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Districts fear for future after new homes bonus cut

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District councils have warned they are “staring into the abyss” as a result of changes to the new homes bonus with serious questions over their future sustainability.

LGC analysis of government figures reveals 108 of the 201 districts in England face a reduction equivalent to 10% or more of their settlement funding, with 31 of those anticipating a reduction equivalent to 25% or more.

This follows changes announced by communities secretary Sajid Javid in December, and confirmed this week, which saw new homes bonus payments reduced from six years to five years in 2017-18, before reducing it further to four years in 2018-19. A 0.4% baseline growth target will also be introduced in 2017-18 which must be achieved before payments can be made.

Overall, there are 167 districts which are set to lose out as a result of the new homes bonus changes.

When combined, all of those districts are set to be £79m worse off in 2017-18 compared with what they had anticipated to receive under indicative figures published alongside last year’s four-year funding settlement.

This money will be redirected to provide funding for social care services.

According to the analysis the biggest losers were Basingstoke & Deane BC and Forest Heath DC, which would see a reduction in new homes bonus funding of of £2.5m and £1.4m respectively. This is equivalent to 69% and 54% respectively of their 2017-18 settlement funding made up of revenue support grant and local share of business rates. 

Forest Heath leader James Waters (Con) said the council’s investment plans would be affected. He added: “We have done everything over and above what the government has asked us – it is a blow and unhelpful.”

Terri Reid (Con), deputy leader of Basingstoke & Deane, said the council was prepared for the changes, adding: “We are in a better position than a lot of districts because we have other investments so we have some wriggle room in terms of balances.”

Ashfield DC’s new homes bonus funding is set to reduce by about £500,000 in 2017-18 compared with what the council was expecting. That is equivalent to 11% of its settlement funding for the year.

Deputy leader Dan Davis (Lab) told LGC the changes would result in the council losing 10% of its revenue over the next four years. He said: “It has really shifted the emphasis in the council from looking at savings to actually questioning what the council is there for.”

Cllr Davis added: “We have got to question whether we can set a budget over the coming years - we are now through the bone and into the marrow.”

South Somerset DC is preparing for a £800,000 reduction, equivalent to 10% of its settlement funding.

Finance portfolio holder Peter Seib (Lib Dem) said the council was “exposed” as the new homes bonus had been a valuable source of income. He added: “We are really worried about the future – it was a slap in the face and we are staring into the abyss.”

Chesterfield BC leader John Burrows (Lab) said a loss of £2.28m over five years would have a “disastrous impact” on services. He added: “It is not acceptable to leave councils facing those types of cuts without any warning, particularly as we have only recently signed a four-year budget settlement agreement that was supposed to give us medium-term certainty for our financial planning.”

The Department for Communities and Local Government has been contacted for comment.

BIGGEST LOSERS: NEW HOMES BONUS REDUCIONS*
CouncilPercentage reduction
Basingstoke & Deane BC -69%
Forest Heath DC -54%
South Cambridgeshire DC -50%
Elmbridge BC -50%
West Devon BC -45%
Watford BC -44%
Epsom & Ewell BC -43%
Maidstone BC -37%
Wycombe DC -36%
South Bucks DC -35%
*As s proportion of settlement funding 2017-18
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