If you think that, why don’t you do it?

Paragraph 5.2.16 of the consultation document Property Compensation Consultation 2013 for the London-West Midlands HS2 route contains the following admission by the Government:

“We accept that a well-designed property bond scheme, in theory, may have the potential to improve the position of property owners affected by HS2 and further our policy objectives relating to fairness, property market function and community cohesion.”

If you set aside the grudging “in theory”, then this appears to be, considering its source, a fairly ringing endorsement for at least the “potential” of the property bond approach to compensation and prompts the question that is the title of this blog. Why doesn’t the Government pick up this particular ball and run with it? There is a clear reluctance to do this; we wouldn’t be consulting on the option at all if the High Court hadn’t rapped the Government over the knuckles in the first place, and the way that the property bond has been presented in the current consultation is clearly designed to make it as unattractive a proposition as is possible.

One problem appears to be the reluctance of ministers to question the advice that they receive from civil servants, and the even greater reluctance of civil servants to take notice of advice from the world outside of Whitehall, even when it is patently good advice.

However, the overriding influence on the Government appears to be the fear of the possible cost of servicing a property bond scheme, as articulated in paragraph 5.2.29 of the consultation document:

“However, the Deloitte analysis suggests that as that distance increases, the likely administrative costs of such a scheme would rise rapidly, while the scheme’s overall property market benefits would tend to approach a limit. We would therefore take account of such costs and benefits in determining the boundary distance of any Deloitte-type property bond scheme for HS2, should we decide to introduce one following this consultation.”

There is also reluctance to step out into the unknown, as paragraph 5.2.18 of the consultation document reveals:

“It is clear from the Deloitte review of property bond proposals that there is very little hard evidence available to help inform an overall assessment of property bond proposals. All such proposals rely on as-yet untested assumptions about how people in the British residential property marketplace … would behave in response to the offer and issue of a property bond.”

For what it’s worth, I don’t think that the Government should take much account of the Deloitte Report, the whole rationale of that document being based upon the false assumption that property valuation must take place at the time that a bond is issued. Because of this the Deloitte Report greatly over estimates the costs associated with a property bond scheme. It is probably true that the marginal benefits on the property market of a property bond will decrease as the boundary is moved further from the line. Certainly, on the whole, the impacts of blight are likely to decrease with distance from the line, and so new properties brought into the scope of a scheme, if the boundary is moved further from the line, are likely to receive a smaller benefit. However, for similar reasons, it is also likely that the marginal costs of extending the boundary will correspondingly reduce.

I don’t think that the Government should fret too much about what distance the boundary for a property bond scheme should be set from the line. Clearly, for maximum benefit in blight reduction and alleviation there should be no geographical limit for a property bond scheme; the extent of the blight will set the limit for itself, since only those property owners who have evidence of HS2 blight impacts on the value of their property are likely, in general, to apply and, certainly, bonds will only be able to be cashed in if a loss can be demonstrated.

The Deloitte Report admits that “there is no evidential or statutory basis for [the 120 metre] figure”. It is clear, at least to me, that restricting the operation of the bond to properties within 120 metres of the line will have minimal, if any, impact on blight.

I have covered quite a lot of ground in this blog and the two that preceded it: Reaching the wrong conclusion (posted 22 Nov 2013), and Drawing the line somewhere (posted 24 Nov 2013). In view of this, it might be a good idea to finish off my review of Question 7 with a quick-reference list of responses that you may wish to make against this question. So here goes:

  • The property bond scheme should not be considered as an alternative to the voluntary purchase scheme, but should be pitched against the long-term hardship scheme as it was for the 2011 consultation.
  • The property bond scheme proposed by the Government has at its heart the false assumption that a property must be valued when a bond is issued.
  • The scope of the property bond scheme should not be geographically limited.
  • Whilst the Government has said that it will require a distance-based boundary to be set for any property bond scheme put in place for HS2, it has not said what the distance should be.
  • If the Government accepts the recommendation by Deloitte to set the distance-based boundary at 120 metres, the advantages of a property bond scheme would not be adequately realised.
  • It is unclear whether the Government is proposing that a property bond scheme should also operate in the safeguarded area.
  • The Government has not taken account of the reduction in the cost of operating a property bond scheme that will result if, in time, “the local property market tends to return to normal as the actual impacts are less than first feared.

One response to this post.

  1. Posted by Patrick on November 27, 2013 at 3:56 pm

    I just want to thank you Peter for these blogs. They have helped me immensely in responding to this consultation.

    On the last question, re the boundary line, to be fair they have invited comments ‘to determine the most appropriate detailed design and boundary’ (5.2.32). Personally, I think anything less than 1000 meters would be derisory, but with any boundary line, it would be unfair for adjacent properties experiencing similar blight problems to be treated differently if the boundary is drawn between them. For example, we live in a development of eleven converted farm buildings. The closest property is about 260 meters from the line and the furthest about 360. We are all equally affected by blight so it would be wrong if an arbitrary boundary of say 300 meters split us down the middle.
    Once again, thank you for all the work you have put into this.


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