Peter Apps

The ‘cladding tax’ could end up being a disastrous mistake

The ‘cladding tax’ could end up being a disastrous mistake
(Photo: Getty)
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Since the first buildings with dangerous cladding were discovered in the aftermath of the Grenfell Tower fire, one question has hung continuously over all efforts to make them safe: who is going to pay?

Now, after three and a half years of stilted progress, the government appears to be on the verge of answering that question. The answer it is reaching for could prove to be the most controversial and politically damaging mistake since the building safety saga began.

The government’s current proposal began when Michael Wade, an insurance guru, was drafted by the Cabinet Office to help find a solution to the cladding problem. The idea he is reported to have thought up is as follows: loans will be provided to the companies which own the freeholds of the blocks requiring remediation. These loans will be backed by government to hold down the interest rate and will be spread over a period of at least 30 years.

But in reality it won’t be the freehold companies who repay the loans. Instead, they will be allowed to pass on the costs to the building’s leaseholders through service charges. Unless the government steps in to protect them, millions of flat dwellers around the country will suddenly find themselves paying to fix the country’s enormous building safety crisis.

This plan appears to have the support of the Treasury – which has long been terrified of the enormous cost of post-Grenfell remediation landing on the state’s balance sheet – and looks set to be announced at the Budget on March 3.

The leaseholders who are set to pick up the tab, though, are not happy. The proposal has been branded a ‘cladding tax’ and social media is alive with outraged flat owners who are furious at the prospect of being lumbered with the final bill for the institutional failure of the building industry and the government supposed to regulate it.

Plenty of leaseholders have had enough. They have endured a torrid three years as a result of the building safety crisis. Unable to obtain a mortgage and sell, they are stuck living in potential deathtraps. And on top of the threat of crippling costs for remediation, many are already footing the bill for 24-hour fire patrols and facing exorbitant demands from building insurers to maintain cover on their buildings in the interim.

As a result, many are already broke and all are out of patience. The impact of this crisis should not be understated: a survey last summer by campaigners showed that 23 per cent of those affected have considered suicide or self-harm and around 90 per cent seen their mental health deteriorate.

‘At night I toss and turn worrying, I feel my heart race with an irregular rhythm and know I have to manage my stress but how can I when I’m a prisoner of this situation 24/7 with no let up?’ one resident told Inside Housing last year.

For the government, the problem has always been the sheer size of the building safety crisis. At the outset, officials hoped they would simply be tasked with remediating a few dozen buildings with the combustible aluminium composite material (ACM) cladding used on Grenfell. But with each year that passes, a new range of serious safety defects which require fixing has been discovered: other forms of dangerous cladding and insulation, combustible balconies, missing fire breaks, internal defects, substandard fire doors and much more.

At times it feels as if almost no building constructed in the last 15 years was built properly. The final bill for fixing all this is often quoted at £15bn but could well be far higher. And holding builders to account in the courts is difficult and often impossible – there is normally a limitation period of six years to make a claim and even if that hasn’t expired many blocks were built perfectly legally, just dangerously.

So there is no easy solution. And it is understandable that the Treasury is reluctant to see this bill fall wholly on the public purse. But without the state stepping in, leaseholders are going to be ruined by these repayments.

There is real danger here for the Conservative Party. Because this solely affects flats, a disproportionate number of these leaseholders are young first-time buyers who often purchased with the help of one of the many home-ownership schemes dreamt up by ministers in recent years.

This is a cohort of the electorate the Tories – desperate to still identify as a party of home-ownership – believes it should win. These residents will not forget their treatment in a hurry. Not least because they will still be paying the bill off well into retirement.

There are other options for the government though, if it is willing to act boldly. One charity, the Leasehold Knowledge Partnership (LKP), has designed a system which would see the money provided up front by a fund which would then be recouped by raising levies against the industries which have contributed to the crisis.

The government has taken some timid steps in this direction, trailing plans for a £200m-a-year levy on property developers last week, but that is a trifling sum compared to what leaseholders could be made to pay.

There is much to recommend the LKP approach, or one like it. It ensures the polluter pays, it protects the innocent from the costs and it sends a strong message about accountability. It would also be flexible enough to adapt as we learn more about the precise reasons why we have ended up in this situation and who is to blame.

That knowledge is being slowly but steadily placed into the public domain by the Grenfell Tower Inquiry. In October this year, it will turn finally to the role successive governments played in causing the fire.

It may well be, once we have heard that evidence, that the current government's decision to force the bill on today’s young home-owners will look even worse than it does now.