Cladding Remediation—Follow-up Contents

3Who pays for remediation?

Limitations of funding for remediation

11.We welcome any new funding that helps to ensure that costs for remediation are not passed onto leaseholders. The additional £3.5 billion announced by the Secretary of State towards non-ACM cladding remediation for high-rise residential buildings above 18m, on top of £1.6 billion already committed (£1 billion for non-ACM cladding and £600 million for ACM cladding), is significant.16 However, the funding does not go far enough. In our June 2020 report, we estimated that the full cost of all fire safety remediation works could be up to £15 billon.17 While our witnesses also welcomed the extra funding, they again told us current funding is insufficient.18 We are concerned, additionally, about perceived and real restrictions to this fund, arising from interpretations of the contract, as well as fundamental issues concerning who can access the fund and what it can be used for.

Consideration of risk

12.Costs that are eligible for the £5.1 billion Building Safety Fund only cover remediation works that are (i) related to cladding and (ii) in buildings 18m and above, on the basis that these pose the greatest threat to safety.19 Once again, we heard calls to take a more holistic approach to risk, taking account not just of the height of the building and the type of cladding, but also the amount of cladding, who lives in the building and their ability to evacuate quickly, whether there are fire sprinklers, and new developments in understanding unsafe materials.20 As Kate Henderson put it:

… you could consider a building that is 17 metres high but has a lot of ACM on it as higher risk than a building that is 20 metres high but has a small amount of another material. The way the current system is working … means that we are only able to supply remediation to buildings where you can access that support, rather than buildings that are really the highest risk.21

13.We are grateful to the Minister for writing to us to clarify the eligible costs under the Building Safety Fund, which include all works directly related to the removal and replacement of unsafe non-ACM cladding systems in buildings 18m and above, including the replacement of insulation that is part of the cladding system.22 In his oral evidence, the Minister gave other examples of works that are covered by the fund, as outlined in the funding prospectus, such as remediation of fire cavity barriers and balconies that are integral to the cladding system.23

Non-cladding fire safety defects

14.We are concerned about the lack of financial support for the remediation of fire safety defects not directly related to cladding, which we heard could be as costly as cladding remediation. The situation of Dr Will Martin, co-founder of UK Cladding Action Group, is illustrative:

We have ACM, which has been funded, but the remaining estimated £6.2 million of work is not covered by the funds. In 12 months’ time, when the scaffolding is down and the ACM has been removed, the building will remain unsafe and still be unsellable. It will remain like that without intervention, because the leaseholders do not have the money.24

15.In our June 2020 report, we argued that “funding will need to be increased to address all safety defects in every high-rise or high-risk building”.25 Since then, we received estimates from ARMA that indicate that the costs of non-cladding remediation are broadly equal to the costs of cladding remediation, at £25,671 for each flat in blocks 18m and above, and £38,184 for each flat in blocks below 18m (compared with £25,511 and £40,240 for cladding costs respectively).26

16.Our witnesses were also concerned about leaseholders finding themselves in a situation where expensive non-cladding remediation work needs to be in place before funding for cladding remediation can be accessed, effectively making them hostage to the situation.27 We are grateful to the Minister for writing to clarify the clause in the Building Safety Fund contract that caused confusion:

The requirement is simply that we must ensure that remediation of the unsafe cladding systems is not delayed by funding shortfalls for any additional works the applicant may elect to take forward at the same time as the cladding remediation works, and which are not eligible for funding. There is no blanket requirement for an agreement to fund all other works, and certainly no requirement for applicants to undertake other works at the same time as the cladding works. To be clear, if the applicant wished to take forward such works at a different time (and as separate projects), this would not affect the payment of funding for cladding remediation.28

Access to funds by social housing providers

17.Once again, we heard concerns from our witnesses about excluding providers of social housing from the recently increased Building Safety Fund except in specific circumstances. In our report in June 2020, we recommended that “[t]he Government must ensure that social housing providers have full and equal access to the Building Safety Fund”.29 In response, the Government outlined the conditions whereby social landlords can apply to the fund—where costs would otherwise be passed onto leaseholders and where costs threaten the financial viability of the provider—and stated Government’s “confidence in local authorities’ and housing associations’ ability to carry out and finance remediation work”.30 It strikes us that these conditions are a reversal of the Government’s original policy. When the Government introduced its first £400 million towards the remediation of ACM cladding in May 2018, the fund was exclusively for councils and housing associations.31 Now it is the case that “housing associations and councils cannot access funding for remedial works in properties where tenants live”.32 While we were told that social renters would not face rent or service charge increases to meet these costs, since rents and services charges for social renters are regulated, we are troubled by the principle that on the one hand, the monies social tenants pay in rent could be used towards remediation costs, but that on the other, the Building Safety Fund provides a safety net for leaseholders of social homes.33 It is unfair for one neighbour, who is a leaseholder, to have their cladding remediation costs met by the Building Safety Fund, while another, who is a tenant, contributes through their rent payments.

18.We welcome the additional £3.5 billion funding towards cladding remediation for buildings 18m and above in height, which is a significant increase on the £1.6 billion already committed. However, we are concerned about perceived and real restrictions to the Building Safety Fund which affect residents’ safety, and the approach to allocating funds. In addition, significantly more money is needed; as we concluded in our June 2020 report, the costs of all fire safety remediations could be up to £15 billion.

19.The Government should establish a Comprehensive Building Safety Fund for full remediation works of affected buildings. In allocating funds from the Comprehensive Building Safety Fund, the Government should move away from the current height- and product-based approach and should instead take a holistic, risk- and evidence-based approach that prioritises occupants who are most at risk. To support that approach, the Government should consider establishing a more formal process for identifying and prioritising risk holistically and report back to the Committee on the best way to achieve this, along with the evidence.

20.A building that is half-safe is a building that is unsafe. Leaseholders are no more responsible for non-cladding fire safety defects than they are for the presence of combustible cladding on their homes. The costs of non-cladding related remediation could be just as high as the costs of cladding remediation. Leaseholders should not be expected to pay for these any more than they should be expected to pay for cladding remediation. We call for a Comprehensive Building Safety Fund that:

21.The Comprehensive Building Safety Fund should be fully funded by Government and industry, and the Government should establish clear principles regarding how the costs should be split between the two. Total contributions should not be capped, given that, as we have already highlighted, the full scale of remediation needed is not yet fully known. We consider industry contributions further later in this chapter.

22.Social housing providers should have full and equal access to government funds for remediation, whether through the existing Building Safety Fund or our proposed Comprehensive Building Safety Fund. Our proposed Comprehensive Building Safety Fund would cover all necessary remediation, including relating to non-cladding fire safety defects, but if the Government does not accept this recommendation and continues to fund only cladding-related works, it should:

Loan scheme for leaseholders in buildings 11–18m high

23.It has consistently been this Committee’s position that leaseholders should not have to contribute towards any of the costs for a problem they played no part in creating. Indeed, it is a position the Government has articulated on numerous occasions.34 In our pre-legislative scrutiny of the Building Safety Bill we expressed our deep concerns about the Government’s apparent shift in rhetoric, away from protecting leaseholders from the costs of remediation, towards protecting them only from unaffordable costs. We recommended that the Government “recommit to the principle that leaseholders should not pay anything towards the cost of remediating historical building safety defects”.35

24.In the Secretary of State’s announcement on 10 February 2021, we learnt that the Government had not accepted our recommendation and intends to make certain leaseholders pay. We also learnt what the Government considers to be an affordable cost. Specifically, the Government intends to make leaseholders of buildings between 11m and 18m high contribute towards the costs of cladding remediation through a loan scheme, paying up to £50 a month. The length of the loan has not been specified as anything other than “long-term”. It is concerning, and surprising, that the Government considers that paying £600 a year over a long-term and undefined period for a problem you did nothing to cause is an affordable cost. As Dr Will Martin told us: “Living in a low-rise building does not mean you are richer”.36

25.We were disappointed, and concerned, to have received very little information about the operation of the loan scheme in our evidence from the Government. The Minister informed us that the policy is a work in progress and that Government officials are still working out the detail.37 Richard Goodman pointed out that the loan scheme was received positively by some lenders for bringing some certainty back into the market.38 We struggle to see how a policy that has had none of the detail worked out provides certainty. There remain questions about how long the loan scheme will be for, on what basis a £50 monthly cap was determined to be ‘affordable’, how the actual amount the leaseholder pays will be calculated, what happens if someone defaults, or cannot or will not pay, what the total cost of the taxpayer subsidy will be, and, as we have already seen, what the total extent and cost of cladding remediation for buildings between 11m and 18m actually is.39 We received no answer to the question of whether an impact assessment had been carried out on the loan scheme.40 We heard of potential negative impacts on house prices and the borrowing capacity of housing associations.41

26.Of particular concern is also the question of to whom the loan is made: the building, the freeholder, or the leaseholder? We heard that it is very difficult to make a loan to a legal entity corresponding to a building, but that lending to freeholders is also problematic, since freeholders cannot take out a separate loan if they have a charge on their interest in the building.42 The Minister made clear in oral evidence that the loan would be at the building level and that work was ongoing to “ensure that the loan attaches on a per-building basis and to a leasehold, rather than to a leaseholder, for instance, through the service charge regime as a potential mechanism”.43

27.We heard in oral evidence that the loan scheme is not the Government’s only option. The Leasehold Knowledge Partnership told us that they have proposed a special purpose vehicle as an alternative to raise funds for fire safety remediation.44

28.It is disappointing that the Government’s proposed loan scheme, whereby leaseholders contribute up to £50 a month to pay for cladding remediation works on buildings between 11m and 18m high, does not satisfy the previously agreed principle that leaseholders should not pay. Leaseholders of buildings below 18m are no more responsible for fire safety defects, and no more able to pay, than leaseholders of buildings above 18m. The Government appears to be prioritising certainty for lenders above fairness for leaseholders. We are particularly worried by how little detail about the loan scheme has been established.

29.The Government should abolish the loan scheme. We reiterate our call on the Government to re-establish the principle that leaseholders should not pay anything towards the cost of remediating historical building safety defects. Instead, as we have stated, costs should be fully met by the Comprehensive Building Safety Fund, to be funded by Government and industry.

Proposed developers levy and tax

30.The Secretary of State announced on 10 February 2021 a new gateway 2 developer levy and a new tax for the UK residential property development sector.45 The former applies to developers seeking permission to build certain new high-rises and has no numbers attached to it; the latter is projected to raise £2 billion over ten years but no details on the tax itself have been provided. In oral evidence, the Minister confirmed that the developer tax will be on profits (as opposed to a levy in order to build) and that the Treasury and MHCLG are still working on the detail.46 The Minister additionally confirmed that monies raised from the developer levy will be supplementary to the £2 billion raised from the developer tax. Concerningly, he initially appeared to confirm that this £2 billion could be offset against the £5.1 billion provided by the taxpayer, saying: “[o]f course, [the tax and levy] will go towards the taxpayer commitment that is now in excess of £5 billion”; upon later questioning the Minister said the details are yet to be finalised.47

31.We have previously estimated that the full cost of remediating fire safety defects in every high-rise or high-risk residential building could be up to £15 billion.48 As it currently stands, the Government has committed £5.1 billion, composed of £2 billion raised through a new developer tax and the remaining £3.1 billion picked up by the taxpayer. Our concern is what proportion of the remaining £10 billion leaseholders may end up paying: it should be none, and to ensure this is the case the Government needs a clear plan to ensure that those who are responsible for fire safety defects make a substantial contribution. The Government has not indicated the amount that it expects to raise from the new developer levy. Our witnesses were concerned that developers could pass on the costs of the levy to housing associations and house buyers, the former of which could squeeze out affordable housing contributions and the latter of which is another version of making leaseholders pay.49 Some developers have, laudably, committed millions to remediation—for example £125 million by Taylor Wimpey and £75 million by Persimmon—but we heard that compared to their pre-tax profits, it is reasonable to ask developers to contribute more.50 While we heard some sympathy for the argument that the goal posts had changed and for the fact that not all developers are responsible for the fire safety defects at issue, we also heard of shoddy workmanship, corruption, falsified data, and gaming product-testing by some in the industry.51 The Minister hinted at an opportunity to raise further funds via contributions from product manufacturers, which we would welcome.52

32.The Committee welcomes the introduction of a new developer levy and tax to ensure that developers contribute towards the costs of remediation. We recognise and welcome the fact that some developers have already committed millions towards remediation funds. We also recognise the need to encourage the building of new homes, and that not all members of the construction industry are responsible for fire safety defects. Notwithstanding, we consider that developers can and should be expected to make a greater contribution to the costs of remediation. The developer levy and tax should be extended and should serve as an additional contribution to the Comprehensive Building Safety Fund, in line with principles to be set out by the Government, as we have recommended, about how the full funds for remediation should be split between industry and Government. The Government should also consult with all relevant stakeholders to design the gateway 2 developer levy in such a way so that costs are not passed onto house buyers, including housing associations.

33.We also ask the Government to consider how others, including product manufacturers and suppliers, can contribute to the costs of fire safety remediation, in line with principles set out by the Government about the proportion of costs to be met by industry.

Support for leaseholders with high interim costs

Waking Watches

34.Tens of thousands of leaseholders have been forced to pay for interim safety measures while they wait for their buildings to be made safe. The most common of these are 24-hour waking watch patrols. We recommended that the Government should include the costs for interim fire safety measures in the Building Safety Fund for the remediation of affected buildings.53 We were pleased to see the Government announce a £30 million waking watch relief fund in December 2020, towards the costs of installing alarm systems in buildings above 17.7m high that have unsafe cladding and where the costs of waking watches are being passed onto leaseholders.54 Social sector buildings are eligible for the fund only where the Registered Provider can evidence that waking watch costs have been passed onto leaseholders and that the costs of installing an alarm would also fall on leaseholders.

35.Our witnesses welcomed the waking watch relief fund, which they saw as the first indication that the Government recognised the interim costs being faced by leaseholders.55 However, they argued that it did not go far enough, pointing out that the VAT alone from waking watches has brought in over £30 million since the Grenfell fire.56 The Minister himself recognised that £30 million does not cover the costs of installing alarms in all affected buildings.57 The fund will support between 300 and 460 buildings,58 but in London alone there are 590 buildings with a waking watch.59 Our witnesses pointed out that buildings under 17.7m with waking watches are excluded.60 Data from ARMA suggest that the cost of waking watches is £213,000 per year, per block.61 Dr Nigel Glen described waking watch as “a leech that has been sucking the blood out of leaseholders for a long time”. He pointed to its long-term effects in the private sector, insofar as reserve funds have been diverted away from building maintenance to pay for waking watches; this was echoed by Kate Henderson regarding the social housing sector.62 Dr Will Martin pointed out that even where alarms have replaced waking watches, National Fire Chiefs Council’s guidance still requires evacuation marshals on site, representing a further cost to leaseholders.63

36.We welcome the introduction of the waking watch relief fund, which shows the Government recognises that intervention is needed to support leaseholders with interim fire safety costs. However, the scheme does not go far enough. It does not cover the costs of installing alarms in all affected buildings, and there can still be ongoing costs for leaseholders who do have alarms installed. Funding should be extended—either through the relief fund or through the Comprehensive Building Safety Fund—to cover all interim fire safety costs in all high-risk buildings (as defined by our recommended risk-based approach), including those below 17.7m.

Buildings insurance

37.Last year we warned the Government about soaring building insurance costs for residents, recommending that the Government should make sure that residents have access to reasonably priced buildings insurance in the period until their buildings are remediated.64 We also recommended that the Government should act as the insurer of last resort for buildings unable to obtain insurance, and underwrite a percentage of the insurance on any affected higher-rise and high-risk buildings where premiums have increased by more than 50% in the last two years.65 In response, the Government indicated that it is engaging with the insurance industry and would address insurance issues related to building safety through the draft Building Safety Bill.66

38.Our witnesses asserted that the issue of affordable building insurance had not been addressed through the draft Building Safety Bill.67 Statistics provided to the Committee by ARMA indicate that on average, insurance premiums quadrupled in the past year.68 The Leasehold Knowledge Partnership have assessed that insurance premiums have risen six-fold.69 One in ten of ARMA’s cases were rises of over 1,000%—with one case of 1,840%.70 Lord Porter of Spalding CBE, Fire and Building Safety Spokesman for the Local Government Association, gave us his personal view that “[t]he Government have no choice; they must levy a windfall tax on the insurance industry. The insurance industry is profiteering the same as the money lenders are from the whole thing”.71

39.The Minister recognised that the building insurance issue was of “considerable concern”, stating that “the number of claims made for fires in high-rise buildings has been reducing quite a bit, so it is surprising to see sometimes what is up to a 1,000% increase against a background where the volumes are going down”.72 He acknowledged, too, that in some cases buildings are “completely without insurance”.73 To address the issue, the Minister informed us, the British Insurance Brokers’ Association is exploring a market-based intervention. In addition, the Minister is holding roundtables with insurance and cladding groups and “making the moral arguments” to incentivise the market to reduce premiums. Finally, the Minister indicated that the Government is prepared, failing the first two interventions, to step in as a last resort.74

40.We are concerned by the lack of progress on keeping residents’ building insurance costs reasonable during the period when their buildings are being remediated. The Government has been engaging with the insurance industry for months, and all the while leaseholders are seeing their premiums skyrocket—yet another cost they are facing for a problem not of their making—or worse, living in uninsured buildings. The time has come for the Government to consider setting a deadline for the insurance industry to act. If that deadline is not met, the Government should intervene to require industry to resolve the problem of eye-watering building insurance premiums.

16 For further detail on funding for cladding remediation, see: Leasehold high-rise blocks: who pays for fire safety work?, Commons Briefing Paper CBP8244, House of Commons Library, February 2021

17 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 35

24 Q2

25 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 35

29 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 25

34 HCLG Committee, Fifth Report of Session 2019–2021, Pre-legislative scrutiny of the Building Safety Bill, HC 466, paras 24–25

35 HCLG Committee, Fifth Report of Session 2019–2021, Pre-legislative scrutiny of the Building Safety Bill, HC 466, paras 26–32

36 Q6

44 Q7

45 HC Deb, 10 February 2021, col 330 [Commons Chamber]

48 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 35

53 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 74

54 MHCLG, ‘Waking Watch Relief Fund’, accessed 15 April 2021

59 London Assembly, ‘’Waking Watches’ costing Londoners £16,000 an hour’, 12 February 2021

64 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 79

65 HCLG Committee, Second Report of Session 2019–2021, Cladding: progress of remediation, HC 172, para 80

Published: 29 April 2021 Site information    Accessibility statement