From the Chairman of the Association
Cllr James Jamieson OBE
The Right Hon Michael Gove MP
Secretary of State for Levelling Up, Housing and Communities and Minister for Intergovernmental Relations
Department for Levelling Up, Housing and Communities
2 Marsham Street
London
SW1P 4DF
Cc: Clive Betts, Chair of Levelling Up, Housing and Communities Committee
From the Chairman of the Local Government Association
2 March 2023
Dear Michael
I am writing to ask you to urgently consider an alternative approach to the proposed collection mechanism of the Building Safety Levy (BSL) which aims to raise £3 billion over 10 years. Instead, we consider that a more streamlined, cost-efficient approach to raising these additional funds, which would benefit both central and local government, would be to expand the scope of the current Residential Property Developer Tax (RPDT). This is a system that has already been in operation for almost 12 months and is well recognised by the development industry.
As you will know the proposed BSL is part of the government’s package of measures to ensure that the burden of paying to fix historical building safety defects does not fall on leaseholders – a package that the LGA has been broadly supportive of.
The BSL is anticipated to sit alongside the Residential Property Developer Tax (RPDT) which came into effect in April 2022 and is anticipated to raise £2 billion over a decade. The RPDT levies an additional 4% supplementary charge on an adjusted corporation tax (CT) base of residential property developer companies, above a threshold of £25 million group profits.
The government’s initial rationale for having a separate Residential Property Developer Tax and a Building Safety Levy, whilst both securing contributions from the development industry, was that they were intended to target different (but sometimes overlapping) sections of the housing sector. The RPDT tax is a charge on profits to raise revenue to fund the package of measures designed to bring an end to unsafe cladding, to the benefit of market participants. The BSL was initially intended to be a charge on companies engaging in high-rise development activity, reflecting the greater building safety risk.
However, the government has since expanded the scope of the BSL, and it is now intended that it will be charged on all new residential buildings requiring building control approval in England (with a number of proposed exemptions). Therefore, the initial rationale is no longer relevant.
The government’s preferred option in its recent consultation is that local authorities should act as the BSL collection agency. That will mean, in reality, that 309 local authorities in England will be required to set up individual processes to act as a collection and administration agency – with all funds raised being returned to government. We consider it highly inefficient and an unreasonable additional burden to require hundreds of local authorities to collect a levy on behalf of HM Government, not least because they may never see any direct local benefit from it, when there is already a single point of collection mechanism that exists at national level. This would require significant investment by local authority teams to create and resource a new system, which could, in around 10-years, cease to be necessary and will then need systems to be decommissioned, and staff redeployed.
In particular, across 309 separate local authorities, there will need to be:
- Additional administration and surveying staff to manage, monitor, assess and inspect works associated with the levy.
- Upfront funding to change Back-Of-House (BOH) systems as well as training staff to manage the new system.
- Connection between building control/local authority finance teams and DLUHC for transfer of the BSL, which will require additional IT interoperability.
- Separate BSL collection/payment systems from normal Building Regulation systems in local authorities, but with some overlap needed to reflect any sanctions.
- Increased activity by local authority debt recovery teams.
- Requirement of additional management information to be provided to DLUHC, adding an additional resource burden.
- All of the above will also require a sufficient lead-in time to ensure that local authorities are fully resourced for effective implementation.
The government has proposed that local authorities will be able to retain a small proportion of receipts to cover the costs of administering the BSL. However, the government will still need to provide significant additional upfront new burdens funding to get the new collection system up and running ahead of any BSL being collected.
We are also concerned that even with the provision of upfront new burdens funding and the ability to retain a proportion of receipts, it is likely to be challenging to recruit the additional staff required, with the right skillset across more than 300 local authorities. The LGA’s Local Government Workforce Survey (2022) highlighted the wide-ranging recruitment and retention challenges at local authorities, which included building control officers.
Given the above, we strongly urge the government to reconsider its approach to its implementation. It is our strong view that rather than having multiple mechanisms for raising the necessary funds for building remediation, that the government should consider expanding the RPDT to include more developers by altering the eligibility criteria and/or changing the overall parameters of the tax. This could be achieved by reducing the annual allowance for the RPDT from the current £25 million, altering the 4% supplementary charge or extending the proposed 10-year period (or indeed a combination of these factors). This would provide a simpler process, and one that already exists, to avoid the need for 309 local authorities to set up new time-limited processes with the associated burdens, whilst still securing the additional funds for remediation. We would of course want any extension of the RPDT to be designed in a way that minimises any detrimental impact on housing supply. We consider this alternative proposal would deliver an improved, more cost-effective approach to raising the additional £3 billion for building safety.
We recognise that a primary legislative vehicle would be needed to change the existing parameters of the RPDT, as the legislation was introduced through the Finance Act 2022, with no associated secondary regulations. We consider this could be achieved in the current parliamentary session through existing or planned Bills (such as the 2023 Finance Bill), with an anticipated introduction in April 2024. This would of course need to be accompanied by a further public consultation.
I would be very happy to meet with you both to talk through our concerns and potential solutions. My office ([email protected] or 07919304993) would be happy to work with your officials to find a suitable date for a meeting.
We plan to publish this letter on our website on 9 March 2023.
I have also sent this letter to The Rt Hon John Glen MP.
Yours sincerely,
Cllr James Jamieson
Chairman