Building Safety Levy

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Closes 15 Oct 2021

Introduction

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Introduction and background

  1. On 10 February 2021, Robert Jenrick, Secretary of State for Housing, Communities and Local Government, announced a Levy on Higher-Risk Residential Buildings as part of a five-point plan to bring an end to unsafe cladding, provide reassurance to homeowners and support confidence in the housing market: 

  • The government will pay for the removal of unsafe cladding for leaseholders in all residential buildings 18 metres (7 storeys) and over in England 

  • A generous finance scheme will be established to support leaseholders in lower rise, lower risk buildings – those between 11 and 18 metres (4 to 6 storeys) – to help pay for cladding removal where it is needed and ensure leaseholders never pay more than £50 a month towards the costs 

  • An industry levy and a new tax on residential developers, to ensure developers play their part and make a fair contribution 

  • A new building safety regime to ensure a tragedy like Grenfell never happens again 

  • Providing confidence to this part of the housing market including lenders and surveyors 

  1. As part of this intervention, the Government has made an unprecedented £5.1 billion commitment to an investment in building safety grants for leaseholders in residential buildings 18 metres and over.  This helps to secure a continued market for high-rise residential buildings. 

  1. The Government considers that the housing sector should make a fair contribution to these costs. To help ensure that the industry takes collective responsibility for this, the Government is proposing a new Levy.  (“the levy”). 

  1. The powers to create and set the terms of the levy are set out in the Building Safety Bill, which was introduced to Parliament on 5 July.  Subject to the passage of the Bill through Parliament, this levy will apply to developments in England seeking building control approval from the Building Safety Regulator to start construction of certain buildings: the “Gateway 2” stage of the new building safety regime.  The charge will be in addition to fees payable to the Building Safety Regulator to cover their operating costs.  Subject to the passage of the Building Safety Bill, we expect the levy to come into force alongside the new Gateway 2 process in 2023. 

  1. This consultation seeks views on the potential design of the levy, and evidence of possible impacts on housing supply and regeneration, and the housebuilding industry. 

The Regulatory and Legislative Framework 

  1. The Building Safety Bill proposes establishing the Health and Safety Executive as the Building Safety Regulator, to underpin the key regulatory reforms in the new building safety regime.  It will provide powers to introduce a more stringent regulatory approvals framework in design and construction for new high-rise residential buildings, care homes, and hospitals which are 18 metres or more in height, or at least seven storeys (“higher-risk buildings”). This includes a new building control process and requirements for higher-risk buildings called Gateways two and three.  The Gateway points are stop/go decision points, which will provide rigorous inspection of regulatory requirements to help ensure building safety risks are considered during planning, design and construction. This may include new developments and conversions of existing buildings that result in the creation of a higher-risk building. 

  1. The Building Safety Bill and proposed draft secondary legislation define higher-risk buildings regulated under the new building control regime as buildings with at least two residential units, care homes or hospitals which are at least 18 metres in height or have at least 7 storeys.  A residential unit is defined as a dwelling or any other unit of living accommodation, for example, a room for a residential purpose where basic amenities are shared with others in the building.  

  1. Higher risk buildings applying for building control approval will be subject to the new levy, unless excluded by regulations.   

  1. The Building Safety Bill also provides the legislative powers to deliver the levy on Higher-Risk Residential Buildings (the “Higher Risk Building Levy”).  The basis for the levy and rates will be set in regulations and will apply to certain higher-risk buildings that pass-through Gateway 2 in England each year.  

  1. There are powers to exclude developments or developers from paying the levy, and to withhold regulatory approval where the levy has not been paid.    

  1. The levy will be administered and paid to the Secretary of State, or a body designated to undertake these functions.  It will be used for the purpose of meeting the government’s building safety expenditure (such as providing assistance for the purpose of removing unsafe cladding).  

  1. The Government recognises that some developers have had limited involvement in the creation of historical building safety defects requiring remediation; and that some who were, have taken independent steps to cover the costs of remediation where applicable. 

About the New Tax

The new tax on the UK Residential Property Development Sector 

  1. A new tax will be introduced for the UK residential property development sector. A consultation seeking views on the proposed tax was published on 29 April, which stated that the new tax would be introduced in 2022 and it would seek to raise at least £2 billion over a decade and apply to the largest residential property developers. This consultation is due to close on 22 July.  See details here: https://www.gov.uk/government/consultations/residential-property-developer-tax-consultation  

  1. The introduction of these measures does not imply responsibility on behalf of historical construction defects in relation to cladding, rather, it ensures that developers make a fair contribution to supporting remediation costs as part of the government’s efforts to protect leaseholders.  

  1. The Building Safety Levy and the Residential Property Developer Tax, while both securing contributions from the industry, are intended to target different (but sometimes overlapping) sections of the housing sector.  This will mean that some developers will pay both the levy on specific developments, and the tax on their profits from these developments; others will pay only the levy, or only the tax. 

  1. The tax will only apply to the largest residential property developers and aims to raise cumulative revenue of at least £2 billion over a decade. This recognises that the largest developers are operating in a market that will benefit from the substantial amount of funding the government is providing to address building safety defects. The Government has also helped support confidence and liquidity in the residential property market with its recent interventions on Stamp Duty Land Tax and the mortgage guarantee scheme. Therefore, given the government’s significant building safety expenditure, especially associated with the removal of unsafe cladding, the Government believes it is right to seek a fair contribution from the largest developers in the residential property development sector to help fund it. 

  1. The levy will target developers seeking building control approval to start construction of new higher-rise buildings, including conversions which bring an existing building into scope, such as an office to residential conversion, as determined by the new building safety regime.  This will recognise that government funding of removal of cladding helps to secure a continued market for the developments levied.   

  1. The government seeks to understand the impacts of the levy and the tax.  

This includes the cumulative impact of both on the development industry and on  housing supply and government would welcome evidence from developers who  expect to be subject to both in respect of the number and size of developments  they expect to be in scope for the levy and subject to the tax.