THE GOVERNMENT is said to be considering funding fire safety works on residential blocks, specifically those with combustible cladding, via a £2bn levy on developers.
Last month, Michael Wade – the government’s advisor appointed to advise on cladding issues – was said to have been ‘working on a proposal to provide long-term finance to buildings to pay for remediation work’, with more details revealed. Earlier that month, the government was reported to be proposing flat owners take on 30 year loans ‘akin to a second mortgage’ to fix fire safety issues.
A source close to the Ministry for Housing, Communities and Local Government (MHCLG) claimed that Mr Wade, an insurance executive appointed last July, was ‘considering long-term loans’ as a solution to protecting leaseholders from ‘unaffordable’ costs ‘without burdening taxpayers further’. This was said at the time to potentially mean ‘hundreds of thousands’ of flat owners could ‘be forced to take on 30-year loans akin to a second mortgage’ to fix issues.
Campaigners argued that such proposals would leave leaseholders in negative equity, and hit ‘those who can least afford it the hardest’ as developers, builders and freeholders of fire risk blocks ‘escape the burden’. Around 200,000 high rise flats are wrapped in combustible materials, with 1.27m modern flats – or 5% of private homes in England – potentially ‘unmortgageable for years’.
A loan of £30,000 to fix a ‘typical mix of risky cladding, missing fire stops and flammable balconies’ would add around £1,500 per year to household bills at a 3% interest rate, and an alternative proposal from the Leasehold Knowledge Partnership charity suggested the government lend funds for repairs to a special purpose vehicle, which would then ‘lend for buildings to be fixed quickly’, and utilise mechanisms including annual levies on developers and freeholders paying interest.
This would be done ‘at a rate of return comparable to gilts’, so that taxpayers would not have to fund it; Mr Buckner stating that ‘we’re saying: “Those who can pay should pay”’. However, Building Safety and Fire Minister Lord Greenhalgh told the House of Lords in December that levies ‘do not raise very much, and you have to balance that with the need to build more homes’.
Mr Wade was attempting to arrange the funding mechanism via 30 year finance deals at rates of 1% to 1.5%, with the deals entered into by buildings, via owners or responsible persons, who would ‘recoup the cost of repayments from leaseholders, and he was said to have told stakeholders that private finance ‘is the only solution as the Treasury has made a definitive statement that it will not provide a penny more in additional grants for removal’.
He added that should the proposals be adopted, ‘it would be possible to seek additional funds from future parliaments, developers or other entities to reduce the size of the loans’, and was understood to have been ‘working on an assumption that the average bill’ for leaseholders is about £20,000 each, so repayments over 30 years could be around £800 per year.
However, Mail Online has now reported that ministers are considering a £2bn levy on developers, which could raise up to £200m a year for a total of £2bn in 10 years, and ‘could mean a levy on all high rise flats and [a] separate charge on major builds’ to ‘atone for building tens of thousands of flats and homes with unsafe cladding and insulation in recent decades’.
The news outlet noted that the proposals are part of a package of measures being discussed by Chancellor Rishi Sunak and Housing Secretary Robert Jenrick to help deal with the estimated £15bn costs of repairs to buildings post Grenfell. The plans include two annual levies to ‘ease the financial burden on leaseholders’, including adapting the existing community infrastructure levy that sees developers ‘pay to improve the community in return for planning permission’.
The second meanwhile would be a ‘gateway levy’ that would see developers pay a levy on new high rise flat blocks, which would ‘meet demands by campaigners’ to ‘stop big developers shirking their responsibility’, and Mail Online pointed out that ‘significantly’ the proposals are ‘advocated’ by Lord Greenhalgh, who said levies would help developers ‘regain the public trust needed to carry on in business’.
He was also quoted as having said: ‘A generation of people have built buildings that are not fit for purpose. In recent years developers have made profits of between 20 per cent and 30 per cent. Of course they should step in and do the right thing. The solution will include a levy on the development community.’
A government source added: ‘A levy is in keeping with “the polluter pays” principle. We may not be able to hold the industry legally responsible, but we can hold it morally responsible and make it contribute to putting things right.’
Read our article 'What is cladding?' here