LGA submission to the DLUHC consultation on the Building Safety Levy

Rather than responding to every question in the consultation, our response focuses primarily on concerns about the potential impact of the tax on affordable housing delivery and where the proposed ‘collection agent’ role should sit.


Background

The government is consulting on the design and calculation of a new proposed Building Safety Levy (“the levy”) which will help to fund the remediation of buildings that have dangerous cladding systems. The levy will apply to developments in England seeking building control approval from the Building Safety Regulator at the “Gateway 2” stage of the new building safety regime (unless a relevant exclusion applies). A developer will not be able to progress beyond Gateway 2 without having paid the levy. Buildings that Gateway 2 will apply to are those with at least 2 residential units, care homes and hospitals which are at least 18 metres in height on have at least 7 storeys. It is anticipated that the levy will come into force alongside the new Gateway 2 process in 2023. We welcome the opportunity to respond to this consultation. Rather than responding to every question in the consultation, our response focuses primarily on concerns about the potential impact of the tax on affordable housing delivery and where the proposed ‘collection agent’ role should sit.

Alongside the consultation on the levy, the government has consulted separately on a residential property developer tax (RPDT) which it is anticipated will be introduced in 2022.  This seeks to raise at least £2 billion over a decade to also help fund cladding remediation. It is proposed that the charge would apply to the profits of a company which exceed an annual allowance of £25 million. The LGA has responded to the consultation and many of the concerns raised in that are mirrored in our response to this consultation. The government has also now published draft legislation of the RPDT for technical consultation. We are seeking an amendment that would specifically exclude local authorities (including through housing companies or joint ventures) who are delivering residential property from the RPDT.   

General comments

Impact on housing delivery

The LGA continues to have concerns that the announcement about the levy will encourage developers to seek planning permission as soon as possible, in order to commence construction before the levy is introduced. This would be an unfortunate unintended consequence, given that the purpose of Gateway 2 is to ensure that buildings in scope are built safely.

In considering the high-level design principles of the levy, we would want assurance that the new levy will not lead to a reduction in the delivery of affordable homes (both to rent and to buy). In relation to residential buildings the new levy must also not lead to a reduction in the quality, sustainability standards or overall size of new homes as developers seek to reduce the overall cost of development, and/or an increase in house prices, in order to maintain profit margins.  This could be achieved by designing the levy in such a way that would ensure developers factored the increased levy burden into the price they are willing to pay for new sites - for example by deferring the start date for the levy and/or a mechanism to exclude development which has received planning permission before the levy is introduced. On the latter, this would avoid a potential rush of applications seeking to re-negotiate previously agreed affordable housing contributions on viability grounds. As a broader point, our view is that what is really needed, rather than a new levy (or a residential property developer tax), is an effective means of holding to account and punishing those responsible for putting residents in danger in the first place.

​​​​​​​The government has not yet set a rate for either the RPDT or the levy. This makes it almost impossible to understand and/or comment on either the individual and cumulative impact of both of these new mechanisms on the residential property sector, including on both overall supply of housing and build out rates - but perhaps more critically the delivery of affordable housing. As an example though, the potential unintended consequence of reducing the viability of higher density developments could be that fewer planning applications come forward for taller buildings than would otherwise, resulting in a stifling of new housing supply, particularly in urban settings. This in turn could also place increased pressure outside of urban settings.

​​​​​​​Emerging evidence already suggests that the proposals for the RPDT, as consulted on, are likely to have a detrimental impact on the provision of affordable housing - for example by some housing associations and in the build to rent (BTR) sector. We consider that these issues will equally apply to the levy and that the combination of both the tax and the levy will exacerbate the issue for some parts of the sector who will be required to pay both. The consultation itself recognises that whilst the levy and the RPDT are intended to target different sections of the housing sectors, that there will sometimes be overlap.

​​​​​​​This potential impact on affordable housing is a real concern to councils, who want and need to see the delivery of homes – to rent and to buy - to meet the needs of local residents whose needs are not met by the open market. With an excess of one million households on council waiting lists and more than 95,000 households in temporary accommodation, there is a need to significantly scale-up, not scale-down, affordable housing delivery.

​​​​​​​Government policies (of both the RPDT and the levy) that could have the unintended consequence of reducing affordable housing delivery would also be at odds with other government priorities to increase the revenue under the current system of developer contributions (including for affordable housing) as proposed in the government’s Planning for the Future White Paper.

​​​​​​​Whilst we support the proposal that affordable housing will be excluded from levy charges, in addition to affordable homes contributed as a requirement of planning permission process, we remain concerned that developers may still seek to reduce their affordable housing contributions on viability grounds. As referenced in 3.2 the levy should be designed in such a way that ensures developers factor the increased levy burden into the price they are willing to pay for new sites.

​​​​​​​There should also be an explicit confirmation (as outlined in our written submission to the Public Bill Committee on the Building Safety Bill) that local authorities are excluded from a requirement to pay the levy. This should apply even in cases where they are delivering homes for market sale, which can help to cross-subsidise affordable housing. A large proportion of local authorities are now directly engaged in delivering housing, with a 2021 report showing that this figure was 80%, a notable increase from the 69% of authorities reporting in a survey published in 2019.

​​​​​​​The levy is designed to cover the cost of government support for the remediation of unsafe cladding. This support is provided to leaseholders in buildings with unsafe cladding systems, either through the building safety fund or through a system of low-cost loans for buildings under 18m (the details of which have yet to be announced). For the most part this support is not available to social landlords, other than to alleviate costs they might otherwise pass on to leaseholders. With the exception of buildings with ACM cladding, social landlords have been denied access to these funds and for councils these remediation costs therefore fall on the Housing Revenue Account and must be recouped either through rent increases or by diverting funds away from improvements to council housing or the provision of new council housing. If the levy is imposed on councils it will increase the cost of building or refurbishing social housing or increase rents, yet the benefits to funds will not be available to the tenants who would otherwise have benefitted from lower rents or better housing. Imposing this levy on councils means council tenants will be subsidising the failures of private developers and paying the cost both of remediating council housing and private housing.

Behavioural response of developers and landowners

​​​​​​​The consultation rightly (as with the RPDT consultation) seeks to understand how developers are likely to respond to the levy in terms of adjustments to development plans, build out strategies or land acquisition strategies and pricing. Before introducing the levy and the RPDT, the government should publish the proposed rates along with the final design for both mechanisms and then give sufficient time to stakeholders to properly assess and feedback on the impact.

​​​​​​​For reasons of transparency the government should also, as part of its response to both the RPDT and levy consultations, publish a detailed summary of the likely behavioural responses from developers. If the evidence shows that the introduction of such the RPDT and/or the levy is likely to impact on housing delivery and build out rates, we would urge the government to reconsider their introduction. But if the government were still minded to proceed, we would want to see a suspension of the ‘presumption in favour’ sanctions in relation to 5-year housing land supply and the Housing Delivery Test (HDT) for the duration of the time that the RPDT and/or levy is in place.  A slow down in delivery and/or build out rates could put councils and their communities at risk of being subject to the national presumption in favour penalty because they cannot meet national Housing Delivery Test requirements and/or their 5-year housing land supply is compromised, for example, if anticipated delivery rates fall on ‘deliverable’ sites. This leaves them exposed to speculative planning applications for development outside of the Local Plan. This could potentially result in homes that do not meet local needs, in places where they are not needed and undermine community trust in the planning system.

Levy ‘Collection Agent’

​​​​​​​The consultation outlines that there will need to be a body to administer and collect the levy on behalf of the Secretary of State – the ‘Collection Agent’. However, it makes clear that it has not yet made a final decision on which body will administer and collect the levy and that this will need to take into account the costs and complexity to industry and to government in administering the levy.

​​​​​​​According to the levy consultation, there may only be approximately 200 developments subject to the building safety levy charge per year. The collection of the levy therefore is a task which needs to be delivered by a single national body in order to achieve economies of scale and consistency of judgement. If one assumes that an officer can deal with one case a week then a national body would need only a handful of staff to deliver the function.

​​​​​​​Conversely, we would be concerned if the government were to consider councils to be a suitable ‘collection agent’. Councils do not have spare capacity – or an obvious organisational niche – for this work, and yet it is extremely unlikely that even the councils with the most applications will have enough to employ full time staff to deal with them.

​​​​​​​Whilst some might consider there is merit to including the collection of the levy as an extension to the monitoring and collection process relating to those already in place – perhaps those relating to Community Infrastructure Levy (CIL) - there are a number of reasons why this will not work in practice.

​​​​​​​First and foremost, given that CIL take-up is patchy across the country, collection of the levy as an extension to the monitoring and collection process relating to CIL would simply not be feasible. In June 2021, there were 162 CIL charging authorities (out of a total of 309). Therefore, the remainder would need to set up a new administration, monitoring and collection system (for a process that they may never need to get involved in). 

​​​​​​​Secondly, CIL is targeted at a different point in the development cycle to the proposed building safety levy and for different purposes. Additional monitoring and collection processes would therefore still need to be set up in places where CIL already exists (again, for a process that some local authorities may never need to get involved in). If the levy calculation did not align with current CIL calculations in terms of a £/sq m charge (i.e. if a building safety levy fee per residential unit were introduced) this would also add an additional complexity in terms of updating collection systems and training staff.

​​​​​​​Thirdly, as the levy consultation points out, the government is proposing to introduce a new Infrastructure Levy (which will replace the Community Infrastructure Levy and Section 106 planning obligations) – although timescales and clarity on whether this will actually be introduced are uncertain. Therefore, not only does it not make sense to align the collection of the Levy with CIL collection systems, but those monitoring and collection processes themselves could ultimately end up being replaced when the Infrastructure Levy is introduced.

​​​​​​​In summary, there will be no economy of scale to be achieved by combining the function of levy collection into existing local machinery related to the CIL – or any other local machinery – because CIL machinery is not fit for this purpose and there is no other relevant machinery that would be.

​​​​​​​It is therefore our view that potentially asking 309 individual local authorities to set up the infrastructure and arrangements (including building capacity and capability) to collect a levy (on behalf of someone else), which they may never be required to collect, is inefficient and wasteful. It also adds an additional level of complexity over who, and what, the financial responsibilities are for the payments that are actually required - particularly for payments that are not made in full; are potentially being made in instalments; or are not paid at all.

​​​​​​​While we have no outright preference as to the national body that should deliver this job, the Health and Safety Executive (HSE) does appear to be the obvious choice.

​​​​​​​This is because developers will need to seek building control approval from the Health and Safety Executive (HSE) (the ‘Building Safety Regulator’) for the “Gateway 2” stage of the new building safety regime and pay an associated fee to cover the HSE operating costs. The developer won’t be able to progress beyond Gateway 2 without having paid the levy. HSE will therefore have to check if the levy has been paid before even considering if the developer can proceed through Gateway 2.

​​​​​​​In terms of a simple process it makes much more sense for HSE to be administering this than potentially councils. It is therefore our view that the HSE should strongly be considered as the collection agent for the building safety levy. This would provide a ‘one-stop shop’ streamlined approach for developers seeking “Gateway 2” approval, in addition to providing greater efficiency than setting up new administration, collection and complaint handling processes in 309 councils. This in no way compromises HSE’s independence as a regulator, as it is simply collecting money to pass on to Government.

​​​​​​​More broadly, the levy is only expected to apply to a small number of buildings (c.200 developments or approximately 12,000-14,000 housing units) and it is likely that there could be significant complexity in potentially having to set varying levy rates to reflect disparities in property value e.g. on a geographical basis. Therefore, we consider that there is merit in considering more generally whether there should be a levy at all, in addition to the RPDT. One other option might be to decrease the proposed annual allowance for the RPDT, for example to £20 million, so that it captures a broader range of companies – this would significantly reduce the complexity of setting up a new levy mechanism, whilst still securing additional funds for remediation. Any adjustments to the RPDT would need to ensure that it compensated fully for the lack of a levy.