Councils are funded by central government through various grants. The biggest of these is the Revenue Support Grant (RSG). However, RSG has been cut dramatically – for Hastings, by almost half over the last two years, equivalent to 10% of the council’s net budget. It’s set to disappear completely by the next decade. The other big grant to councils is called the New Homes Bonus. But the way this grant is allocated is far from reasonable, and means that poorer, urban areas such as Hastings are unfairly penalised.
New Homes Bonus (NHB) is awarded according to how many new homes are built in a council area over the past year. It’s based on council tax valuation bands of the new homes - payments last for six years (although this is going to be reduced to four years). It’s intended to be an incentive to councils to encourage housing development.
The system was always unfair. Councils in areas where council tax banding valuations are higher get more money, whereas councils in areas where banding valuations are lower (such as Hastings) get less.
This year however, the government introduced a 0.4% threshold for NHB. So no NHB is paid unless the number of new homes built went above 0.4% of the current local housing stock. Less densely populated rural councils with more building land available can easily get above that threshold. But small, densely populated urban councils with much less land can’t.
The number of new homes planned for a council area is specified in their Local Plan. This plan was produced following a lengthy period of consultation, and is approved by a government-appointed inspector. In Hastings, our plan allows for 3,400 new homes to be built in the borough during the period 2011-2028. That doesn’t meet the demand for new housing from a growing population, but Hastings is a small, densely populated area. We have no ‘green field’ sites at all, so all those new homes need to be fitted onto land that’s been previously developed. But NHB allocations don’t recognise that at all – the allocation is based entirely on the overall numbers. No account is taken of local circumstances, nor indeed the Local Plan.
So in East Sussex, the richest council area in the county (Wealden) got an additional £447,000 NHB this year. The richest council area in the country (Hart, in Hampshire) got £618,000. In Hastings, we were awarded just £5,000.
Some of the district councils in richer areas simply don’t know what to do with the all the extra money – they put it into reserves, where it earns little interest, and so is largely wasted. For us in Hastings, every penny we get in grant from whatever source is used to provide services – indeed, we have to take money out of reserves to keep going, because of the disproportionate cuts in government funding we’ve received over the years.
The threshold introduced for NHB has taken all councils by surprise, but has left urban councils in particular with a big hole in their budgets. At a time when RSG is being slashed, to have another big cut like this, coming unexpectedly and with no warning, makes it very hard for finance officers to balance the books. Financial stability is desperately needed in local government. Unprogrammed and ill-conceived cuts are unhelpful, demoralising and damaging to local services.