 Budget Report
5.
Financial implications and risks
5.1. The financial implications on the current forecast funding gap are detailed
within section 4 of the report. The following identifies other risks pertaining to
the proposals and issues outlined within the report
5.2. If there are changes to the NHB allocation method or changes to the funding
within the national grant funding mechanism there is a risk that the Council‟s
base budget would not be supported. This would need to be taken into account
as part of the annual financial planning process and savings targets and
delivery plans updated accordingly.
5.3. Actual amounts of New Homes Bonus grant payments year on year are subject
to a number of factors for example increases in the number of empty
properties, properties coming into Council tax banding, new builds etc and
therefore projections must take account of sensitivities.
5.4. As mentioned in the report the forecast for future years NHB has been
informed by and is influenced by a number of factors including future dwelling
completion rates based on planning permissions granted, building
commencements, historical rates of completion and the stated intentions of
developers. There are also other factors that need to be taken into account for
example properties moving out of Council Tax, for example to Business Rates
(changes of use and holiday homes), and any net changes in the number of
empty homes. There is a risk that the financial projections are either not met or
are under estimated. Therefore monitoring of the actuals in the year and also
as part of the financial planning process is essentially to ensure forecasts can
be revised and action taken as appropriate.
5.5. Factoring all of the NHB in future years as part of the financial planning process
increases the funding risk facing the Council in terms of any changes to the
NHB allocation method in future years. This has been factored into the report in
that the report recommends that the general reserve is increased to mitigate
some of this risk. The level of the general reserve will continue to be reviewed
as part of the overall financial planning process.
5.6. The risk of not utilising the NHB funding should equally be considered.
Maintaining unallocated earmarked reserves above the recommended balance
could be seen as excessive prudence and therefore this report recommends an
approach for utilising the balance within the NHB reserve and also the future
grants and that can support the on-going budget process for 2014/15 onwards.
6.
Sustainability
6.1
None as a direct consequence from this report.
7.
Equality and diversity
7.1. None as a direct impact from the report.
8.
Section 17 Crime and Disorder considerations
8.1. None as a direct impact from the report.
Appendix A
New Homes Bonus Allocations
2011/12
£
2011/12 Actual
349,762
2012/13 Actual
2013/14 Actual
2014/15 Projection*
2015/16 Projection*
2016/17 Projection*
2017/18 Projection*
2018/19 Projection*
Total
349,762
Used/allocated
(349,762)
NNDC Balance
0
(Reserve unallocated)
Unallocated cumulative
2012/13
£
349,762
261,916
2013/14
£
349,762
261,916
117,739
2014/15
£
349,762
261,916
93,857
115,000
2015/16
£
349,762
261,916
93,857
115,000
115,000
2016/17
£
349,762
261,916
93,857
115,000
115,000
115,000
611,678
0
729,417
(100,921)
820,535
(39,077)
935,535
0
1,050,535
0
815,773
0
93,857
115,000
115,000
115,000
115,000
115,000
668,857
0
611,678
628,496
781,458
935,535
1,050,535
815,773
668,857
611,678
1,240,174
2,021,632
2,957,167
4,007,702
4,823,475
5,492,332
2015/16
2016/17
2017/18
2018/19
* Projection assumes net addition of 100 properties and 35 affordable
Affordable Housing Premium (included in amounts above)
2011/12
2012/13
2013/14
2014/15
2011/12 Actual
0
0
0
0
2012/13 Actual
29,960
29,960
29,960
2013/14 Actual
9,520
9,520
2014/15 Projection
9,800
2015/16 Projection
2016/17 Projection
2017/18 Projection
2018/19 Projection
Total
0
29,960
39,480
49,280
29,960
69,440
118,720
Unallocated cumulative
0
29,960
9,520
9,800
9,800
0
29,960
9,520
9,800
9,800
9,800
59,080
177,800
68,880
246,680
2017/18
£
261,916
93,857
115,000
115,000
115,000
115,000
29,960
9,520
9,800
9,800
9,800
9,800
78,680
325,360
2018/19
£
9,520
9,800
9,800
9,800
9,800
9,800
58,520
383,880
Total
£
2,098,572
1,571,496
587,024
575,000
460,000
345,000
230,000
115,000
5,982,092
Total
0
179,760
57,120
49,000
39,200
29,400
19,600
9,800
383,880
Appendix B – Advantages and Disadvantage of Models
Advantages
Disadvantages
Of Formulaic Allocation Method
Parish based distribution as a reward for ‘growth’ via new homes
 Reflects actual completions of properties
 Parish/town areas may be too small to have
a significant impact on their spending
 Fixes the amount available for distribution
each year of the total amount of NHB
 May not bring forward value for money
received in the year
schemes

Rewards made available at a Parish level

Rewards for parishes that might have
opposed or objected to growth

Some Parishes will never have the
opportunity to access „rewards‟ due to
location and inability to benefit from growth

Administratively intensive per parish bearing
in mind number of parishes

Commits future council funding ahead of
actually receiving the grant
Little consistency between years, i.e. the
value of the grant varies each year


Timing of including a „new home/conversion‟
in the base data used for allocating could
have a significant impact on the actual
amount paid to the parish
Community based distribution, similar to above but defined community areas across the
district
 Larger geographical units
 Links to the communities need to be
developed
 Larger schemes can be developed
 Community projects may not accomplish
Corporate plan ambitions
 Flexibility in use and timing of funding

Monitoring of individual scheme progress

Small and large scale schemes need to be
recognised

Application for funding encourages
consultation at a local level

Duplication of Big Society Fund grant
scheme

Supporting/administering the boards and
scheme would require additional resource

Could lead to disproportionate allocations in
based on capacity to apply/bid for funds