Housing secretary Robert Jenrick today announced a ‘Gateway 2’ developer levy on developers seeking permission to develop certain high-rise buildings in England.
In addition, a new tax will be introduced for the UK residential property development sector. This is expected to raise at least £2bn over a decade (or £200m a year) to help pay for cladding remediation costs. Details of the levy will be the subject of a consultation paper in due course.
The housing secretary told the House of Commons that the government will fully fund the cost of replacing unsafe cladding for all leaseholders in residential buildings over 18 metres in height (six storeys plus) in England.
He has added an additional £3.5bn to the £1.5bn already allocated to government support for cladding removal.
Lower-rise buildings, with a lower risk to safety, will gain new protection from the costs of cladding removal with a scheme offered to buildings between 11 and 18 metres. This will pay for cladding removal - where it is needed – through a long-term, low interest, government-backed financing arrangement. Leaseholders are promised that they will not have to pay more than £50 a month towards their cladding removal.
The government is working with industry to reduce the need for EWS1 forms (External Wall Fire Review), preventing leaseholders from facing delays and allowing hundreds of thousands of homes to be sold, bought, or re-mortgaged once again.
Hundreds of thousands of homeowners in high rise buildings have had their property blighted by the revelation their tower blocks have been wrapped in flammable cladding systems. The issue came to light after the 2017 Grenfell Tower fire in London, which caused the deaths of 71 residents. Affected leaseholders are largely unable to afford the sort of costs that freeholders have been trying to extract from them; many had been left facing bankruptcy simply due to a construction industry evidently incapable of telling apart safe building systems from lethal ones.
Housing secretary Robert Jenrick said: “This is a comprehensive plan to remove unsafe cladding, support leaseholders, restore confidence to this part of the housing market and ensure this situation never arises again. Our unprecedented intervention means the hundreds of thousands of leaseholders who live in higher-rise buildings will now pay nothing towards the cost of removing unsafe cladding.
“Remedying the failures of building safety cannot just be a responsibility for taxpayers. That is why we will also be introducing a levy and tax on developers to contribute to righting the wrongs of the past.
“These measures will provide certainty to residents and lenders, boosting the housing market, reinstating the value of properties and getting buying and selling homes back on track. We are working with lenders and surveyors to make this happen.
“Our landmark intervention will make homes safer and free those who did the right thing – saving for years to get on the property ladder – to enjoy the homes in which they have invested so much.”
He said that the government was aware that securing appropriate professional indemnity insurance to cover the completion of EWS1 forms was a major barrier to qualified professionals undertaking EWS1 forms. He said that the government was “committed to work towards” a state-backed indemnity scheme for qualified professionals unable to obtain professional indemnity insurance for the completion of EWS1 forms.
He said that the government would work with industry to design an appropriate scheme.
Andrew Southern, chairman of property developer Southern Grove, was scornful. He said: “Taxing developers, most of whom weren’t responsible for the cladding crisis, is just laughable. Why should a company that has never installed dangerous cladding, and perhaps never built high rise blocks in the past, be tarred with the same brush and penalised when they’re no more responsible for this scandal than those in other sectors building cars, running our hospitals and educating our children.
“This sort of regressive tax will only stagnate housebuilding, which is the exact opposite of what the UK needs. By applying it only to the largest developers building the tallest buildings, it will also disincentivise creation of housing in the high density areas that are badly in need of new stock.”
Others were more moderate in their views but similarly concerned.
Katherine Metcalfe, legal director at law firm Pinsent Masons, said: “The government has been under considerable pressure to alleviate the burden on homeowners but the £3.5 bn of funding announced today is unlikely to be sufficient to meet the cost of remediating all buildings with unsafe cladding. The [House of Commons backbench] housing, communities & local government committee has estimated the cost to be almost £15bn. The devil will be in the detail. The current building safety fund application process is complex, costly and time consuming and presents real hurdles for building owners who urgently want to improve safety for residents. A new tax on developers may discourage investment in new schemes, and result in higher rents or prices for homes within them. Clarification on when and where EWS1 forms are needed will be extremely welcome by homeowners, developers and lenders alike.”
Jonathan O’Neill, managing director of the Fire Protection Association (FPA) said that support should be available for leaseholders of all affected buildings – regardless of their height.
He said: “It has now been more than three and a half years since the issue of combustible cladding surfaced as an issue for leaseholders. Whether the problems arose due to ambiguous and confusing legislation, a broken regulatory system, ignorance or incompetence in the construction sector, or suppliers of building products gaming the system; what is abundantly clear is that it was no fault of the leaseholders who continue to face uncertainty despite today’s announcement.
“The government must act now and support all leaseholders, in all affected buildings regardless of their height, with grants to bring this debacle to a close. It should then be on the government to pursue those responsible through the courts to ensure the money is fully repaid. This has been going on for too long, it is completely unacceptable that we continue to have people living in buildings which are fundamentally unsafe and leaseholders facing financial ruin for believing that we had a regulatory system that was fit for purpose and robust. The FPA has made repeated requests for the government to ban the use of combustible materials on all high-risk buildings; this situation is clearly of its own making and they must act now to bring this debacle to a close.”
Nicola Kravitz, partner at law firm Memery Crystal, said: “The cladding scandal has caused severe hardship and stress to homeowners. We have had queries on this issue every day for the last 9 months and seen many transactions not proceed. It’s not just slowing down the property market, but it is causing real fear and worry in residents. People should feel safe at home, and we need real action to make sure residents across the country can feel truly ‘at home’, not in a state of worry.
“We welcome the news today that the government is pledging an extra £3.5bn to remove unsafe cladding from high-rise buildings over 18 metres at no cost to homeowners, and that low interest loans will be available for residents of buildings under 18 metres to cover the costs of recladding but await further details to see if these proposals go far enough and the proposed timescales to roll out these measures.”
Peter Johnson, chairman of cladding supplier Vivalda Group, said: “While I broadly welcome this as a step in the right direction, this figure still falls a long way short of the £15bn fund that the select committee recommended to fix unsafe cladding on all high-rise buildings. Nevertheless, there remain challenges to implement such a plan. Right now, the cladding sector is pretty much working at full capacity – in terms of the skilled workforce available to fix cladding safely onto buildings. Installing cladding is a skilled job and without a significant increase in trained, qualified people, I can’t see how the industry can deliver such a huge project at scale.
“I understand various training schemes have been discussed and may well be in process, using tried and tested organisations such as the CITB and NFRC. However, it appears they have been put on hold due to lockdown. I urge the government to re-engage these training organisations and construction bodies as soon a safely possible to get these training schemes up and running with great urgency.
“Clearly, it is only right and proper for the government to be putting adequate funds in place to fix this national disgrace, but it should also be focusing on the barriers to delivery, such as skills shortages. Lack of available skilled labour could be the Achilles heel of the remediation work.”
Can developers afford the tax?
The new tax on the UK residential property development sector is expected to raise £2bn over a decade (or £200m a year).
According to data collated by The Construction Index, the top 20 UK housing developers made collective pre-tax profits of £4.6bn in 2019. For the year before, they made even more: £5.8bn. They have benefited hugely, of course, from the tax-payer funded Help-to-Buy scheme.
So even if the tax burden fell exclusively on the top 20 (which it won't), and they are expected to stump up £200m a year from their circa £5bn pre-tax profits a year, that represents a 4% annual levy on their profits.
|Company||Turnover (£m)||Pre-tax profit (£m)||Margin (%)||Year ending|
|Berkeley Group Holdings||1,920.4||503.7||26.2||30/04/20|
|Vistry Group (1)||1,130.8||118.2||10.5||31/12/19|
|Bloor Homes Ltd||1,129.3||173.2||15.3||30/06/19|
|Miller Homes Holdings||841.4||122.1||14.5||31/12/19|
|Linden Homes (2)||820.0||19.6||2.4||30/06/19|
|McCarthy & Stone||725.0||43.4||6.0||31/10/19|
|Avant Homes Group||483.4||16.6||3.4||03/05/19|
|Telford Homes (3)||134.3||-1.3||N/A||31/12/19|
|(1) Bovis Homes changed its name to Vistry Group following the acquisition of Linden Homes from Galliford Try on 3rd January 2020. The figures here are for the former Bovis Homes Group for the year ending 31st December 2019|
|(2) Linden Homes is now part of Vistry Group. These figures relate to the 12 months prior to the acquisition.|
|(3) Telford Homes' figures are for the nine months to 31st December 2019.|