Explainer: the Polluter Pays proposal

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The Polluter Pays proposed amendment launched in the House of Lords on 14 December 2021. Leaseholders Steve Day, Deepa Mistry and Peter Mengerink explain how a Polluter Pays Bill would protect leaseholders, shared owners and taxpayers from unfair costs.

In November 2020, Steve Day sat in his flat frustrated with the thought of bills for 100s of thousands of pounds landing on his doorstep for fire safety work to his building. What was most hurtful was that this was nothing to do with him or his fellow neighbours. Tired of all the buck passing within the industry, he set on a mission to find a solution to the “who pays” question.

Steve formed a team of neighbours, campaigners and experts. 11 months and several legal documents later, he and the team including Daniel Greenberg QC put together their offering for a solution called the Polluter Pays Bill. It has been proposed to the Government as an amendment to the Building Safety Bill.

At the same time, Deepa Mistry and Peter Mengerink came together to form BuildingSafetyCrisis.org with confidence that the Polluter Pays Bill was the way to relieve the burdens facing thousands of leaseholders.

Polluter Pays Bill: reducing reliance on taxpayers

The concept is simple; the polluter, in this instance the builder/developer, must pay to put right the fire safety defects where a building was not built in line with building regulations at the time of construction.

This is not restricted to the external wall cladding systems that have been identified as defective following the Grenfell Tower fire; this scheme will include any defects classed as fire hazards such as missing/badly installed internal compartmentation, firebreaks, firestops, cavity barriers. The scheme also covers funding the interim measures such as waking watch and fire alarms.

Construction worker on a building site.
Photo by Clem Onojeghuo on Unsplash

The purpose of the scheme is to bring in the largest pool of funds from the responsible parties without reliance on the Treasury (i.e. taxpayers) or innocent leaseholders (also taxpayers).

Polluter Pays Bill: a proportionate response to risk

At the heart of the Polluter Pays is the assessment of every building; only with understanding the risk of each building can a proportionate response be provided. In some cases a full wall replacement may be required, in others the risk could be mitigated with a sprinkler system installation. This proportionate approach ensures cost control whilst considering risk to life. One of the expected benefits is to stop rising insurance premiums, as a building will be deemed safe when the risk is returned to acceptable levels. Sub industries should not be able to profiteer from this crisis.

Builders/developers will be granted zero rated VAT through snagging, and Building Control will oversee the standard of remediation to ensure the work is done correctly.

Determinations (i.e. assessments) for each building are expected to be carried out by a Government body. This more effective and efficient mechanism of determining building safety/responsibility means an individual leaseholder is not required to be involved in any legal process, especially as they are unable to afford the legal costs associated with taking on a large corporation. This scheme is intended to cover all buildings regardless of their height.

A question of trust

The Polluter Pays Bill is a necessary requirement to the Building Safety Bill, and without it the “who pays?” question still remains.

This proposal will allow the trust to be restored within a construction industry that has a history of corner cutting.

Interlinked hand representing trust
Photo by krakenimages on Unsplash

Trust needs to be restored with;

  • the insurers who increased premiums due to increased risk levels;
  • the lenders who need an EWS certificate in order to offer mortgages; and
  • the consumers who will no longer buy as they don’t want to be stuck in any future crises.

The Polluter Pays Bill is unique amongst other solutions as it not only deals with current defective buildings, but will act as a disincentive for the construction industry to cut corners in the future.  It has been recognised internationally as a global precedent to reform fire safety and construction for other jurisdictions.

‘The Polluter Pays scheme answers a key aim of a Sunday Times campaign to make those responsible pay for the building safety scandal – not innocent homeowners. If an amendment is added to the Building Safety Bill this autumn, it could be life-changing for the hundreds of thousands of leaseholders who have been trapped for the past four years.’

The Sunday Times, 5 September 2021

Check the Building Safety Crisis website to learn more about the Polluter Pays proposals, to comment, and for information about what you can do to help get the proposals into law. The site includes model letters for writing to MPs, housing associations/managing agents, professional bodies and the construction industry.

How the Polluter Pays Bill works

The nine points below give a quick summary.

1. Principles to ensure fairness

The scheme provides for a statutory administrative determination process to come to decisions as to whether a building was compliant with building regulations in force at the time of construction. If a building was non-compliant the developer would be required to pay remediation and interim safety costs. The scheme has been designed with the principles of simplicity, certainty, clarity and equity in mind to ensure fairness to all parties, including developers.

2. Who should pay remediation costs?

Remediation costs should be readily absorbed by developers. In the decade from 2010, the top ten developers distributed £12 billion to shareholders and currently collectively hold around £23 billion of net assets.

Red arrow on a chart representing profits
Photo by Frank Busch on Unsplash

3. Holding developers to account

Some developers use special purpose vehicles that are either wound-up on the completion of the development or sold to ground rent funds. To ensure that these companies are not able to walk away from their responsibilities, the parent company would be held to account for any failures by their subsidiaries.

4. Levies on the construction industry

Where it is not possible to obtain recompense from responsible parties, funding would come from levies on the construction industry and ancillary businesses. Developers will make reparation through the residential property developer tax, but the causes of the building safety crisis are sector-wide so other responsible parties, such as cladding manufacturers that sold unsafe and untested products, should also contribute to putting things right.

5. Reducing public funding via sector-wide levies

The inclusion of other responsible parties in sector-wide levies widens and deepens the potential compensation pool. It also allows public funding to be reallocated for the remediation of buildings that were compliant but are now considered unsafe.

6. Benefits of a Fire Hazard Remediation Scheme (AKA the Polluter Pays amendment)

If implemented, the Fire Hazard Remediation Scheme would go a considerable way to solving the building safety crisis and reduce the chances of a similar scandal happening again.

7. Addressing the “race to the bottom”

It should raise considerable sums from those directly responsible for the construction of unsafe buildings. The public funding on offer is insufficient to deal with the problem, but it would be inequitable to seek additional taxpayer support without first calling on the resources of the responsible parties. The scheme would also help ensure that construction standards are raised and maintained as the commercial benefits of a “race to the bottom” would be removed to the benefit of homebuyers and their mortgage lenders.

The scheme’s approach of a statutory administrative process to determine questions of compliance and liability eliminates the need for leaseholders to embark on expensive, lengthy, and risky legal action and is likely to reduce the overall quantum of litigation. It also removes the unfair situation with overseas investors having potentially more attractive options for successful legal action than their British neighbours.

9. Corporate responsibility

In addition, several developers – after some prompting – have agreed to cover remediation costs. Those developers that have stepped up to their responsibilities should not be placed at a commercial disadvantage vis-à-vis those that have chosen to abandon their customers.

Featured image: Photo by Danist Soh on Unsplash

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