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New Homes Bonus for councils set to end ‘in its current format’
The government is planning to end the New Homes Bonus (NHB) after 14 years on the basis that funds are not being allocated according to “local authority need”.
In a consultation published on Wednesday, the Ministry of Housing, Communities and Local Government (MHCLG) said it is proposing that 2025-26 will be the last year the NHB is paid “in its current format”.
The scheme, which was introduced in 2011 under the David Cameron-led coalition government, is a grant awarded to councils for increasing the number of homes in their area.
MHCLG said there will be a new round of NHB payments in 2025-26 and it is not intending to change the calculation. It is expected that around £290m will be allocated for the scheme next year.
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However, MHCLG added: “It is the government’s intention that 2025-26 will be the final year of the NHB in its current format and councils should consider this in their financial planning.”
In a separate consultation on the principles and objectives of local authority funding, it said: “As the New Homes Bonus is funded through a top slice of the Revenue Support Grant, this funding is not allocated according to local authority need.”
The Revenue Support Grant, which is determined by a formula, is given to councils to pay for expenditure on any service.
In 2023, a group of 47 councils called for the NHB to be abolished, arguing that it “disproportionately” goes to “already wealthy authorities”.
The government said it was aware the NHB had been an “important source of funding for local authorities, particularly shire district councils”.
In the current year, 110 councils have received at least £1m from the scheme.
However, ministers said they plan to “consider a range of options for how to balance the principles of robustness and sustainability through the (Local Government Finance) Settlement with wider housing objectives”.
The government is hoping to oversee the development of 1.5 million new homes over this parliamentary term and has announced a series of measures, including changes to the National Planning Policy Framework.
A consultation on future arrangements on the NHB is expected to run in the first half of next year, the document said.
It comes amid the continued financial crisis for many local authorities after years of underfunding. One in four councils are likely to need emergency government support in the next two years, according to the Local Government Association.
The plan to scrap the NHB was announced alongside the new provisional Local Government Finance Settlement, which will allocate £69bn for councils in England in 2025-26. This represents a 3.5% year-on-year increase in real terms.
Among the other proposals in the settlement is a new £250m Children’s Social Care Prevention grant and an £880m uplift to the social care grant.
A new, one-off £600m ‘recovery grant’ will also be introduced to target places with “greater need and demand for services and less ability to raise income locally”, the consultation said.
Councils will also share in £515m of funding to compensate for the national insurance contributions increase for employers, announced in the Autumn Budget.
Jim McMahon, minister for local government and English devolution, said: “We know councils are calling out for help, which is why we have prioritised this vital increase in funding, but we must stop taxpayers’ money being thrown into a broken system.”
He added: “We will fix this outdated system, turning to our partners in local government, working hand in hand to bring ambitious reform and do the long-term, necessary work to rebuild the foundations and, crucially, trust.”
