THE TREASURY is said to be seeing ‘intensive efforts’ to persuade it to add a ‘substantial’ amount of funding to already launched cladding remediation funding.
Mail Online reported on the ‘Cabinet tussle’ over increased funding for the cladding crisis, with ‘pressure’ said to be ‘mounting’ on Chancellor Rishi Sunak from Housing Secretary Robert Jenrick to approve a £10bn funding package for those affected. The news outlet said that ministers are ‘considering’ imposing levies on construction firms to ‘make them atone for building tens of thousands of flats and homes with unsafe cladding and insulation’.
It added that it had heard from sources of the ‘intensive efforts’ to add a ‘substantial sum’ to the developers levy, taking the fund up to £10bn, but leaseholders were concerned that the plans ‘do not go far enough and will still lumber them with huge long-term loans to pay’, which could take 30% off the value of homes.
The government is also said to be considering ‘other ways to cushion the financial blow’, including a hardship fund to provide extra help to those facing the largest bills; a cap on repayments to help those facing bills of up to £100,000; prioritising grants for those in high rise blocks ‘who are at most risk’; and a five year freeze on loan repayments until 2026 or later.
Leaseholders noted that they would ‘still be saddled with costly loans for up to 30 years to pay for a building blunder that was not their fault’, the news outlet said, with End Our Cladding Scandal spokesman Jake Ellis stating: ‘All responsible parties – regulators, manufacturers and developers – [should be] made to pay to resolve a problem they collectively created.’
While a government source said that ‘clearly a large amount of money is needed to help leaseholders’, and ‘it is right that the construction industry which has made billions in profits in recent years should pay a cladding levy spread over many years’, the treasury ‘will have to find a large sum as well’.
This added to ‘grave concerns’ expressed by MPs on the All-Party Parliamentary group for Leasehold Reform after their meeting with government adviser Michael Wade earlier this month, with co chairman Justin Madders stating that he understood ministers were ‘going ahead’ with a loan scheme that ‘puts the majority of costs on the unquestionably innocent party. The government is going to frontload it in a way that gets the work done, but ultimately saddles people with huge debts’.
In response, a government spokesman said: ‘We are considering a range of options to fund remediation work and no final decisions have been made. We will continue to work with stakeholders including leaseholders and the finance industry. Further details will be set out in due course.’
Last week, Prime Minister Boris Johnson promised that the government would provide a plan for the crisis ‘very shortly’, while Labour has brought forward a vote to today, alongside a list of proposals, to protect leaseholders from paying for fire safety works – including remediating cladding. Mr Johnson responded to a question from Labour MP Seema Malhotra, who asked whether the government would ‘come forward with a plan to fix this crisis which does not burden the leaseholders with the costs’.
In response, he said ‘of course we will, and I know [Housing Secretary Robert Jenrick] will be bringing forward a plan very shortly’, with this potentially referring to December’s reveal that Mr Wade – the government’s advisor appointed to advise on cladding issues – had been ‘working on a proposal to provide long-term finance to buildings to pay for remediation work’.
Earlier that month, this was rumoured to have been in the form of flat owners taking 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 this 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.
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. 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.
A letter sent a fortnight ago by Chancellor Rishi Sunak to cladding campaigners said that the government is ‘working at pace to develop financial solutions’, and that Mr Wade’s appointment was to ‘accelerate work with the financial sector and insurers to develop proposals to protect leaseholders from unaffordable costs’.
Earlier this month the government was said to be considering funding fire safety works on residential blocks via 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 proposals are part of the package of measures being discussed by Mr Sunak and Mr 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 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