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LGA response to the Department for Levelling Up, Housing and Communities consultation on the Building Safety Levy

The Department for Levelling Up, Housing and Communities held a consultation on the Building Safety Levy between 22 November 2022 and 7 February 2023. The consultation sought views on the design and implementation of the Levy.

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About the Local Government Association (LGA)

(a) The LGA is the national voice of local government. We are a politically-led, cross party membership organisation, representing councils from England and Wales.

(b) Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.

Summary

  • The government is consulting on the design and the implementation of the Building Safety Levy (BSL). This follows a previous consultation on the BSL, which we responded to in October 2021. The government has since expanded the scope of the BSL, which will be paid by developers and will now be charged on all new residential buildings requiring building control approval in England, for the purpose of meeting building safety expenditure. The BSL was announced in February 2021, as part of the reforms brought forward alongside the Building Safety Bill (2022) and will ensure the taxpayer and leaseholders do not pay for the necessary remediation of building safety defects. The scope of the consultation includes: the impact of the BSL; how the BSL will work; the basis for how the BSL will be calculated; and exclusions.
  • The Secretary of State (SoS) for Levelling Up, Housing and Communities has already committed £5.1 billion of taxpayers’ money to fix building safety problems. The SoS has also announced a wide-ranging agreement with major homebuilders who had pledged to commit £2 billion to fix their own buildings and that the intention was to deliver an estimated £3 billion from the BSL.
  • In addition to the BSL, the government has also introduced a Residential Property Developer Tax (RPDT) to help fund building remediation. The key distinction between the BSL and the RPDT is that the former is a one-off charge on companies which engage in residential development; and the latter is a charge on the profits of companies which exceed an annual allowance of £25 million. We responded to the consultation on the RPDT in July 2021. Respondents to the consultation expressed concerns regarding the cumulative compliance impact of being in scope of both the BSL and RPDT, which could impact supply of residential properties and investment in the sector. The government responded to these concerns by reiterating the distinction between both the BSL and RPDT and also that both are essential to help bring an end to unsafe cladding and restore confidence to the property market.
  • The LGA welcomes the principle of a BSL that seeks to ensure the taxpayer and leaseholders do not pay for the remediation of building safety defects. However, we do have concerns about the impact the BSL could have on contributions associated with Section 106 (S.106) in terms of scheme viability. There is a risk that an unintended consequence of the BSL will be that local communities will pay the price for historic failures in regulation and practice with less infrastructure and affordable housing delivered. The government must mitigate this risk through design of the BSL and use of the National Planning Policy Framework (NPPF) and associated planning practice guidance. We are also concerned that the BSL may 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.
  • In the interest of efficiency, the collection agency for the BSL should not be local authorities, it should be the same agency that will be responsible for spending the BSL.
  • In administering the BSL, there should be a one-step process, which means 100% of the BSL payment is collected upfront in the building control process. This can be adjusted at a later stage if the scheme did change, using a cost recovery mechanism to allow the developer to claim back the BSL already paid.
  • The BSL should be calculated using a square meter approach as this is the simpler and least resource-intensive option. To support the delivery of affordable housing we would welcome a discounted BSL rate for schemes that commit to delivering over a certain threshold of affordable housing. The exact threshold should be determined by local authorities.
  • A differential BSL rate should be set in accordance with local authority boundaries to recognise the geographical differences in land values and house prices. However, we recognise that variance is likely to still exist within local authority areas which won’t be taken account of.
  • The proposed exclusions are reasonable because they are developed primarily for social value purposes, to meet the needs of communities, rather than primarily for commercial benefit. Local authorities should also be excluded from the BSL.
  • Given the complexities of setting up new systems to collect and administer the BSL, we urge the government to consider instead expanding the scope of the Residential Property Developer Tax.

Consultation Questions

Relationships with other taxes and other charges on the sector

Question 1: Do you think the Building Safety Levy charge will impact on other charges made in relation to residential buildings including Community Infrastructure Levy and Section 106 payments or the Infrastructure Levy that will replace the existing of developer contributions’? If so what are they likely to be?

  • Yes
  • No
  • Unsure

There is potential for the BSL to impact contributions associated with Section 106 (S.106) in terms of scheme viability and use of viability assessments to negotiate down or avoid developer contributions. Viability assessments are already prevalent within the planning system, and there is a risk that we will see more instances of its use with schemes that otherwise would have been viable but are subsequently left unviable as a result of the additional charge. However, the extent of the impact is highly dependent on the proposed BSL rates, and we don’t have that information yet, making it difficult to provide a considered response to this question.

We are also concerned that the BSL may 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.

If these unintended consequences materialise as a result of the introduction of the BSL– it will mean that local communities will ultimately pay the price for historic failures in regulation and practice, with less capacity for meeting the infrastructure and housing needs of communities. We agree with the government on the stated importance of the design of the BSL to protect the pipeline of affordable housing and also share the ambition for the BSL to feed through into land prices, by reducing the sum developers are willing to pay for land. We would therefore urge the government to address this risk in the revised NPPF and associated planning practice guidance by stating that it would be illegitimate for charges associated with the BSL to be captured within viability assessments. This is because the main driver for the BSL is to ensure that developers cover the costs of the building safety defects that the industry created and those that did not cause those defects are protected from those costs. In addition to leaseholders, this includes local communities that are the beneficiaries of developer contributions. It would be grossly unfair and would undermine the guiding principles of the BSL if this were to occur. More broadly, we would like to see the complete removal of the use of viability assessments under the S.106 system, which will be partially retained following the planning reforms.

The government has stated that the forthcoming Infrastructure Levy (IL) – which will replace the Community Infrastructure Levy (CIL) and partially replace S.106 - will be non-negotiable and has cited the removal of negotiation from the system as one of the key policy changes which will improve the system, which we currently see with S.106. Assuming this commitment is upheld, we would not expect affordable housing or infrastructure to be diminished under the IL a result of the BSL.

How the levy will work

Question 2: Who do you think should act as the collection agency for the levy? Please give reasons for your answer.

  • Local authority
  • Other

To ensure the end-to-end process for collecting and spending the BSL is as streamlined as possible, the collection agency should be the same agency that will be responsible for spending the BSL, which is the government. It would be irregular and inefficient to ask local authorities to collect a levy on behalf of someone else. The government may want to consider the Building Safety Regulator to be the collection agency, or DLUHC, but in any event, it should be a government agency. Notwithstanding our view above, if the government were to appoint local authorities to be the collection agency, this would be an additional burden which must be fully covered in upfront new burdens funding.

Without sufficient new burdens, local authorities will not have the capacity to administer the BSL. The Local Government Workforce Survey (2022) highlighted the recruitment and retention challenges at local authorities, which included building control officers. Therefore, it may be a challenge to recruit the additional staff required, with the right skillset. The government should engage with local government on this issue.

Although the government has stated that the collection agency will be able to retain a proportion of the BSL receipts to pay for the administrative costs, the collection agency will need upfront set-up funding to introduce the service. In addition, as this is a new levy with a new policy framework and charge criteria – which is distinct from CIL and planning fees – it would be unfounded to appoint the local authority to be the collection agency on the grounds that they already have collection systems in place. If local authorities were the collection agent, they would have to set up new processes and systems to implement the BSL.

However, it is our view that rather than having multiple mechanisms for raising the necessary funds for building remediation, the RPDT should be expanded to include more developers by altering the eligibility criteria, for example by reducing the annual allowance for the RPDT from the current £25 million. This would provide a simpler process, by avoiding the varying BSL rates, but would still secure the additional funds for remediation.

Question 3: What proportion of receipts do you think the Collection Agency should retain? What administration costs will that need to cover?

  • 5%
  • 7%
  • 10%
  • Other

The reason for choosing ‘other’ is because the collection agency should have the discretion to set the percentage in accordance with the true cost of administering the BSL.

However, if the government chooses to set this figure, then the proportion should be 10% and this figure should be reviewed at the ‘levy review point’ to assess whether 10% if sufficient to cover the administration costs. Although the CIL system uses 5%, the adequacy of the proportion of receipts retained is once again highly dependent on the proposed BSL rates, and we don’t have that information yet to provide a considered response to this question. Therefore, the higher percentage has been chosen to mitigate the risk that new burdens funding would be insufficient.

In broad terms, administration costs will need to cover the calculation and collection of the BSL, use of sanctions and transferring the BSL to DLUHC. To facilitate this, a new casework management system will need to be put in place and used to capture the end-to-end process with integration between the collection agency, the finance team and DLUHC as the recipient of the BSL. There will also be increased demands on debt recovery teams and legal teams.

The collection agency will also need to participate in the regular reviews, which will add another administration burden. It is impossible to quantify the use of enforcement (i.e sanctions) because it is dependent on the behaviour of developers and therefore it has the potential to be burdensome.

Question 4: How frequent should revenue returns be provided to DLUHC? Please give reasons for your answer.

  • Monthly
  • Quarterly
  • Every 6 months
  • Other

Annually. This will ensure the administrative burden is kept to a minimum for the collection agency. Also, an annual return would be consistent with other financial returns that are undertaken in the public sector, for example CIL.

Question 5: Do you think that there should be regular review points? If so, how frequent should they be?

  • Yes
  • No
  • Unsure

If yes, how often:

  • Annually
  • 3 years
  • 5 years
  • Other

The review point should take place annually for the first three years and then after this, every three years. It is right that a new policy is reviewed to assess whether it is delivering the intended objectives and to enable action to be taken as appropriate to address any unintended consequences. But in any event there are some themes in the consultation that carry uncertainty at this stage and need to be assessed post-implementation – this includes the impact of the BSL on the other aforementioned charges in question 1, the adequacy of a recovery model to cover new burdens and the administrative process. The review points should also assess whether the amount of BSL generated is on track to deliver the £3 billion over 10 years that is estimated to pay for the remediation of buildings not covered by the £5.1 billion already committed. This is also an opportunity to review the new burdens arrangements and offset any gaps between resource requirements and funding.

Question 6: We welcome views on the two-step process and charging points for the levy. Do you agree or disagree, please give reasons?

  • I agree
  • I disagree

We welcome the introduction of a self-assessment aspect to the process to reduce the burden on the collection agency, as long as that is then, as the consultation proposes, supported by adequate documentation provided by the client. A one-step process with one charging point is the most efficient approach for the collection agency.

Introducing a two-step process adds an additional and unnecessary layer of bureaucracy and increases the costs on officer time to administer the BSL. We understand the logic of a two-step process in that projects can change during construction – become larger or smaller – and a second charging point allows scope for adjustment at a later stage to reflect what is actually built. But use of one charging point that can be adjusted at a later stage as a backstop if the scheme did change, would be more efficient.

As an example, there could be a cost recovery mechanism in place for developers to claim back the BSL charge on sites that have not been developed or only partially developed. Conversely, if the scheme becomes larger the collection agency must be able to claim the additional BSL. The reason this would be more efficient is because there is no guarantee that every scheme will change and will require a two step-process.

Therefore, this should only be used when a change occurs. Using a similar process to administering CIL for collecting the BSL would be beneficial. This process includes a one-off payment within a specified timeframe after the development has commenced (via a notice to commence), or in accordance with the local authority’s instalment policy.

Question 7: What are your views on the percentage split, i.e. charging 60% of the levy prior to commencement stage and 40% at final certification. Are these the right amounts? If not, why not – please give reasons.

  • Yes
  • No
  • Too early to tell

As above, there should be one charging point that collects 100 per cent of the BSL. There is no guarantee that projects will change every time, but a two-step process would guarantee a less efficient process every time. We urge DLUHC to reconsider introducing a two-step process.

Question 8: If you consider yourself a small or medium enterprise, what impact will these levy payment points have on your ability to build? If so, what could help? To note we intend to exempt developments under 10 units or the square metre equivalent.

Our suggestion above on using a similar process to the way CIL is collected would help by collecting 100% of the BSL at one charging point, or use of a local authority’s instalment policy.

Question 9: What do you think should be the principal sanction to ensure the levy is paid?

The principal sanction should be to halt the development by withholding building control approval until the BSL is paid in full.

However, we understand that in practice it is likely to more nuanced than a binary non-payment/payment scenario. As an example, the BSL may be paid in full, but the developer may have included misleading information or may have withheld information to reduce the amount of BSL. Alternatively, payment may be late, or if a two-step process is implemented the developer may seek to evade payment at the second stage after the project is completed. Therefore, it is right that there are a range of sanctions that the collection agency can impose beyond simply withholding of building control approval. This will enable the collection agency to deal with the relevant issue effectively and proportionately.

A punitive fine that can be varied so that it is proportionate would be the best approach to incentivise developers into compliance. However, if the scheme has already been built and it is found that as a result of withholding or providing misleading information that less BSL has been paid, then the fine should be in addition to the remaining BSL being recovered.

Question 10: Do you think that the failures outlined above may occur in operation of the levy? If so, how best can they be avoided?

  • Yes
  • No
  • Unsure

In theory, yes, they may occur. However, as the BSL is new it’s difficult to comment with any further detail. The use of regular reviews, which is being proposed, will be an opportunity to identify and act upon lessons learnt.

But they can be best avoided through design, by having the appropriate sanctions in place to deter non-compliance and also the collection agency being sufficiently resourced to properly administer, monitor and enforce the BSL. In terms of design, a one-step process that is simple and efficient would be beneficial.

Question 11: Is it reasonable to consider the sanctions regime of the RPDT in relation to the levy?

  • Yes
  • No
  • Unsure

There is crossover between the BSL and the RPDT in terms of the gamesmanship that could occur, for example providing misleading information or withholding information to reduce payment or avoid payment entirely. There isn’t any reason why sanction alignment would be inappropriate.

Question 12: How might levy design avoid mistakes, gaming, and fraud, or else maximise positive incentives?

As mentioned above, it will require sufficient resourcing by way of new burdens to monitor and enforce. It isn’t possible to quantify the enforcement activity required to proactively follow-up on the payments owed and utilise sanctions, but the collection agency – which also includes debt recovery teams and solicitors - must be reasonably ready to do this

As mentioned above, there must be a range of sanctions in place to deal proportionately with the aforementioned gamesmanship to reduce or avoid payments and there must be consideration of what level of fine would be a meaningful deterrent. If the level of fine available is too low, then some developers may accept the risk and factor it into their cashflows.

Basic of levy calculation

Question 13: Which of the options above do you think is the best basis on which to implement the levy? Please give reasons for your answer.

  • Per unit
  • Square meter

Square meter has been chosen because this is used for CIL and is a well-recognised mechanism for calculating a levy charge. We do however recognise that not all councils have a CIL, consider that there is learning in the sector that can be shared to upskill staff with no prior experience of calculating a levy in this way. Also, the per unit measurement is flawed because it would allow schemes below 10 units to be exempt from the BSL, despite potentially being larger in size than schemes 10 units and above. As an example, 9 x five-bed units would be exempt from the BSL in comparison to 10 x three-bed units that would have to pay the BSL.

Question 14: How best can we protect small and medium sized builders? Is exempting smaller developments the best way?

Local authorities must be empowered to set their own exemption policies including the decision on how to protect and whether to exempt small and medium sized builders.

Question 15: Do you think government should set differential levy rates based on geography based on the different land values and house prices in different areas? Please give reasons.

  • Yes
  • No

It is reasonable and equitable for all stakeholders to recognise the geographical differences in land values and house prices when setting the levy rate. Setting a differential levy rate is also in line with the levelling up agenda of tackling geographical inequality and driving growth across the whole country. This is because setting a flat levy rate that applies equally across the whole country may result in a proportionately higher cash return in certain parts of the country as a result of higher house prices and have the unintended consequence of developers gravitating to those areas because developments are more viable.  However, we recognise that even if a levy is set at a local authority level, there will still be variance that exists within the local authority areas – to illustrate some charges who have CIL have multiple charging rates.

Question 16: Which of the two options outlined above would you prefer? Please give your reasons for your answer.

  • Local authority boundaries
  • Regional basis

Although we recognise it would be less complicated to use a regional basis, the differences in land values and house prices are more granular than a regional approach and it may lead to regional disparity. If we accept the principle of setting a differential rate on the grounds of tackling geographical inequality, then the best approach is to set BSL rates in accordance with local authority boundaries.  However, we recognise that even setting at a local authority boundary level, variance will still  exist within local authority areas.

Question 17: Do you think there should be different levy rate applied on brownfield and greenfield developments in the same geographic area? If so, do you think that the differential should be the same in every geographic area?

  • Yes
  • No
  • Unsure

This decision should be made at the discretion of local authorities in line with their individual local plan policies and to take into account differential land values.

Question 18: What amount of grace period should be set for projects that have already started the building control process on the date the levy goes live?

12 months. This mirrors the transitional timeframe used to implement the new regulations under the wider Building Safety Act 2022.

Exclusions

Question 19: What are your views on the above exclusions? Please set out whether you agree or disagree and give reasons for your answers.

  • Yes
  • No

The proposed exclusions are reasonable because they are developed primarily for social value purposes, to meet the needs of communities, rather than primarily for commercial benefit. As mentioned earlier, it is important that, as far as possible, the BSL is designed in a way to avoid negatively impacting vulnerable communities and those that are not responsible for historic building safety failures.

Local authorities, as developers, should also be exempt from the BSL. This should apply even in cases where they are delivering homes for market sale, which can help to cross-subsidise affordable housing. This is even more important with the forthcoming social housing rent cap in 2023/24 at 7 per cent. The lost income to the Housing Revenue Account will have an impact on the ability of councils to build the social homes our communities desperately need, which is one of the best ways to boost growth, and local authorities will need to consider alternative financing options to deliver the social housing the country needs.

We would also like to make the point that in addition to ‘new residential development’ which is referred to in the consultation, the BSL must also apply to change of use conversions to residential developments and also extensions to existing buildings. We know that in urban areas more developers are making use of permitted development rights by converting empty properties to residential properties for commercial gain. Change of use schemes must not be exempt and the terminology used in the consultation to describe those eligible for the BSL should be clearly defined to reflect this.

Question 20: Do you have any views on Build to Rent developments, purpose-built student accommodation, older people’s housing. If so please set them out.

The BSL should apply to all of the above because we need to mitigate against the cumulative loss of BSL payments leaving the total BSL collected insufficient to achieve the required funding for remediation as a result of blanket exemptions.  Local authorities must be empowered to set their own exemption policies rather than blanket national exemptions.

Question 21: Do you agree Affordable Homes should be excluded from payment of the levy?

  • Yes
  • No

We need to deliver more affordable housing across the country and so we want to avoid disincentivising delivery. We have previously lobbied on the need to exclude affordable housing in our response to DLUHC’s consultation on the BSL in October 2021.  To reiterate, local authorities as developers, should also be exempt from the BSL to support the delivery of the affordable homes that the country needs. This should apply even in cases where they are delivering homes for market sale, which can help to cross-subsidise affordable housing.

However, we would like to reiterate that we are still concerned that developers will try and reduce affordable housing on viability grounds. This is why we would like to see the removal of viability assessments entirely, as well as exempting local authorities from the BSL and updating the NPPF to state that it would be illegitimate for charges associated with the BSL to be captured within viability assessments.

Question 22: Do you agree NHS Hospitals, NHS Medical homes, and NHS GP practices should be excluded from payment of the levy?

  • Yes
  • No

Question 23: Do you agree Conversions, improvements to owner occupied homes and refurbishments should be excluded from payment of the Levy?

  • Yes
  • No

Question 24: Do you agree supported housing should be excluded from payment of the levy?

  • Yes
  • No

Question 25: Do you agree care homes should be excluded from payment of the levy?

  • Yes
  • No

Question 26: Do you agree that children’s homes should be excluded from payment of the levy?

  • Yes
  • No

Question 27: Do you agree Domestic Abuse facilities should be excluded from payment of the levy?

  • Yes
  • No

Question 28: Do you agree residential care homes be excluded from payment of the levy?

  • Yes
  • No

Question 29: Do you agree Criminal Justice Accommodation be excluded from the levy?

  • Yes
  • No

Question 30: Do you agree military establishments be excluded from the levy?

  • Yes
  • No

Question 31: Would excluding developments under 10 units (or the square metre equivalent) protect small and medium sized enterprises? What might the alternatives be?

  • Yes
  • No
  • Other

This decision should be made at the discretion of local authorities in line with their individual local plan policies and to take into account differential land values.

Question 32: Do you consider that we should set a discounted levy rate for the entirety of a development where that development provides a specified proportion of affordable housing?

  • Yes
  • No
  • Unsure

Given that more affordable housing is needed across the country, it is right that the BSL is designed to support and incentivise the delivery of affordable housing. The eligibility threshold for a discounted BSL should be determined at the discretion of the local authority.