HM Government: Department for Levelling Up, Housing and Communities – Supplementary written evidence (IER0043)
Thank you for your time and contributions at the Built Environment Committee meeting on 11th July. As promised, I would like to follow-up by providing further information for your questions on SME finance and nutrient neutrality.
You requested more details on the finance schemes the government provides for SME housebuilders. Historically, access to finance has been one of the main barriers for SMEs and tends to worsen with deteriorating economic conditions. Therefore, we have put in place several financial measures to support SMEs and encourage systematic change in the lending environment. I mentioned three government schemes, which involve partnerships with other lenders, in the committee meeting:
a) The Housing Accelerator Fund is a £250m fund involving a lending alliance between Homes England and the specialist bank United Trust Bank. Launched in early 2021, the fund provides SMEs with construction loans of £1m to £10m and offers development finance to SMEs at up to 70% Loan to Gross Development Value.
b) The Housing Growth Partnership, established by Homes England and Lloyds Bank, has involved two rounds of equity funding to provide finance and expertise to SMEs. The first £220m partnership supported around 57 SMEs to deliver about 2,500 additional homes. The second partnership, which involves a £300m commitment, launched in 2021 and has supported over 2,000 new homes so far.
c) The Housing Delivery Fund provides £1bn of loan finance to help SMEs deliver new homes. Now approaching five years since launch, it has supported over 750 new homes and fostered partnerships with Barclays that have delivered a further 1,500 homes.
We are helping SMEs through two further schemes that I was unable to mention during the meeting. Last year we launched the £1.5bn Levelling Up Home Building Fund (LUHBF), which is administered by Homes England. LUHBF provides loans to SMEs to deliver about 42,000 homes and supports innovators, such as those using modern methods of construction. In alignment with our Levelling Up agenda, most of these new homes will be outside of London and the South-East and joint ventures can be formed to support town centre renewal. LUHBF can fund partnerships with banks and other investors to leverage private capital to support more SMEs. It also helps new SMEs, who struggle to access commercial lending, to enter the housebuilding market.
Another way we are supporting SMEs is through the £1bn ENABLE Build scheme, which launched in 2019 and serves to increase the availability of finance by providing guaranteed loans to SMEs. Specifically, ENABLE Build helps facilitate bank lending to SMEs by providing portfolio level guarantees to regulated bank lenders, reducing their regulatory capital allocations and supporting their continued ability to lend into the SME developer market. In so doing, the scheme provides SMEs with access to cheaper debt. ENABLE Build has guaranteed £346m of loans which has supported the delivery of over 3,400 new homes so far.
Both you and Baroness Thornhill asked what the government is doing to support SMEs impacted by the challenges to housebuilding raised by nutrient neutrality. I agree that smaller firms may be disproportionately affected by nutrients because the fixed costs of mitigation are proportionally higher per dwelling on smaller sites and SMEs are less geographically mobile than larger firms. Therefore, we are working across government and at speed to tackle the problem by addressing the pollution at source and increasing the supply of mitigation.
In the committee meeting I mentioned that we are legislating through the Levelling Up and Regeneration Bill to secure the upgrading of wastewater treatment works in nutrient neutrality catchments, to the technically achievable limit, by 2030. This legislation will be a significant step, with the wastewater treatment upgrades leading to approximately a 75% reduction in phosphorus and around a 55% reduction in nitrogen. The upgrades will result in an up-to 96% reduction in mitigation costs for developments (including by SMEs), whilst maintaining environmental protections as pollution is being reduced at source.
The legislation will ensure that the upgrading of wastewater treatment works is completed on time as it will be a statutory duty. The upgrades will be delivered by sewerage undertakers, using investment secured through the established water industry price review process, and strong enforcement action will be taken under the Environmental Damage Regulations, where water companies do not comply with their statutory obligations. Any sewerage undertaker failing to complete upgrades on time will be liable to provide remediation for the environmental damage attributed to the failure to deliver upgrades.
We are also increasing the supply of mitigation. At Spring Budget, we announced my department’s Local Nutrient Mitigation Fund, which will provide direct grant funding to local planning authorities to deliver high quality and locally led nutrient mitigation schemes. This fund will unlock housing delivery with the money being recycled locally and invested in restoring habitats sites. The first round closed at the end of May, and we are considering expressions of interest from local authorities with a view to announcing funding decisions by the end of the summer.
To complement our Local Nutrient Mitigation Fund, my department and Defra are providing £30m of funding to the Nutrient Mitigation Scheme launched by Natural England. The scheme will deliver mitigation strategically across catchments, increasing the supply of mitigation available for developers to purchase, reducing costs (by delivering at scale) and levelling-up access to nature. The first credits from the Natural England led Nutrient Mitigation Scheme have now been sold in the Tees and Cleveland Coast catchment. Work is underway to identify suitable projects in other catchments with high housing demand including in the Broads and Wensum catchments in Norfolk this financial year. Natural England is ringfencing a significant proportion of the credits they create for SME developers. Over the coming months Natural England will grow the pipeline of mitigation projects. Landowners and other habitat providers in suitable locations will be invited to offer their land as potential sites for nutrient mitigation. Once credits have been purchased, developers may be granted planning permission by the Local Planning Authority.
I hope that I have sufficiently provided you with the further details you asked for.
July 2023