Drawing the line somewhere

Section 6 of the Deloitte September 2013 report Department for Transport HS2 Property Bond Option bears the title Features of a property bond scheme. Paragraphs 6.13 to 6.27 of this section discuss the setting of boundaries for a property bond scheme. The conclusion reached by Deloitte is summarised in paragraph 6.24:

“We have concluded that a boundary 120m either side of the railway (in rural areas only), together with any safeguarded land that might be outside of this corridor, is the appropriate boundary of our proposed bond scheme (i.e. the same as the safeguarded area and the voluntary purchase zone). We have split this area into the “inner bond area” (the safeguarded area) and the “outer bond area” (the Rural purchase Zone).”

In view of these proposed collocations with the zones already defined by the Department for Transport (DfT) the Deloitte report makes a further suggestion (in paragraph 1.10):

“… the DfT may consider that the proposed bond scheme is sufficiently credible for the DfT to propose it as a mutually exclusive alternative to the Voluntary Purchase Scheme in the forthcoming consultation.”

Conversely, the report makes no recommendation that the proposed bond scheme might replace the advance purchase scheme and fails to comment on how the two schemes would function alongside each other.

It is also relevant to note that Deloitte estimates (in paragraph 6.25 of the report) that a boundary drawn 120 metres from the track centreline would encompass about 1,200 properties, and that extending this to 300 metres would increase this to some 2,500 properties.

If the 120 metre boundary suggested in the Deloitte report is adopted, then the two competing schemes, that is the voluntary purchase scheme and the property bond scheme, would apply to the same population of properties within the rural support zone (RSZ). If the voluntary purchase scheme is adopted, then a property owner in the RSZ will be able to request that the Government purchase his property and, providing that he satisfies the eligibility test, then no further conditions would apply and the Government would purchase the property forthwith. Under the property bond scheme the same owner would have to market the property unsuccessfully for six months before the Government would purchase. In both cases the price paid by the Government should be broadly the same, as it will be based upon an independent professional assessment.

Whilst there is a theoretical, but unlikely, chance that the property owner may be able to achieve a higher price than the Government compensation figure by marketing his property for six months, it is clear that the voluntary purchase scheme would have the major advantage to the blighted property owner of a quicker sale. The Government, however, might see benefit in the property bond scheme in that some properties that it might otherwise have been required to purchase could be sold normally on the property market. The property bond scheme also carries the possible benefit of stimulating the general property market in the blighted area, although it is not clear whether this would be the case for properties which lie outside of the relatively small RSZ.

As far as properties that are within the safeguarded zone are concerned, the two schemes appear to have broadly the same effect, other than that the issue of a bond may impart some stimulus to the property market within the RSZ, although it is far from clear that this would be the case.

In its response to the Deloitte proposals, which may be found from paragraph 5.2.26 onwards in the consultation document, the Government accepts the advice that any property bond scheme should be offer as an alternative, not as an addition to, the voluntary purchase scheme (in paragraph 5.2.28):

“This type of bond scheme would not be implemented alongside the proposed voluntary purchase scheme proposed above, although it could be accompanied by the other discretionary property measures set out in chapter 4. The voluntary purchase scheme would not require property owners to offer their properties for sale in the marketplace, and would be preferred by many eligible property owners because it would be likely to offer them a quicker and more certain sale process. The Government believes that introducing a voluntary purchase scheme alongside a Deloitte-type bond scheme would therefore undermine the bond scheme in practice, and significantly reduce the property market benefits it might otherwise offer.”

The Government does not explain why the property bond offering should be mutually exclusive with the voluntary purchase scheme, but not with “the other discretionary property measures set out in chapter 4”. This implies that the Government accepts the Deloitte advice that a property bond scheme should operate in the safeguarded area also – what Deloitte calls the “inner bond area”. However, Figure 3 on page 19 of the consultation document does not show a property bond scheme as an alternative for the safeguarded area, so it is far from clear what the Government is proposing in this respect.

I’m afraid that I can’t help seeing the choice being offered between a voluntary purchase scheme and a property bond scheme as a means to devalue the property bond option, making it effectively worthless. However, there is a small chink of light. Whilst the Government appears to favour the Deloitte recommendation of a fixed-distance boundary, it does not necessarily concur with the recommendation that this should be set at 120 meters (paragraph 5.2.29):

“Defining a simple distance-based boundary to determine eligibility for a Deloitte-type bond is likely to be relatively objective and less prone to challenges and disputes – and therefore easier, quicker and less expensive to administer – than defining a boundary through other methods. Such a boundary could in theory be set at any distance. The Government does not have a view at this stage about which distance would be most appropriate.”

My view is that the only way that the property bond can be seen as a viable alternative to the voluntary purchase scheme would be if the Government increased the area over which it would apply significantly further from the line than the RSZ boundary; failing this it becomes an empty gesture made just to satisfy the High Court.

In my next posting, which will be the final blog in this series on the compensation consultation, I will suggest some responses that you may wish to make against consultation Question 7.

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