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Nick Raynsford questions Conservative Party policy over incentivising councils to grant more planning permission for housing. Housing has enjoyed a much higher political profile in recent years, and is likely to be a significant issue in the coming general election. One of the key dividing lines between the Conservative and Labour Parties will be how best to ensure that sufficient homes are built to meet the country's needs. Grant Shapps, MP, Conservative housing spokesman, is clearly sensitive to the criticism that dismantling the current regional planning system will lead to a reduction in the supply of new homes, which all serious commentators agree is currently well below the necessary level. So, to counter the criticism that localising planning decisions is likely to play into the hands of ‘Nimbys' (Not in my back yard) and reduce even further the number of new homes being built, he has announced an incentive to encourage local councils to give planning consent for new homes. The incentive which he says would be introduced by a Conservative Government would involve the Government matching for a period of six years the increase in council tax generated by planning permission for new homes, pound for pound, with an additional 25% uplift for social housing. On the surface, this may sound an attractive financial incentive to local authorities. But as with all issues of local government finance, the devil is in the detail, and the more one examines this proposition, the more questions need answering. First is the relationship between the grant of planning permission and the construction of new homes. Often, permissions remain outstanding for several years before the homes get built. In my Greenwich and Woolwich constituency, which encourages new home-building, outline consent for 10,000 homes on the Greenwich Peninsula granted in 2003 has still not produced a single completed home. This is perhaps an extreme example, but even where house-builders proceed to a more urgent timetable, there is inevitably a substantial time-lapse between the grant of planning permission and the receipt of council tax revenue. Given other uncertainties, including changes to local government finance rules, this must make it harder to predict with any certainty the timing and amount of the financial benefits which any authority might expect to receive. Even more significant is the issue of whether the government grant would be calculated on a net or gross basis. There are two separate dimensions to this. Would it apply to every new home built, or just to the next addition to the housing stock? This is obviously of vital importance in regeneration areas, where existing unsatisfactory homes have to be demolished. In such areas, it may take many years before any net increase in the stock is seen. This, again, must diminish the incentive effect. And would the grant – as Mr Shapps implies – match the increased gross council tax yield for each new house approved and built? If so, it could prove a very expensive pledge. Even on the most cautious assumptions, implying no increase in output of new homes – and remember, this is supposed to incentivise new building, no increase in council tax, and the scheme only operating for three years, it would be likely to cost the Treasury more than £2.3bn. From all the other statements of Conservative spokesmen, I see no evidence of a willingness to authorise additional spending on such a scale, particularly if this had no effect in terms of increasing housing output. If it did achieve an increase in output, the cost would, of course, be even greater. Indeed, if it was matched to gross council tax yields, there would be a perverse incentive to increase council tax to generate more grant – hardly a proposition likely to appeal to an administration of whatever political persuasion seeking to keep council tax demands down. So it seems inevitable that any such grant would be based on net council tax yield, after taking account of other local government revenue sources, including revenue support grant. This would, however, almost certainly destroy any lingering incentive effect. As we saw with LABGI, the business growth incentive scheme, complex formulae produce unpredictable outcomes, and even more unpredictable distributional effects between different councils and areas. Detailed answers are needed as to how the incentive scheme might operate in practice. And in the absence of clear answers and illustrative figures, we will have to conclude that Mr Shapps' proposals are no more than warm words devised by public relations advisers to cover a black hole in Conservative Party policy. Nick Raynsford is former local government minister

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A policy built on warm words

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