Letter to the Deputy Prime Minister – urgent review of the Building Safety Levy

To:

Rt. Hon Angela Rayner MP
Deputy Prime Minister
Secretary of State for Housing, Communities and Local Government

By email and copied to:

Minister Ali, Minister for Building Safety and Homelessness
Minister McMahon, Minister for Local Government and English Devolution
Minister Pennycook, Minister for Housing and Planning
Florence Eshalomi MP, Chair, Housing, Communities and Local Government Committee

3 October 2024

Dear Angela,

As we move forward with momentum on resetting the relationship between central and local government, I am writing to ask you to urgently review and reconsider the previous administration’s proposal for local authorities to be the collection agency for the Building Safety Levy (BSL) - which seeks to raise £3 billion over 10 years - and instead consider an alternative approach.

Our strongly held view is 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 more than 2 and a half years and is well recognised by the development industry. Since it was introduced in April 2022 it has raised £260 million.

As you will know the proposed BSL is part of the previous administration’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 per cent 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 Residential Property Developer Tax and a separate 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 of the largest residential property developers to raise revenue to fund the package of measures designed to bring an end to unsafe cladding on buildings. The BSL was initially intended to be a separate 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 apply to all new residential developments that require building control approval (with a number of proposed exemptions). Therefore, the initial rationale for having a Levy separate to the Residential Property Developer Tax is no longer relevant.

The previous administration made clear in its consultation published in November 2022 that its preferred option is that local authorities should act as the BSL collection agency. This was also restated in a letter from the previous Secretary of State in response to a letter from my predecessor where we raised significant concerns about the impact on local authorities.

That will mean, in reality, that 296 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 set-up and resource a new system to collect a levy on behalf of HM Government, when there is already a single point of collection mechanism that exists at national level.

In particular, across 296 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 MHCLG 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 MHCLG, 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.

In the context of the Ministry’s future budgetary decisions needing to be made within a tight fiscal envelope, expansion of the existing RPDT infrastructure, rather than provision of millions of pounds in new burdens funding for local authorities to act as a collection agent for the BSL, would seem to make sound financial sense.

In short, our strongly held view is that the proposed approach is a waste of taxpayers’ money when there is a more cost effective mechanism that already exists that can deliver the financial return required.

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 almost 300 local authorities.

The LGA’s 2022 local government workforce survey highlighted the wide-ranging recruitment and retention challenges at local authorities and our 2024 research reports look at workforce capacity challenges in key professions and services for local government including legal, finance, IT and building control.

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 required 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 per cent 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 296 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, with an anticipated introduction in 2025/26. 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. Please get in touch with Tom Chapman ([email protected]) who can make the necessary arrangements.

We plan to publish this letter on our website on or after Friday 11 October and will also publish your response once received.

Yours sincerely

Cllr Louise Gittins
Chair, Local Government Association