LGA’s response to DLUHC technical consultation on the Building Safety Levy (BSL)

The LGA supports the principle of a Building Safety Levy (BSL) that seeks to ensure the taxpayer and leaseholders do not pay for the remediation of building safety defects. 

However, we continue to 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 ultimately pay the price for historic failures in regulation and practice, in terms of less infrastructure and affordable housing being delivered. 

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 to maintain profit margins. It is also possible that we also see an overall increase in new-build house prices to cover the additional costs of the BSL (where market conditions will allow), meaning that new home purchasers will ultimately be funding building safety remediation works. There is also a risk that some sites which might otherwise have come forward are stalled or abandoned completely because the BSL charge renders them unviable. 

Whilst the government has set out its intention to protect housing supply through the design of the BSL, and the BSL rates, the consultation itself recognises that there is uncertainty about the impact on housing supply. 

We have also previously urged the Government to reconsider their proposal to require more than 300 local authorities to set up separate, individual processes to act as a collection and administration agency for the BSL. This remains our view. We have suggested that a more streamlined, cost-efficient approach to raising the additional funds for building safety remediation, which would benefit both central and local government, would be to expand the scope of the Residential Property Developer Tax (RPDT).  This could easily be expanded 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 per cent supplementary charge or extending the proposed 10-year period (or indeed a combination of these factors). This is a system that has now been in operation for almost two years and is well recognised by the development industry. Had the government taken our proposal forward, this could have been achieved in the last parliamentary session through a vehicle like the Finance Bill 2023-24, with introduction from April 2024. 

However, despite recognition that requiring local authorities to act as collection agents will mean that there will be many bodies collecting and returning the BSL to Government, and the LGA proposing an alternative solution, it is disappointing that the Government has confirmed that local authorities will be designated as the collecting agent for the BSL. 

We continue to consider it highly inefficient and an unreasonable additional burden to require hundreds of local authorities to collect the BSL on behalf of the Government, when there is already a single point of collection mechanism that exists at national level. This is going to 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.

Notwithstanding our view above that we do not consider that local authorities should be the collecting agent for the BSL, we are pleased that the government has taken on board our comments to the previous consultation and that should they become the collecting agent:

• A client will be issued with a single charge for the BSL, rather than a two-step payment process as previously proposed, with the client having some flexibility over when payment is made. 
• Local authorities will be able to fund on-going costs of administering the BSL on a cost-recovery basis from BSL receipts, rather the originally proposed options of 10/7/5 per cent top slicing of BSL income. 
• Local authorities will be provided with government new burdens funding for set-up costs. It is absolutely right that councils should be fully reimbursed for their new responsibilities. However, we would welcome clarity on whether a value for money assessment has been undertaken on whether using local authorities as the collection agent is a good use of public money. As a comparison, we are keen to understand how much the set-up costs for setting up the administrative and back-office requirements for collection of the Residential Property Developer Tax (RPDT) were in HMRC and how much additional it would cost should the scope of the RPDT be expanded. 

In the absence of Government changing its preferred approach, we will continue to work with the Government on the BSL design, including ensuring that local authorities have the upfront resources and an appropriate lead-in time to ensure effective implementation. The lead-in time will be critical to ensure that staff resources and systems are in place and staff appropriately trained in order to avoid delays to building control completion certificates being issued, or final certificates being accepted by the building control authority (which would inevitably delay occupation of new homes). 

We would recommend a minimum lead-in time of 12 months before the new regime comes into place. New burdens funding for set-up costs should also be issued to councils before they are expected to start preparations for the new role, rather than simply a promise that new burdens funding will be on its way and that councils should begin preparations in advance of it reaching them. 

We also strongly urge the Government first implement the BSL in a small group of pilot or ‘trailblazer’ authorities, so that learning can be taken on board and necessary changes to the process made before roll-out to all 300 plus local authorities. 

Question 1: Do you have any comments on the proposed levy rate calculation methodology outlined above?

Without commenting on the detail of the proposed BSL rate calculation methodology, we are concerned that the nationally determined methodology is overly complex, and takes no account of varying construction/other development costs, or the potential impact on the viability of developments across the country. It appears on the face of it that the calculation of £3 billion has been based on a theoretical desktop exercise. 

It is not clear why it has been decided to, as part of the methodology, apply a weighting to units in each local authority area, which is proportional to the average house price in that local authority, relative to the England average house price. The methodology also applies an arbitrary 50 per cent levy reduction on ‘previously developed land’ with no associated evidence base. The consultation also provides no detail of how economic and fiscal factors will be taken into account in finalising the levy rates. Looking at the formula the policy appears to incentivise building in lower price areas and on brownfield sites. In making its final determination on the levy rate calculation methodology the Government should provide absolute clarity on the policy incentives it has introduced and the impact it anticipates that will have on the distribution of new development coming forward once the BSL is implemented. 

It is also unhelpful that whilst the consultation has outlined the proposed levy rate calculation methodology, the Government have not supported this with an accompanying Annex which gives indicative levy rates. This would have given respondents to the consultation an opportunity to interrogate the data and provide feedback on the likely impact of those rates in a given area, rather than expecting them to undertake this analysis (based on a complex and confusing methodology) themselves within a four-week consultation period. 

This approach of BSL rates being set in regulation by central government, with a standard rate per square-metre for each local authority area with little opportunity for consultation, is a far cry from the approach that is required by local authorities in setting CIL charging schedules. 

When deciding on CIL rates, an authority must strike an appropriate balance between additional investment to support development and the impact on development viability. In meeting the stringent regulatory requirements, CIL charging authorities need to be able to show and explain how their proposed levy rate (or rates) will contribute towards the implementation of their relevant plan and support development across their area. There are multiple steps that need to be taken before a charging authority can approve a CIL charging schedule and in many cases, this means that multiple CIL rates need to be set within an individual local authority area to satisfy the requirements pertaining to viability. This includes:

• Preparing an evidence base to prepare draft CIL rates, and collaboration with neighbouring/overlapping authorities (and other stakeholders).
• Preparing and publishing a draft charging schedule for consultation with representations sought on the draft.
• Account must be taken of representation before submitting a draft charging schedule for examination – this is the examined by an independent person in public with the examiner’s recommendations then published.
• The charging authority has regard to the examiner’s recommendations before it can then approve a charging schedule. 

It is therefore astonishing that the Government consider (given this is essentially another charge on new development) that it is appropriate to calculate and set the BSL rate themselves with a limited four-week opportunity for interested parties to respond on a methodology that is not even finalised. We would urge the Government to publish indicative levy rates on its finalised methodology (which takes into account economic and fiscal factors) and provide an extended period of time for further feedback from interested parties, before any implementation.

We would also welcome clarity on what evidence source will be used by the Government to establish the average number of housing completions on previously developed land and not previously developed land (minus excluded units) from the three years 2020/21-2022/23, in each local authority area. 

The BSL should also apply to new residential units created by way of a change of use, in addition to newly constructed residential units. 

Notwithstanding our views set out above, we welcome the indication that any levy rates set by the Government, if brought forward, will be reviewed every three years with the first review beginning in year two of the levy. We would welcome specific clarity on how the Government will evaluation the impact of the BSL on local housing markets, including the types and quality of housing being brought forward and overall delivery numbers.

Question 2: Do you think that floorspace should be calculated using Gross Internal Area? Please explain your answer.

Yes. Using Gross Internal Area (GIA) mirrors the process used by local authorities for calculating Community Infrastructure Levy (CIL), which is a well-established methodology understood by both developers and local authorities (whilst recognising that not all local authorities have a CIL in place).

However, it is worth nothing that the Royal Institute of Chartered Surveyors (RICS) code of measuring practice referenced in the consultation, does not currently apply to residential buildings. The code that is currently applied to residential properties is the International Property Measurement Standard (IPMS). The Government will need to provide absolute clarity that they want to adopt the RICS code of measuring practice for the purposes of the BSL, if that is indeed the case.

Question 3: Do you have any comments on the process for the collection of the levy, as set out above?

Yes. As outlined above and in the LGA’s response to the first consultation and subsequent letter to the Secretary of State, our view remains that rather than requiring 300 plus local authorities to be collecting agents, that there should be a single collecting agent.  We have suggested that a more streamlined, cost-efficient approach to raising the additional funds for building safety remediation, which would benefit both central and local government, would be to expand the Residential Property Developer Tax (RPDT).

Notwithstanding our view above, if the Government continue to be minded to make local authorities the collecting agent, we support the intention to ensure that that the levy regulations do not stipulate which part of a local authority deals with the levy processes, so that local authorities can allocate the functions as is most appropriate.

Individual local authorities are best placed to comment on the detailed step-by-step process outlined in the consultation and how this may/may not work in their local authority area. On one specific point however, there is mixed messaging in the consultation about liability to confirm that details submitted by developers are correct. The developer must submit all the information for the levy calculation to be made and confirm the information is correct, but then local authorities “need to be satisfied that information provided by the client is sufficient”. Clarity on this point would be welcomed. 

More broadly we would like to emphasise that this is a new responsibility for local authorities. That means that the lead-in time for implementation will be critical to ensure that staff resources and systems are in place and that staff are appropriately trained. Without this, there is a real risk that this could result in delays to building control completion certificates being issued, or final certificates being accepted by the building control authority, which would inevitably delay occupation of new homes. Given the ongoing recruitment and retention challenges in local government, we urge the Government to undertake an assessment of the capacity of the sector to take on this new role ahead of implementation.

We would also recommend a minimum lead-in time of 12 months before the new regime comes into place. New burdens funding for set-up costs should also be issued to councils before they are expected to start preparations for the new role, rather than simply a promise that new burdens funding will be on its way and that councils should begin preparations in advance of it reaching them. We strongly urge the Government to first implement the BSL in a small group of pilot authorities, so that learning can be taken on board and necessary changes to the process made before roll-out to all 300 plus local authorities. Consideration should also be given to provision of grant funding to an appropriate sector body to provide a sector support offer to local authorities to facilitate effective implementation. This could include provision of additional tools, templates, and guidance, as well as sharing of best practice and development of staff networks.

The Government should also provide clarity that as soon as the intended £3 billion of BSL has been collected, that the BSL scheme will cease. Notice should be given as to when that is likely to be, in order to give councils a sufficient lead-in time to stand-down systems and relevant staff resources, as this may require redundancies or redeployment.

Question 4: Do you have any comments on the proposed approach to identifying previously developed land and application of the 50 per cent rate?

Do you think that, to qualify for the discount rate, more than 50 per cent is the correct threshold the area within the planning permission redline that must constitute previously developed land types?

Our view is that the approach outlined adds an additional level of complexity to the calculation of the BSL and risks ambiguity and opportunity for disputes. This sits at odds with the stated intention of keeping the levy calculation and collection process as simple as possible (to reduce the scope for disputes). Calculating which developer is liable to pay the 100/50 per cent BSL on a particular site could be a particular challenge in cases for example where planning permission has been secured by a consortium of developers. There should be unequivocal guidance on this point. 

Consideration should also be given to a clear statement included in a planning permission as to which areas of the sites are ‘previously developed’ and what percentage that covers, to avoid delays and disputes at the BSL calculation and collection stage. 

As mentioned above there is also mixed messaging in the consultation about liability to confirm that details submitted by developers are correct. The developer has to submit all the information for the levy calculation to be made and confirm the information is correct, but then local authorities ‘need to be satisfied that information provided by the client is sufficient’. Clarity on this point would be welcomed. 

A requirement for the local authority to verify that the information is accurate (albeit as ‘regular spot checks’), would add an additional burden and require detailed inspection of floorplans and other relevant information pertinent to the building in question. 

Question 5: Do you agree with the process for dealing with disputes outlined above? Please explain your answer.

We agree with the analysis of the main (and numerous) opportunities through this new BSL process that a dispute could arise. We are concerned that these could add significant additional burdens on both the developer and local authorities as the collecting agent, particularly given the number of BSL charges that we will start to see across the country once implemented. 

Notwithstanding our view that we do not consider that local authorities should be the collecting agent, if this is going to go ahead, it will be important to ensure that the need for dispute is minimised as much as possible through effective processes and guidance being in place. This will minimise any potential delays to occupation of new homes. 

Rather than having three different time periods to deal with various parts of the disputes process, it would make sense to have a single time period to make the process as clear and simple as possible. Our view is that the period of time should be at least 15 working days, rather than calendar days, in order to be in line with typical local authority working practices.

Question 6: Do you think that the communal accommodation listed above should be excluded from the levy charge? Please explain your answer.

Yes. In particular, we support the exclusions relating to the entities that are developed primarily for social value purposes, to meet the needs of communities, rather than primarily for commercial benefit. It is important that 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 excluded from the BSL charge. This should apply even in case where they are delivering homes for market sale, which can help to cross-subsidise affordable housing. 

Question 7: Do you have any views on the potential impact of the proposals raised in this consultation on people with protected characteristics as defined in section 149 of the Equality Act 2010? Please explain your answer.

It is difficult to quantify the potential impact of the proposals on groups protected under the Equality Act 2010 in the absence of detail of the final levy rates. However, we are concerned that should the proposals result in less affordable housing (including social housing) being built, that this is likely to have an impact on people with certain protected characteristics. For example, households with one member that has a long-term illness or disability are disproportionate users of the social rented sector. The Government should undertake and publish an Equality Impact Assessment for the BSL.