Stealth taxes on housing are for the birds

Billions are being added to the cost of UK homes via dubious 'developer contributions'

Feeding Time at the Mere by David Dixon. CC BY-SA 2.0

During the UK’s coalition government of 2010-2015, austerity cuts meant that many jobs in officialdom considered non-essential were terminated. Former local authority employees had to get creative if they wished to keep their careers going. This article documents one such creative practice which has significant implications for the provision and cost of new housing in Britain.

The UK’s town planning system enables money for infrastructure to be collected from property developers. If a new housing estate in England or Wales includes a public park, for example, Section 106 of the Town and Country Planning Act 1990 provides a mechanism for local government to recover the cost of providing that infrastructure. In addition, some local authority areas in these two nations have introduced the ‘Community Infrastructure Levy’ enabled by Part 11 of the Planning Act 2008, which was a ‘New Labour’ initiative. (Scotland and Northern Ireland have similar developer contributions regimes).

Over time, local council officers have found new ways to use that extra money. In theory, Section 106 and Community Infrastructure Levy agreements only cover costs which are relevant to the development for which planning permission is sought. In recent years, contributions have been sought for all kinds of additional expenses, stretching the definition of ‘relevant’ to breaking point.

If you happen to live in the south London borough of Lambeth, the company that built your new flat will have been required to pay for a car hire club membership for the people that live in the building. And of course, the property developer is going to pass that cost directly on to you, whether you ride a bike to work, use the bus or don’t even have a driving licence.

The intended goal of this policy is to discourage you from having a car of your own, even if you are completely unaware of the connection between your ‘free’ membership of the car hire scheme and your rent increase. This is the consequence of ‘behavioural insights’ strategies; nudge-unit politics applied to housing supply. As the Local Government Association puts it, “Behavioural insights encourage people to make better choices for themselves and society.” You will be persuaded to change your lifestyle by the micro-management of local government, and you will be made to pay for the privilege of being manipulated. Edward Bernays would have been proud, had he lived to see this.

The property developer who refuses to pay these extra financial contributions to local government will be refused planning permission to build new homes, on the grounds that they had failed to comply with developer contributions policy. These contributions effectively form stealth taxes that the people renting or buying new properties are highly unlikely to know about. And the people who live in the new properties have no democratic input into the decision on which charges are levied, because these extra costs have already been incurred by the time they become residents.

The Supreme Court decision Wright v Resilient Energy Severndale Ltd & Forest of Dean District Council [2019] UKSC 53 re-affirmed that in the UK, planning permission is not meant to be bought or sold, and that financial inducements used to obtain permission to build are not lawful. However, because of the way that British justice works, if you don’t have the resources to mount a very specific legal challenge on a point of principle, it seems government and other authorities will carry on regardless.

You may be thinking that a few hundred pounds added to the price of a new property is a manageable amount for most people, but in practice, these extra charges are very wide-ranging and can add many thousands to the price of a new property. Consider the current Labour government’s pledge to enable the building of 1.5 million new houses during the lifetime of the current Parliament, multiplied by the thousands of pounds of additional costs levied by local councils on each new home. We see that the extra sums leveraged by the planning process quickly add up to billions of pounds; a fair chunk of change.

The additional contributions demanded include payments for ‘affordable housing’ projects, which mean people on very modest incomes subsidising the provision of housing for people who may be no worse off than themselves. A Freedom of Information request to a UK local authority to establish how much has been collected in ‘affordable housing’ contributions and how many affordable houses have actually been built with that money may prove revealing. (In the case of my small local authority area, the figures were £1.3 million in cash and zero affordable houses built, respectively).

Another commonly-sought contribution is money towards the provision of a new doctor’s surgery for the town in question. In the National Health Service system, general practitioner offices are private businesses, and so it is unclear why a new home owner should be paying for them, in addition to the National Insurance payments, income taxes and VAT they already pay. Services for children who might or might not live in the new houses are another popular demand from local planning authorities, despite the fact that the new residents will be bringing Council Tax revenue to the area, like any other person who moves there.

This fund-raising method is regressive taxation because it doesn’t fall on people who already own property, owner-occupiers and landlords buying up existing properties, or developers who convert commercial buildings into substandard flats under the UK’s ‘permitted development’ regime. Most affected are the home buyers and renters on low incomes for whom an extra £10,000 on the price of a property could make the difference between being able to afford a mortgage or rent, versus missing out on a new home.

Because new housing has to meet far more stringent building regulations than in the past, it is usually much more energy-efficient than Britain’s typical Victorian brick housing. That puts households which cannot afford a new home at a systematic disadvantage, as they will be paying far more for energy, and probably have to deal with long-term building issues such as damp, rot, draughts and leaks as well.

The additional costs being demanded from developers of entry-level housing, which the people who need it often can’t afford, mean that the market is biased towards upmarket properties even though the demand for more expensive houses is smaller and potentially more volatile. As a percentage, £10,000 of additional mitigation costs from the local authority on a £1 million house are not all that significant. On a £200,000 entry-level house, that percentage is five times greater, of course.

Quackers!

Some of these extra costs sought in mitigation payments are entirely of local government’s own making. Here’s just one example, with receipts.

It has long been a principle of Ingsoc that the proletariat should be enabled to walk across all the wild lands of Britain. The Kinder Scout mass trespass of 1932 was a landmark in the radical campaign for a ‘right to roam’ across private land in wild places. In the very same tradition, the Blair government introduced the Countryside and Rights of Way Act 2000. More recently, a plan was hatched to create a complete path around the coast of England, not that your average person going out for a bit of fresh air would want to walk all 2,700 miles of it. (England doesn’t sound like it would be that big, but the coastline has lots of crinkly bits). This presented a problem: the undeveloped coast is a haven for all kinds of wildlife, protected under international law including the Ramsar Convention on wetlands, signed in 1971.

What is a local government employee looking for a new career opportunity to do about all this? There are existing charities such as the Royal Society for the Protection of Birds which are well-equipped to carry out wildlife conservation projects on the coastal margin. The most obvious measure, which is extremely cheap to implement, is to ban people walking their dogs through coastal areas and nature reserves where birds are likely to be nesting.

Instead, local government employees based in coastal regions of England cooked up an elaborate scheme designed to guarantee them jobs for life. A stealth tax on every new property, campsite and tent which passes through the planning system in designated coastal areas has been used to create ‘in-perpetuity’ funds so that former Council employees and others could be paid salaries as bird rangers. Those rangers are meant to ‘nudge’ local residents into responsible behaviour when walking on the coast, thereby making them ‘bird aware’. The beauty of this design is that there is a great deal of coastline around England, and so many birds to watch.

Under names such as ‘Bird Aware’ and ‘Bird Wise’, a great deal of money has been collected by the initial projects set up in England. On the central south coast, the project is called ‘Bird Aware Solent’. Its annual reports show that the organisation has collected from housing and tourism developers in the following years:

2014/15: £161,166

2015/16: £407,684

2016/17: £517,665

2017/18: £816,888

2018/19: £812,178

2019/20: £715,205

2020/21: £1,494,020

2021/22: £1,306,331

2022/23: £1,725,553

2023/24: £1,213,349

That adds up to £9.2 million over the first ten years; not bad for a local bird-watching project, eh? But that’s not all. Bird Aware Solent has also obtained grant funding, including £1.3 million provided from central government in the form of a ‘Local Growth Deal’.

According to its annual reports, at the 31st March 2024, the ‘in-perpetuity fund’ for Bird Aware Solent stood at £5,620,853, with another £353,601 in reserves. In other words, 65% of the money collected so far from home and tourism construction had been put away for a rainy day.

The corresponding project on the east coast is called ‘Bird Aware Essex’, which judging by its website seems more coy about reporting its financials. Bird Aware operates somewhat like a franchise, whereby the model can be set up by any consortium of local authorities. Bird awareness nudge schemes under other names operate in at least the Thames Basin, East Kent, North Kent and Dorset areas of the UK; projects which have gone almost completely unnoticed by the general public. If very few people know about these organisations, there can be very little scrutiny of them.

Let’s note that these ‘coastal recreation mitigation schemes’, as they are known, aren’t concerned with disturbance to wildlife on the sites where new houses are actually built: that is a separate matter and costs extra, of course.

Continuous vigilance is required to spot the stealth taxes being applied to every aspect of life in the UK, including new housing. Self-interested bureaucrats can be fired from public service, but history suggests they will re-emerge in another form, given the chance. It seems government has the unique ability to turn swans into ugly ducklings.