The Building Safety Bill inched its way through the Committee stage of the Commons in September – October 2021 with no significant amendments, but much discussion of the fact that leaseholders are still on the hook for remedial works.
Perhaps the most important political change was that Michael Gove MP is now the secretary of state in charge.
On the evening of Friday 7 January 2021 an important letter was leaked. The importance of the letter is that it is from Simon Clarke MP, Chief Secretary to the Treasury, and it sets out an agreement on funding apparently reached between the Treasury and Mr Gove. The text is given below.
It is understood that Mr Gove will give a statement to the House of Commons imminently, and we may provide a note following that statement. In relation to funding, and the Treasury’s letter, the following important points may be noted.
- As we said in our note of 20 July 2021:
- The Building Safety Bill does not purport to fund fire safety measures for leaseholders. It gives building owners a longer limitation period in which to bring claims against contractors and professionals involved in the construction of the building.
- Building owners and leaseholders still face the real risks of litigation, including the important issues of whether developers, contractors or professionals are still solvent; and whether they have insurance which will respond to any claims.
- Equally, those facing potential claims need to consider their position if the Bill is enacted and limitation periods are extended. Do they have insurance cover? What steps should they take now to consider their position?
- Some £5bn has been set aside for the Building Safety Fund to fund costs of replacing cladding (but not other issues) on 18m+ buildings. This letter indicates that the Treasury is concerned that that is not being done quickly enough.
- On 10 February 2021 the former secretary of state, Mr Robert Jenrick MP, announced £3.5bn would be provided by way of loans for leaseholders in buildings of 11-18m. The loans would be repayable by leaseholders and would carry interest. There were real concerns about the effect of the debt on resale values of flats.
- The loan scheme is now apparently to be abandoned, and replaced by a new grant scheme for buildings of 11-18m of up to £4bn.
- The £4bn will not include any additional from the Treasury. As things stand, it must either be funded by voluntary contributions from “developers” or come from existing funding at the Department of Levelling Up, Housing and Communities. The direction from the Treasury to Mr Gove is that “You must prioritise building safety over supply”: i.e. the department must prioritise funds on remediation rather than new schemes.
- It is unclear who will be asked to make “voluntary contributions”, or on what basis. The term “developer” is inherently ambiguous. Many of the companies who developed the buildings of concern are no longer in business. Existing companies which could be described as “developers” may have little or nothing to do with problem buildings. Some developers have paid the costs of rectifying the buildings for which they are responsible – are they to pay again? Other developers may have been meticulous to avoid problems – are they to have to contribute?
- The Treasury letter speaks vaguely of a “polluter pays” principle, but says nothing about costs being paid by others who may have been responsible for historic building problems: contractors, subcontractors, professionals, building material suppliers or the government.
- The Sunday Times on 9 January 2022 and the Times on 10 January 2022 contain articles saying that Mr Gove’s department will run “Operation Apex” to seek to identify who made profits from unsafe buildings, and pursue them for contributions.
- The “stick” against which the voluntary contributions are to be sought is, apparently, “a high-level “threat” of tax or legal solutions“, but the Treasury letter makes it clear that whether any tax would ever be imposed would be a matter for the Treasury. The “legal solutions” are unstated but might, one suppose, include new measures in the Building Safety Bill. Conservative MP Stephen McPartland, was reported on 10 January 2022 as having told London Playbook:
“I am delighted the government has listened and this is a huge victory for leaseholders, but we need to listen carefully to the announcement in parliament. It is imperative that leaseholders are protected in law and I expect to see government amendments to the Building Safety Bill making it clear that leaseholders are protected from these costs. Cladding is an external fire safety defect, so I also need clarification that internal defects which developers are responsible for, such as missing firebreaks, will also be remediated at no cost to leaseholders…”
- The Treasury is highly concerned that remediating costs are “disproportionate”. They are certainly very high. Quite what can be done about that in times of inflation and labour supply constraints remains to be seen.
Lots to think about but, as ever, solutions remain unclear.
Authors: Rachel Ansell QC and James Leabeater QC
Text of letter
5 January 2022
DLUHC SOS BUILDING SAFETY PROPOSALS
Thank you for your letter from December seeking clearance to make a statement resetting
the Government’s approach to building safety ahead of Commons Report Stage of the
Building Safety Bill.
I am content to provide approval to this, subject to Treasury clearance of the final draft statement. This package broadly reflects discussions with my Department over recent weeks and I thank you, your officials and No10 colleagues for their constructive engagement.
My approval, which I have discussed with the Chancellor, is on the basis that:
- You have committed to restoring proportionality to the system. This is critical to the success of any package. I am pleased to see your plans for engagement with key stakeholders including RICS and major lenders – it is very important that these groups are able to participate in a new, proportionate approach that directly and rapidly addresses the barriers they note are currently holding back greater proportionality, primarily a lack of clarity over the safety of individual buildings. My officials should be kept regularly updated on the progress of this work.
- You are replacing the 11-18m finance scheme agreed in February with a limited grant scheme which you have separately said you will seek to reduce the costs of. The maximum, whole-life cost, based on the modelling your Department has conducted which you have confirmed, must be £4bn. Your department should discuss design choices with my officials – and the business case will be subject to Treasury approval in the usual ways.
- You may use a high-level “threat” of tax or legal solutions in discussions with developers as a means to obtaining voluntary contributions from them. Whether or not to impose or raise taxes remains a decision for me and is not a given at this point.
- I am pleased to see that you acknowledge the principle that the taxpayer should not be on the hook for further costs of remediation. To reiterate, my approval of this new package for 11-18m buildings is therefore conditional on no further Exchequer funding.
- You have confirmed separately that DLUHC budgets are a backstop for funding these proposals (in full i.e. the £4bn if required), should sufficient funds not be raised from industry. You must prioritise building safety over supply. This should not just be for a future SR, but be reflected in spending and delivery choices now, to ensure there is room to pay for this later if needed. I expect your officials to work with mine to underscore the detail of these trade-offs over the course of January 2022.
- Lenders and insurers are not included in the ‘polluter pays’ piece – and no contributions should be sought from them.
- This package covers cladding only and does not extend to non-cladding.
- Your department accelerates delivery of the Building Safety Fund, given this is for the highest risk, 18m+ buildings. As accelerated delivery of the BSF is a priority, I expect your officials to work with mind to develop credible proposals for absorbing the costs of the 11-18m scheme from your wider capital budgets.
I am copying this letter to the Prime Minister and Chair of the PBL Committee.
Rt Hon Simon Clarke MP
- Letter from Simon Clarke MP 5 January
- View document