Title: Biodiversity net gain and local nature recovery
strategies
IA No:

Impact Assessment (IA)RPC Reference No: RPC-4277(1)-DEFRA-EA
Lead department or agency: Defra
Other departments or agencies: Natural EnglandStage: Final

Summary: Intervention and Options

RPC Opinion: GREEN

Date: 15/10/2019
Source of intervention: Domestic
Type of measure: Primary legislation
Contact for enquiries:

Total Net
Present Value

Cost of Preferred (or more likely) Option (£m) (2016 prices, 2017 present value)
Business Impact Target
Business Net Present
Net cost to business per
One-In,Statusyear (EANDCB in 2016 prices)
Value
Three-Out

8,176.2-1,469.1

170.7

In scope

Qualifying provision

What is the problem under consideration? Why is government intervention necessary?

The negative environmental externalities of development (e.g. habitat loss) and associated social andeconomic impacts are not fully internalised in development decisions, leading to overall loss and damage of
habitat, biodiversity and other environmental goods. The current planning system does not provide a levelplaying field for developers to deliver biodiversity 'net gain', defined as an overall increase in habitat area
and/or quality following a new development. While there is some adoption of biodiversity net gain
approaches, there is insufficient evidence to suggest a voluntary approach (albeit one supported byplanning policy) will deliver net gain at a national level. Current government ambitions on house building andinfrastructure are likely to accelerate land use change, with implications for habitat and the wider
environment. Placing the environment at the heart of planning and development will support theGovernment’s 25 Year Environment Plan ambitions and wider agenda.
What are the policy objectives and the intended effects?

The primary aim is to secure a measurable improvement in habitat for biodiversity whilst streamlining
development processes. The objectives that have guided policy development to date are that net gain: (1)delivers habitat creation and/or enhancement, meeting the government's ambition to leave the environment
in a better state than it inherited it; (2) is simple, streamlined and certain for developers, easy to understandand will not prevent, delay or reduce housebuilding; and (3) is of clear benefit to people and local
communities.
What policy options have been considered, including any alternatives to regulation? Please justify preferred
optionBaseline – Business as usual (voluntary approach): existing voluntary approaches continue, in line with
the National Planning Policy Framework.
Chosen approach – Mandatory requirement with biodiversity metric: this approach mandates net gain
through the use of a specified biodiversity metric to development in scope of the Town and Country
Planning Act 1990. Developers will have the option, once mitigation hierarchy has been demonstrated, topay for the offset of remaining units through a biodiversity units market. Net gain activities undertaken willcontribute to and be part of a wider strategic framework to recover nature at the local authority spatial scale.
Section 4 outlines the policy objectives, while Section 5 sets out the options above in more detail andsummary of the options considered at the long list stage in the consultation IA.
Will the policy be reviewed? It will/will not be reviewed. If applicable, set review date: Month/Year
Does implementation go beyond minimum EU requirements?

N/A
Micro
Small
Medium Large
Are any of these organisations in scope?
Yes
Yes
Yes
Yes
What is the CO2 equivalent change in greenhouse gas emissions?
Traded:Non-traded:(Million tonnes CO2 equivalent)
N/A
N/A
I have read the Impact Assessment and I am satisfied that, given the available evidence, it represents areasonable view of the likely costs, benefits and impact of the leading options.

Signed by the responsible
SELECT SIGNATORY:

Date:
1

Summary: Analysis & Evidence

Chosen approach

Description: Mandatory requirement with biodiversity metric
FULL ECONOMIC ASSESSMENT
Price BaseYear 2017

PV BaseYear 2021

Time Period
Years 10

Net Benefit (Present Value (PV)) (£m)
Low: -5,878.4(Constant Price)

Low

9.5

High

9.5

Best Estimate

9.5

Years

Best Estimate: 9,566.8

Average Annual

Total Cost

(excl. Transition) (Constant Price)(Present Value)

54.5

478.2

681.9

5,878.4

211.3

1,828.2

Total Transition

COSTS (£m)

High: 14,715.3

2

Description and scale of key monetised costs by ‘main affected groups’

Developers: delivery of on-site and off-site habitat creation as part of their developments. The estimateddirect cost is £199.0m per year (2017 prices). This falls to £19.9m, once a 90% pass-through of costs tolandowners through land prices has been considered – as is anticipated on the basis of industry evidence
and economic theory. This is considered to be an indirect effect for our analysis and not additional to thedirect effects. These values are contained within the direct impacts reported in the headline figures. In
addition, there are also familiarisation costs to developers estimated to be £6.3m in the first year only.
Local government and central government: familiarisation, training, monitoring and enforcement costsof policy delivery. New burdens assessment and information provided by Natural England capturestransition and ongoing FTEs requirement. Ongoing costs to local government are £9.5m per year, of which
includes transition costs of £4.8m per year for the first 2 years. For central government, the estimatedongoing costs are £1.8m for Natural England, and £1.3m for Defra with one-off capital costs of £0.5m.
Other key non-monetised costs by ‘main affected groups’

Local government: there may be an impact on developer contributions such as Section 106, which iscurrently used to deliver environmental improvements in a discretionary manner.

BENEFITS (£m)

Average Annual

Total Benefit(excl. Transition) (Constant Price)(Present Value)

0.0

0.0

1,860.9

15,193.4

1,395.7

11,395.1

Total Transition(Constant Price)

Low

0.0

High

0.0

Best Estimate

0.0

Years

0

Description and scale of key monetised benefits by ‘main affected groups’

Environment: Benefits of habitat creation and avoided habitat loss, as set out in ONS ecosystem accounts
for urban areas, are captured through the (partial and imperfect) proxy of private benefits perceived byresidents living near greenspace. The benefits of prevented counterfactual loss of distinctive habitat(reflected in ‘high’ and ‘best estimate’ benefits only), resulting from developments being steered towards theleast environmentally damaging areas and design practice, are realised immediately. The benefits of new
habitat creation (reflected in ‘low’ and ‘best estimate’ benefits only) are fully realised after 20 years,
and therefore these benefits fall entirely outside of the 10 year appraisal period. Net habitat creation,and therefore annual benefits, increase over time.
Other key non-monetised benefits by ‘main affected groups’

Habitat creation will deliver a range of natural capital benefits to people and local communities beyond
those benefits that are privately valued. Developers and local planning authorities will benefit from greatercertainty and a level playing field, resulting from a consistent approach to demonstrating biodiversity net
gain. This process consistency could result in savings for developers.
Key assumptions/sensitivities/risks

Discount rate (%)

3.5

The analysis assumes that developments do not change in location and size in response to net gain. The
central estimate is derived by assuming that delivery of net gain is a proportion of the upper and lower
bound scenarios. Consultation responses indicate the majority of habitat shall be delivered on site. It is
likely to be more difficult, however, to deliver habitat on constrained sites. We assume that land prices
absorb 90% of costs imposed on developers. Please see Section 6 and the Annex 1-2 for more details.
BUSINESS ASSESSMENT (Chosen approach)Direct impact on business (Equivalent Annual) £m:
Costs: 199.7

Benefits: 0.0

Score for Business Impact Target (qualifying provisions only): 853.4

Net: 199.7

2

CONTENTS
1

INTRODUCTION......................................................................................................................................................... 5
1.1 BACKGROUND ...................................................................................................................................................................... 5
1.2 SUMMARY OF CONSULTATION PERIOD ....................................................................................................................................... 5
1.2.1
Overview of activities ............................................................................................................................................. 5
1.2.2
Summary of consultation response ........................................................................................................................ 6

2

PROBLEM UNDER CONSIDERATION ........................................................................................................................... 9
2.1 THE STRATEGIC CONTEXT: 25 YEAR ENVIRONMENT PLAN.............................................................................................................. 9
2.2 TRENDS IN DEVELOPMENT AND LAND USE CHANGE....................................................................................................................... 9
2.2.1
Recent trends in land use and housebuilding ....................................................................................................... 10
2.2.2
Land cover map analysis....................................................................................................................................... 122.2.3
Conclusions ........................................................................................................................................................... 13
2.3 NET GAIN AND DEVELOPMENT ............................................................................................................................................... 13
2.3.1
Definitions: Biodiversity net gain and the metric ................................................................................................. 13
2.3.2
Current policy and practice ................................................................................................................................... 17
2.4 SUMMARY OF KEY ISSUES ...................................................................................................................................................... 19

3

RATIONALE FOR INTERVENTION .............................................................................................................................. 20
3.1
3.2
3.3
3.4
3.5

PUBLIC GOODS ................................................................................................................................................................... 20
EXTERNALITIES.................................................................................................................................................................... 20
INFORMATION ASYMMETRIES ................................................................................................................................................ 20
EQUITY ............................................................................................................................................................................. 21
SUMMARY ......................................................................................................................................................................... 21

4

POLICY OBJECTIVES ................................................................................................................................................. 21

5

POLICY DESIGN ....................................................................................................................................................... 22
5.1 BACKGROUND .................................................................................................................................................................... 22
5.2 DESCRIPTION OF POLICY APPROACH ........................................................................................................................................ 23
5.2.1
Baseline comparator: business as usual (voluntary approach) ............................................................................ 23
5.2.2
Chosen approach: mandatory requirement with biodiversity metric ................................................................... 24

6

COST BENEFIT ANALYSIS.......................................................................................................................................... 35
6.1 SUMMARY TABLES ............................................................................................................................................................... 36
6.2 KEY ASSUMPTIONS .............................................................................................................................................................. 37
6.2.1
Biodiversity net gain delivery scenarios ................................................................................................................ 37
6.2.2
Land use change: residential and non‐residential development .......................................................................... 38
6.2.3
Baseline delivery of biodiversity net gain ............................................................................................................. 39
6.2.4
Estimating policy impact on habitat creation and avoided habitat loss .............................................................. 39
6.2.5
Monetising cost and benefits ............................................................................................................................... 40
6.3 KEY RISKS .......................................................................................................................................................................... 41
6.4 PASS‐THROUGH OF COSTS TO LAND PRICES ............................................................................................................................... 42
6.5 COSTS TO DEVELOPERS (MONETISED) ...................................................................................................................................... 43
6.5.1
Others costs to developers (partially monetised) ................................................................................................. 44
6.5.2
Costs to developers in context .............................................................................................................................. 44
6.6 BENEFITS TO DEVELOPERS (NOT MONETISED) ............................................................................................................................ 51
6.7 INDIRECT BENEFITS TO MARKET PARTICIPANTS (NOT MONETISED).................................................................................................. 51
6.8 COSTS AND BENEFITS TO GOVERNMENT (MONETISED) ................................................................................................................ 51
6.9 BENEFITS TO SOCIETY (MONETISED) ........................................................................................................................................ 53
3

6.9.1
Wider public benefits in context ........................................................................................................................... 55
6.10
NET PRESENT VALUE AND EQUIVALENT ANNUAL NET COST TO BUSINESS ..................................................................................... 58
6.11
SENSITIVITY ANALYSIS ...................................................................................................................................................... 58
6.11.1 Description of sensitivity analysis ............................................................................................................................ 58
6.11.2 Results of sensitivity analysis ................................................................................................................................... 62
7

SMALL AND MICRO BUSINESS ASSESSMENT ............................................................................................................ 62
7.1
7.2

8

BACKGROUND .................................................................................................................................................................... 62
EXEMPTIONS AND MITIGATIONS ............................................................................................................................................. 64

JUSTICE IMPACT TEST .............................................................................................................................................. 65

ANNEX 1: KEY COST BENEFIT ANALYSIS ASSUMPTIONS..................................................................................................... 67
ANNEX 2: COST BENEFIT ANALYSIS CALCULATIONS........................................................................................................... 69
ANNEX 3: FURTHER EVIDENCE ON LEVEL OF NET GAIN AND PERMANENCE ....................................................................... 79
LEVEL OF NET GAIN REQUIRED ......................................................................................................................................................... 79
PERMANENCE .............................................................................................................................................................................. 81

4

1 Introduction
1.1 Background
This Final Stage Impact Assessment (IA) represents a major update of the Consultation IA,
which was published alongside the consultation proposals and a report on the proposed
updates to the Defra Biodiversity Metric in December 2018.1 The consultation sought views on
whether we should introduce mandatory requirements to the planning system in England, sothat development must deliver biodiversity net gain. It also set out proposed next steps for our
longer term ambition to embed environmental net gain.
The Consultation IA set out our policy development to date, which includes setting out thestrategic context and rationale for intervention, outlining a range of intervention options, and a
preliminary cost-benefit analysis for our preferred option ‘Mandatory tariff with biodiversity
metric’. We also outlined our evidence gaps to be addressed through the consultation process
and further research and analysis. In addition, Natural England published a report on the
proposed updates to the Defra biodiversity metric, which includes new consideration of
ecological connectivity, improved coverage of habitat types, and a forthcoming spreadsheetbased tool to support the application of the metric in practice.
The Final IA represents a significant update to reflect latest policy development to date, andincorporates information gathered during the consultation. This includes, but is not limited to:








an overview of the updated biodiversity metric (Section 2.3.1)
detailed description of our chosen policy approach (Mandatory requirement withbiodiversity metric, see Section 5) which has been developed with consideration of
the views received through consultation. Further evidence on key policy components(level of net gain and permanence of offsets) is provided in Annex 3
a detailed cost benefit analysis (Section 6) on the impacts of biodiversity net gain on
residential and non-residential development. It captures a range of costs tobusinesses, central and local government (including New Burdens Assessment), andthe wider public (i.e. natural capital) benefits of habitat creation and avoided habitat
loss. Key assumptions are tested through sensitivity analysis (Section 6.11), withdetailed methodology and calculation steps presented in Annex 1 and 2
updates to the Small and Micro Business Assessment (Section 7)
inclusion of the Justice Impact Test (Section 8).

1.2 Summary of consultation period
1.2.1 Overview of activities
The consultation period ran from Sunday 2 December 2018, and closed Sunday 10 February
2019. We received 470 written responses from a range of interested stakeholders including,developers, industry groups, local government, habitat brokers and environmental NGOs.
During this period, we also held a policy workshop attended by around 70 experts from theaforementioned stakeholder groups, in collaboration with the Ministry for Housing, Communities
and Local Government (MHCLG). Natural England also held a separate conference/webinar on
the updated Defra biodiversity metric. We also discussed proposals with several key
1 https://consult.defra.gov.uk/land-use/net-gain/5

stakeholders on a one-to-one basis.
1.2.2 Summary of consultation response
The government response to the consultation was published in July 2019.2 Sections 1.2.2.1-6
provide a brief summary of the key conclusions, and we refer to the published document for
further details. Policy recommendations from this are incorporated in Section 5, and additional
evidence is captured throughout.
1.2.2.1 Scope

The response states that the government will:

legislate in the Environment Bill to require development to achieve a 10% net gain forbiodiversity
not introduce broad exemptions from delivering biodiversity net gain, beyond thoseexemptions already proposed for permitted development and householder applications
such as extensions. Instead, we will introduce narrow and targeted exemptions for themost constrained types of development, and consider process easements for minor
developments
not include nationally significant infrastructure and net gain for marine development
within the scope of the mandatory requirement in the Environment Bill.

Analysis of stakeholder responses suggests strong support for a mandatory approach in the
consultation responses (>70%) based on a clear requirement delivering a level playing field,
process certainty and environmental outcomes. Reservations were raised by a significant
minority of developers regarding additional costs and viability on challenging sites, as well as
the capacity of local planning authorities (LPAs) to support delivery. Some developers did not
express these concerns, but instead used the response to reiterate requests that the final policy
be robust and that the requirement must be defined clearly.
The consultation proposed including all Town and Country Planning Act 1990 (TCPA)3development, excluding nationally significant infrastructure, permitted development andhouseholder applications. Consultation responses generally opposed wide exemptions (aside
from householder applications such as extensions, conservatories, garages), with some support
for process easements for small developments. A small number of consultation responses raise
general concerns about the viability of post-industrial sites and capacity to bear additional costs,
although there was little or no quantitative or anecdotal evidence presented to substantiatethese concerns.
1.2.2.2 Measuring biodiversity

The response states that the government:will use the Defra biodiversity metric to measure changes to biodiversity under the 10%
net gain requirements established in the Environment Bill
does not intend to exclude any development from the application of the mitigation
hierarchy, or from the incentives for delivering any necessary compensation on site or

2 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/819823/net-gain-consult-sum-resp.pdf
3 https://www.legislation.gov.uk/ukpga/1990/8/contents

6locally. Government will instead use guidance to stress the need for planning authorities
to continue to be proportionate in their application of planning policy.
Stakeholders broadly supported a clear and consistent requirement for a percentage gain,
however some questioned the evidence base for 10% while often accepting any single figure isnecessarily arbitrary to some extent. NGOs broadly call for 20+% gain, some developers haveasked for a 1-5% requirement, and/or a minimum requirement subject to testing and review.
Evidence on the implications of 5/10/20% net gain is captured in Annex 3, and subject tosensitivity analysis in Section 6.11.
There was general consensus that the Defra metric is the best means of setting obligations, andthat the recent update is helpful. There was a general call for further guidance in how to use themetric. Many respondents wanted to see it become more robust (and possibly onerous) withregard to species impacts and wider natural capital effects.
1.2.2.3 Delivering biodiversity outcomes

The response states that the government will:






will introduce new duties to support better spatial planning for nature through the creationof Local Nature Recovery Strategies (LNRSs)
provide data, guidance and support but each LNRS will be produced locally, with arelevant public body appointed as the responsible authority by the Secretary of Staterequire net gain outcomes, through habitat creation or enhancement as part of delivering
mandatory biodiversity net gain, to be maintained for a minimum of 30 years, and willencourage longer term protection where this is acceptable to the landowner(following a separate consultation) legislate for the creation, monitoring and enforcement,
modification and discharge of conservation covenants. Conservation covenants are
private, voluntary agreements that can secure long-term conservation and environmental
benefits, with obvious potential application for net gain.

There was strong stakeholder support for net gain activities and planning decisions more
broadly to be guided by a strategic nature improvement framework at a local level. Such aframework should include baseline habitat maps and other relevant environmental information
so that net gain actions can make the greatest contribution towards nature improvement
priorities, and that there is effective coordination / planning to help ensure this is realised inpractice.
1.2.2.4 Calculating and delivering net gain compensation

The response states that the government will:

not introduce a new tariff on loss of biodiversity, in recognition of respondents’ preference
for the local collection and spending of net gain compensation, as well as concerns about
the potential bureaucracy inherent in a new charging scheme
address the risk that the market supply of habitat creation will not meet demand byproviding a supply of statutory biodiversity credits into the compensation market.

The consultation presented a range of options on different aspects of tariff design and an
indicative range of tariff costs. Many respondents favoured local operation of the tariff,
principally with the view that the tariff should ensure it delivers benefits to local communities7affected by development. Respondents were largely indifferent about the mechanism itself as
long as spending is accountable and ring-fenced for biodiversity projects.
1.2.2.5 Delivering net gain in the planning system

The response states that the government will:make provision in the Environment Bill to set a transition period of two years
quantify any additional burdens on local authorities as a result of biodiversity net gain,
and will work with local authorities and professional organisations to make sure thatplanning authorities have access to the right training, ecological expertise and systems
required to deliver biodiversity net gain.

Our consultation proposed a transition period of at least one year, and asked about the benefitsof doing so. Several respondents, including LPAs and professional associations as well as
developers, requested a longer transition period (e.g. at least 2-3 years) before implementationto accommodate training and land purchase cycles. The suggested transition periods also
varied in structure, with some suggesting an initial 0% (no net loss) or 5% requirement that
increased to 10% after 5 years.
1.2.2.6 Enforcement, monitoring and evaluation

The response states that the government will:






work with local authorities to make sure that any reporting mechanisms align with existingprocesses as far as possible, and that guidance and support are available
establish a publicly available habitat register of compensatory habitat sites that isregularly updated
continue to explore what technological or other innovative mechanisms could facilitate
the delivery and monitoring (at a local and national scale) of biodiversity net gain both
now and in the future as technologies develop, and will provide clear guidance to support
implementation
not introduce new enforcement mechanisms for net gain; enforcement will be through theplanning system.

Our consultation proposed that we introduce monitoring of the quality of delivery on the groundand measures to help ensure that outcomes are achieved. Many responses were clear thatrobust monitoring, for an appropriate length of time, would be key to ensuring effective deliveryof net gain. There was strong support for local authorities being required to provide informationon habitat losses and gains, but we also heard that those responsible for monitoring, whether
local authorities or national bodies, will need the right funding and expertise in place to ensure
they can deliver. We heard that data collection and reporting mechanisms should bestraightforward and consistent across all local authorities, and that there would be advantages
to aligning monitoring with existing local authority processes.

82 Problem under consideration
2.1 The strategic context: 25 Year Environment Plan
The UK Government’s 25 Year Environment Plan (25YEP) sets out how the government willachieve its ambition to leave the environment in a better state than it inherited it for the next
generation.4 As we leave the European Union, we have a once-in-a-generation chance tochange our approach to managing our land so that we secure and enhance the benefits of theenvironment far into the future. The 25YEP puts forward new approaches, which recognise
good practice, to using and managing land sustainably that build up and bolster natural assets.
It will account for the negative effects of various land uses and activities, and require a balanceof incentives and regulations. This will influence decisions so that we use land in a way that
supports cost-effective sustainable growth.
The 25YEP recognises government ambitions in housebuilding, as set out in the Housing White
Paper.5 The Autumn Budget 20176 announced a package of measures designed to raise
housing supply (300,000 new homes per year by the middle of next decade), which would
represent a major increase compared to recent trends (see Section 2.2 for more information).
This is in addition to significant infrastructure investment in transport, energy and utilities,
outlined in the National Infrastructure and Construction Pipeline.7 While these have considerable
importance for people’s lives and economic growth, this development represents a significant
land use change and will directly impact the environment.
In addition, the 25YEP sets out commitments on protecting and restoring nature, given thesignificant habitat loss over the last 50 years. This is driven in large part by historic land usechange and pollution. To help leave the environment in a better condition for the next
generation, we need to restore and create areas of wetland, woodland, grassland and coastal
habitat to provide the greatest opportunity for wildlife to flourish and to promote the wider
economic and social benefits that healthy ecosystems offer. The 25YEP sets out commitmentsfor publishing a new strategy for nature (building on Biodiversity 20208 commitments),
developing a Nature Recovery Network, and introducing conservation covenants.9 Finally, the
25YEP recognises that there is unequal access to nature and green spaces, and sets out
commitments to better connect people with the environment to improve health and wellbeing.
Overall, the aim is to put the environment at the heart of planning and development to create
better places for people to live and work, whilst supporting government’s wider objectives onnature development.

2.2 Trends in development and land use changeWith a land surface of 13 million hectares, England is the largest country of the United Kingdom(53.5% of the UK land area). It is also home to more than 55 million people, making it one of the

4 https://www.gov.uk/government/publications/25-year-environment-plan
5 https://www.gov.uk/government/collections/housing-white-paper
6 https://www.gov.uk/government/publications/autumn-budget-2017-documents
7 https://www.gov.uk/government/publications/national-infrastructure-and-construction-pipeline-2018
8 https://www.gov.uk/government/publications/biodiversity-2020-a-strategy-for-england-s-wildlife-and-ecosystem-services
9 https://www.gov.uk/government/news/gove-unveils-new-covenants-to-protect-nature9most densely populated countries in Europe. Uplands cover approximately 17% of England,
improved agricultural land covers 52%, woodland 10%, and urban areas 11%.10
Development for housing, commercial, industry, and infrastructure makes a significant
contribution to land use change and to the loss of natural habitats that reduces biodiversity. The
State of Nature Partnership rates development as one of the greatest pressures on biodiversity,with significant losses in biodiversity, including the extent and quality of habitat, over the past 50
years.11,12 Furthermore, habitat loss often occurs most rapidly near urban populations, where
natural capital is most valuable. ‘Natural capital’ refers to the physical natural resources and thebenefits that these resources provide through ecosystem services. Ecosystems provide many
services which contribute to human well-being, such as food, water, air filtration andrecreation.13
2.2.1 Recent trends in land use and housebuilding
Recent trends in land use change and house building (i.e. net additional dwellings) in England
are shown in Tables 1, 2, 3 and 4.
Table 1: Average annual land use change in England between 2013-14 and 2016-17 (hectares)
Land use changing to:
Developed Uses (ha)Non-Developed Uses (ha)Land use changing from:
Developed Uses (ha)Non-Developed Uses (ha)13,70015,900Total average annual land use change (ha)145,700

4,400
111,700

All figures are rounded, so sub-totals may not equate to stated totals and averages.
Definitions
 Developed land use: This includes, but not limited to: residential, transport, utilities, industry, commerce, defence andcommunity buildings.
 Non-developed land use: This includes: agriculture land and buildings, forestry and woodland, rough grassland and bracken,
natural and semi-natural land, water, outdoor recreation, vacant land not previously developed, residential gardens, andundeveloped land in urban areas.
Data source
MHCLG, Live tables on land use change statistics, Table P360. https://www.gov.uk/government/statistical-data-sets/live-tables-onland-use-change-statistics

Table 2: Annual land use change to developed uses in England (hectares)Year
2013-142014-152015-16
2016-17
Annual average

Residential
(ha)
3,600
4,800
4,600
6,000
4,700

Industry andCommerce (ha)
7,100
8,300
5,800
5,200
6,600

Transport andutilities (ha)
2,400
2,800
3,700
2,900
3,000

Other (ha)13,90020,20014,70012,30015,300Total (ha)26,90036,20028,80026,30029,6001

All figures are rounded, so sub-totals may not equate to stated totals and averages. Data from Table P351 - see Table 1 for sources anddefinitions. 1annual average is equivalent to the sum of changes to “developed uses” column in Table 1 (13,700 + 15,900 = 29,600).

10 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/673492/25-year-environment-plan-annex1.pdf. All data in this paragraph is taken from the 25YEP evidence report. Please see Section 2.6 on land, soil and geological assets.
11 https://www.rspb.org.uk/globalassets/downloads/documents/conservation-projects/state-of-nature/state-of-nature-uk-report-2016.pdf
12 http://uknea.unep-wcmc.org/Resources/tabid/82/Default.aspx. See Chapter 4 on biodiversity in the context of ecosystem services.
13 https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/naturalcapital.

10

Table 3: Land use change from non-developed to developed uses in England (hectares)Year
2013-142014-152015-16
2016-17
Annual average

Residential (ha)
2,100
3,100
3,300
3,300

Non-residential (ha)11,40018,40012,1009,700

Total (ha)13,50021,40015,40013,1003,000

12,90015,9001

All figures are rounded, so sub-totals may not equate to stated totals and averages. Data from Table P361 - see Table 1 for sourcesand definitions. 1annual average matches with non-developed to developed used average (15,900) in Table 1.

Table 4: Net additional dwellings in EnglandYear
2012-132013-142014-152015-16
2016-172017-18

Per Local Authority
385
420
525
580
665
680

All Local Authorities
124,700
136,600
170,700
189,600
217,300
222,230

545
Annual Average% change over whole period (2012-13 to 2017-18)% annual change (2012-13 to 2017-18)

176,900
78.2%
12.2%

All figures are rounded. Reflects net additional dwellings for all 326 local authority districts in
England. The range of net dwellings delivered varies considerably across local authorities and overthe period analysed.
Data source
MHCLG, Live tables on housing supply: net additional dwellings, Table LT122.
https://www.gov.uk/government/statistical-data-sets/live-tables-on-net-supply-of-housing

Recent trends show that:







although average annual land use change is around 145,700 ha (similar to the size ofGreater London, or around 1% of total England land area),14 around 75% of this change
is within non-developed uses (111,700 ha per annum)
over three times more non-developed land is developed annually on average (15,900 ha)
compared to vice versa (4,400 ha
4,700 ha of land is developed for residential uses annually, an area equivalent in size tothat within the boundaries of the local authority of Exeter.15 Around 65% of that (3,000 ha
per annum) takes place on previously non-developed land;
average annual land use change to all developed uses is 29,600ha, an area similar insize to that within the boundaries of the local authority of Milton Keynes.16 Around 55% ofthat (15,900 per annum) occurs on previously non-developed land

14 https://ons.maps.arcgis.com/home/item.html?id=a79de233ad254a6d9f76298e666abb2b. ONS, Standard Area Measurements (SAM) for theadministrative areas in the United Kingdom as at 31 December 2016. The size of Greater London is 157,351 ha, based on the sum of Inner
London (31,928 ha) and Outer London (125,423 ha). 145,700 ha (annual average land use change) divided by 13,046,190 ha (total Englandland area) is 0.8%.
15 https://ons.maps.arcgis.com/home/item.html?id=a79de233ad254a6d9f76298e666abb2b. ONS, Standard Area Measurements (SAM) for theadministrative areas in the United Kingdom as at 31 December 2016. The size of the local authority of Exeter is 4,704 ha.
16 https://ons.maps.arcgis.com/home/item.html?id=a79de233ad254a6d9f76298e666abb2b. ONS, Standard Area Measurements (SAM) for theadministrative areas in the United Kingdom as at 31 December 2016. The size of the local authority of Milton Keynes is 30,863 ha.

11house building has increased significantly (12.2% per year) in the last 6 years, and is set
to increase further in line with government ambitions.

Development on previously non-developed and developed uses has different impacts on theenvironment. Section 2.3.1 discusses how the biodiversity impact specifically can be measured,and Table A1.1 in Annex 1 provides estimated scores using this method for the land use types
in Tables 1-3.
2.2.2 Land cover map analysis
We presented provisional geospatial analysis in the consultation IA,17 where Land Cover Map18
data to assess habitat loss from urban development between 2007 and 2015. One of the earlyconclusions was that while the majority of individual habitat loss from urban development tends
to be at the micro level (less than 1ha or 0.01km2 level), this has occurred in a very large
number of areas across England.
We have carried out further analysis19 to increase our understanding of the habitat baseline (oneof our evidence gaps), the distribution of development sizes (e.g. minor and major
development20), and spatial variations in habitat losses. We also used postcode data to verify
the non-urban to urban land cover changes, which reduces the risk of classification errors.21 The
key conclusions, which build on existing land use change statistics presented in Section 2.2.1
are:






the majority of urban expansion has taken place on land that was previously farmland(arable and pasture). Other semi-natural land cover types such as broadleaved woodland
and rough grassland have also been lost, but not to the same extent as farmland. The
analysis also shows that the types and amount of habitat loss to urban development
varies between regions
around 80% of land use change from non-urban to urban land cover are fromdevelopments that are between 0.5 and 20 ha in size. In other words, the majority of the
non-urban to urban land cover change is due to major developments
individual cases of habitat loss are small in scale (less than 0.5 ha) but many in number.
However, this makes up a small proportion of land use change (less than 20% of total
area change) during the period overall
by using the postcode data to verify non-urban to urban land cover changes, theaggregate land cover change to urban development over the period is within the boundsof the MHCLG land use change statistics,22 demonstrating the robustness of theapproach.

Some additional analysis was carried out on habitat losses in urban conurbations (i.e. built-up
areas) - areas where natural capital is most valuable as it is close to people (e.g. for recreation,
health and wellbeing). Early analysis suggests habitat losses within the urban boundary areproportionately higher when compared to their respective region as a whole, which captures
17https://consult.defra.gov.uk/land-use/net-

gain/supporting_documents/181121%20%20Biodiversity%20Net%20Gain%20Consultation%20IA%20FINAL%20for%20publication.pdf. Pleasesee Section 1.2 (page 5).
18 https://www.ceh.ac.uk/services/information-products. Land Cover Map 2007 and 2015, available from the Centre for Ecology & Hydrology.
19 Internal Defra, Natural England and Joint Nature Conservation Committee analysis of Land Cover Map data.
20 See Table 29 in Section 7.1 for definitions of minor and major developments.
21 Where changes in land cover are as a result of misclassification (e.g. an urban area is incorrectly classified as grassland in the 2007 map,
but not in the 2015 one), as oppose to real changes in land cover (e.g. a previous area of grassland in 2007 is now an urban area in 2015).
22 https://www.gov.uk/government/collections/land-use-change-statistics

12

both rural and urban areas. However, this aspect of the analysis has significant methodologicallimitations. Work is ongoing to improve the robustness of the methodology and conclusions, andto incorporate other datasets to provide further insights.
2.2.3 Conclusions
Considering recent trends, and in light of the strategic context (300,000 new homes per year by
the middle of next decade), pressure on land, habitat and biodiversity is likely to increase. The
land cover map analysis shows that previous losses are not only frequent, but also diverse interms of habitat type and variation across regions. The trends support the necessity of the
25YEP ambitions (outlined in Section 2.1) to preserve and enhance nature and create better
places for people, and to help reverse recent declines in nature by alleviating the pressure fromdevelopment.23,24

2.3 Net gain and development
The National Planning Policy Framework25 (NPPF) provides protections for important sites andwildlife (e.g. Sites of Special Scientific Interest (SSSIs), species licensing), and makes
provisions for the delivery of biodiversity net gain. The government recently published a revised
version of the NPPF, which strengthens policy wording on biodiversity net gain26,27 as well as
incorporating policy proposals from the Housing White Paper and Planning for the right homes
in the right places.28 The consultation proposals published in December 2018 sought views on
introducing mandatory requirements to the planning system in England so that development
must deliver biodiversity net gain.
2.3.1 Definitions: Biodiversity net gain and the metric
Biodiversity net gain in development is a means of ensuring that, for a given site, there is an
overall increase in habitat area or quality following a new development. This is often assessedusing a metric, such as a Defra biodiversity metric,29 which uses habitats as a proxy forbiodiversity. It was originally designed to support the offsetting pilots,30 which ran between 2012
and 2014.
At consultation, Natural England published a proposed update to the metric,31 which is an
improved version of the metric piloted by Defra in 2012 and incorporates many of the changes
since made or requested by industry experts. Since then, Natural England have published a‘beta’ version of the metric called the ‘The Biodiversity Metric 2.0’ to enabled wider user
testing.32 The beta was developed with input from a wide range of interested stakeholders (e.g.
NGOs, developers, land managers, government agencies).

23 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/693158/25-year-environment-plan.pdf
24 https://www.nationaltrust.org.uk/documents/assessing-the-costs-of-environmental-land-management-in-the-uk-final-report-dec-2017.pdf. A

joint report by the Natural Trust, RSPB and The Wildlife Trusts estimate the annual need for habitat creation is around 27,000 ha.
25 https://www.gov.uk/government/publications/national-planning-policy-framework--2.
26 https://www.gov.uk/government/publications/national-planning-policy-framework--2. Key references in paragraph 8, 32, 170(d), 174(b), and175(a).
27 http://webarchive.nationalarchives.gov.uk/20180608214848/https://www.gov.uk/guidance/national-planning-policy-framework/11-conserving-

and-enhancing-the-natural-environment. The previous NPPF refers to biodiversity net gain in paragraph 109: “...minimising impacts on
biodiversity and providing net gains in biodiversity where possible”.
28 https://www.gov.uk/government/consultations/planning-for-the-right-homes-in-the-right-places-consultation-proposals
29 https://www.gov.uk/government/publications/technical-paper-the-metric-for-the-biodiversity-offsetting-pilot-in-england
30 https://www.gov.uk/government/collections/biodiversity-offsetting
31 http://publications.naturalengland.org.uk/publication/6020204538888192
32 http://publications.naturalengland.org.uk/publication/5850908674228224

13

Using the metric, biodiversity scores are calculated (usually by the developer or an appointed
consultant) for pre-development habitats by assessing:

area: simply the area, generally in hectares, that the habitat occupies



distinctiveness: whether the habitat is of high (e.g. native broadleaf woodland) or low(e.g. improved/amenity grassland) value to wildlife. This is scored between 0 (very low
distinctiveness) and 8 (very high distinctiveness)condition: whether the habitat is a good example of its type. For example whether awoodland is in peak condition (which might mean it can better support rare species) orwhether it is full of invasive species or is overcrowded. This is generally scored between
1 (poor condition or agricultural) and 3 (good condition)

strategic significance: gives extra value to habitats that are located in optimal locations
to meet biodiversity and other environmental objectives. This could include areas
identified as suitable for protected species compensation. This is scored between 1 (lowstrategic significance) and 1.15 (high strategic significance)

habitat connectivity: the relationship of a particular habitat patch to other surrounding
similar or related semi-natural habitats, which could be facilitating flows of species andecosystem services. This is scored between 1 (low connectivity) and 1.15 (highconnectivity).

The scores for post-development habitats are estimated by accounting for the characteristics
above, as well as additional factors to account for the risk33 associated with creating, restoring
or enhancing habitats:difficulty of creating and restoring habitat: recognises how difficult it is to create orrestore a given habitat type and the related uncertainty of outcome this creates. The levelof risk will differ between habitat types because of ecological factors and the availabilityof techniques or know-how to create habitats in a realistic timeframe. This is scoredbetween 0.1 (very high difficulty) and 1 (very low difficulty)spatial risk (i.e. location relative to development): a simple reflection of the fact that
habitat created at a great distance from the site of habitat losses carries a risk ofdepleting local areas of natural habitats and of depriving the communities experiencing
development of the associated benefits. This is scored between 0.5 (compensation
outside local authority of impact site), and 1 (compensation deemed sufficiently local toimpact site)

temporal risk (i.e. time to target condition): If there is a mismatch between a negative
impact on biodiversity and compensation habitat reaching the required quality or level ofmaturity, there will be a loss of biodiversity for a period of time. This is scored between

33 Risk multipliers are less relevant in cases where habitats is created in advance of the development (e.g. via a habitat bank).

14

0.343 (30 years) and 0.965 (1 year) where the values reflect time discounting at 3.5% asrecommended by the HM Treasury Green Book.34
To achieve net gain, a development must have a higher biodiversity unit post-development
compared to the baseline score pre-development. However, there are a number of underlying
principles and rules when using the metric:the use of the metric does not change wider policy or the existing protections
afforded to biodiversity: existing levels of protection afforded to protected species andto habitats (such as irreplaceable and statutory designated sites) are not affected by theuse of this metric

the metric sits within a decision framework based on the mitigation hierarchy.35 It
informs decision-making where application of the mitigation hierarchy and good practiceprinciples indicate that compensation for habitat losses is justified

the metric is a proxy for biodiversity. While it is underpinned by ecological evidence,
the metric measures habitats and is only a proxy for biodiversity. It has been kept
deliberately straightforward to make it of practical use and maintain transparencythe metric focuses on habitats. It is considered a suitable proxy for widespread species
found in typical examples of different habitats. Scarce and protected species are likely toneed separate consideration to the biodiversity metric

the metric recognises the importance of place and connectivity. It seeks to enhancebiodiversity in the locality of impacts so far as possible as well as contributing to wider
ecological networks by creating more, bigger, better and joined areas for biodiversity, inline with the Lawton principles36,37



the metric is used consistently and informs decisions. Decisions and management
interventions should be based on a consistent use of the metric, as well as expert
ecological advice and other relevant factors (e.g. habitat significance, relevant planningpolicies)compensation for habitat losses can be provided by creation and by restoration orenhancement of existing habitats. Measures taken to improve existing habitats must
provide a significant and demonstrable uplift in distinctiveness and/or condition‘trading down’ is not permitted. Newly created or restored habitats should result in an
improvement in the extent or quality of the habitat affected. New or restored habitats
should aim to achieve a higher distinctiveness and / or condition than those lost. At no34 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent
35 https://www.gov.uk/government/publications/national-planning-policy-framework--2. Please see paragraph 175(a) which states: “if significant

harm to biodiversity resulting from a development cannot be avoided (through locating on an alternative site with less harmful impacts),
adequately mitigated, or, as a last resort, compensated for, then planning permission should be refused”.
36 https://www.gov.uk/government/news/making-space-for-nature-a-review-of-englands-wildlife-sites-published-today
37 https://webarchive.nationalarchives.gov.uk/20130402170324/http://archive.defra.gov.uk/environment/biodiversity/documents/201009space-for-nature.pdf

15

time should compensation measures result in “trading down” of habitat of highdistinctiveness with creation or restoration of a habitat of a lower distinctiveness

differences in size between impacted site and compensation habitat is permittedusing the metric. A difference can occur because of a difference in quality. For example,
if a habitat of low distinctiveness is impacted and is compensated for by the creation of
habitat of high distinctiveness, the area needed to compensate for losses cantheoretically be less than the area impacted. If a habitat of high distinctiveness is lost, agreater area may be required in compensation to address the temporary loss of habitatand risk of habitat creation failing (through multipliers in the biodiversity metric)

local and special characteristics need to be considered. Those creating and restoring
habitats should aim to replicate the characteristics of the habitats that have been lost toachieve a similar community of characteristic species, and to take account of particularspecies in a locality that give habitats their local distinctiveness.

The developer conducts a baseline assessment of the development site using a biodiversity
metric. For example, if a developer were to build on 1 ha of woodland the following might apply:
Figure 1: Pre-development biodiversity score
Size ofhabitatparcelx

Distinctivenessx

ConditionxStrategic
locationx

Connectivity=

Biodiversity
units

1 ha

x

6 (high)x

3 (good)x

1.10(moderate
significance)x

1.15 (highconnectivity)

=

22.8

The above is based on principles of the Defra biodiversity metric methodology and is strictly illustrative.

Assuming that the local authority would require developers to provide 10% net gain, thedeveloper therefore needs to achieve a total of 25 biodiversity units. The developer canundertake a number of actions to satisfy this requirement including:changing the spatial configuration of the site to retain more habitat
improving the condition or size of the woodland on site
finding a local site on which to enhance / create equal or more valuable habitat (possibly
another of the developer’s sites)
paying compensation (i.e. a tariff) to a habitat delivery body.

Assuming the developer decides to create compensatory habitat on- or off-site, Figure 2
demonstrates how the risk factor reduces the biodiversity score for the creation of 1 ha of new
woodland habitat with the same attributes set out in Figure 1.
Figure 2: 1 ha of habitat creation of similar quality
Previous score(from Figure 1)

x

Time totargetconditionx

Difficultyx

Spatial risks=

Biodiversity
units

22.8

x

0.343
(30 years)x

0.67(medium)x

1 (habitat is
local to site)=

5.2

The above is based on principles of the Defra biodiversity metric methodology and is strictly illustrative.

16

The implication here is that for every 1 ha of habitat lost, more than 1 ha of the same habitat
would need to be created to compensate. In this scenario, 4.8 ha of new woodland would be
required to achieve the total biodiversity units owed to achieve a net gain in biodiversity.38 It
should be noted that this example describes an atypical (and undesirable) loss of distinctive (butnot irreplaceable) habitat that would in practice likely be avoided, and that the area ratio of 4.8
to 1 is therefore higher than it would be for the loss of less distinctive habitat.
2.3.2 Current policy and practiceNet gain is implemented in various ways by local planning authorities (LPAs).39 In most cases
net gains are sought in a discretionary manner through LPA negotiation, and usually secured
through conditions and Section 106 (S106) agreements.40 This can create uncertainty fordevelopers, who are unable to plan accurately to meet requirements, and who can facerequests for additional surveys or modifications later in the process due to their unfamiliarity withlocal planning approaches.41 This sometimes becomes a protracted negotiation, with staggered
design changes and reporting requirements throughout the scheme’s delivery.
At consultation, two of the significant reasons respondents cited in support of a mandatory
approach (that it will create a level playing field for developers and that consistency could
increase certainty thereby saving time and money) reflect these issues in the current system. An
industry body, reflecting the views of its members, stated the following as part of their written
consultation feedback:“The virtues of simplicity and consistency in any approach to net gain have been strongly
emphasised, providing potential efficiency savings for developers and consultants. We
agree that the existing system and obligations surrounding biodiversity are unclear andcumbersome, and we believe current proposals represent a significant improvement.”
To provide consistency, a small number of LPAs, including Warwickshire and Lichfield, haveintroduced mandatory net gain policies. Other public and private bodies have also createdvoluntary policies.
2.3.2.1 Public infrastructure bodies

Network Rail42 has implemented a net positive biodiversity scheme for their major infrastructure
projects. Examples of application are the Bermondsey Dive Under Project, the Thameslink
programme and a commission for WSP Parsons Brinckerhoff to implement 10% biodiversity net
gain for phase 2 of the East West Rail project. Highways England43 has committed to no net
loss in biodiversity by 2020 and a net gain by 2040.
38 The previous score (22.8) is multiplied by 1.1 to account for 10% net gain, then divided by the biodiversity unit value of 1 ha of newly createdwoodland (5.2). Therefore, (22.8*1.1) / 5.2 = 4.8.
39 Local planning authorities are the public authority whose duty it is to carry out specific planning functions in a particular area. The planningsystem includes three tiers of local government in England, but in this instance the focus is on district councils and London borough councils(whether two tier or unitary authorities) as Local Planning Authorities (county councils, Broads authority, national park authorities and theGreater London Authority are identified separately).
40 Refers to Section 106 of the Town and Country Planning Act 1990. This is the primary legislation under which local planning authorities areable to secure planning obligations as a signed agreement between the developer and the LPA.
41 https://webarchive.nationalarchives.gov.uk/20121029113805/http://www.communities.gov.uk/documents/507390/pdf/1436960.pdf. Figure 18(page 52) highlights a number of factors that affect development management which can cause delays. Those identified by developers include:
authorities seeking unrealistic obligations in Section 106 agreements; capacity of planning departments; and unclear local planning policies.
Those identified by LPAs include quality of applications and capacity of planning departments.
42 https://www.cieem.net/news/161/network-rail-launch-first-net-positive-biodiversity-offset-scheme
43 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/441300/N150146_-_Highways_England_Biodiversity_Plan3lo.pdf

17

2.3.2.2 Industry

Of the nine largest housing developers (which together account for 52% of residential
completions), six have some form of habitat mitigation and creation policy,44 ranging from partial
to comprehensive. These six account for an estimated 29% of residential completions in
England.
Redrow and Barratt have developed net gain policies. Berkley Group45 committed in May 2017to provide on-site net gain in biodiversity, stating that “there will be more nature on every site
afterwards than before we began” and “Of the developments that completed during 2016/17,
86% were on brownfield land and 91% incorporated features designed to enhance ecology”. For
non-residential development, an average 15.4% of sites assessed between 2000 and 2012
achieved BREEAM (Building Research Establishment Environmental Assessment Method)
excellent rating, a score which requires scoring very highly across a range of criteria including
biodiversity.46
In 2016, Balfour Beatty, Construction Industry Research and Information Association (CIRIA),
Institute of Environmental Management & Assessment (IEMA) and Chartered Institute of
Ecology and Environmental Management (CIEEM) created a set of good practice principles.47
These emphasise the mitigation hierarchy, funding long-term management, and true
additionality. Balfour Beatty is already applying a net gain model and in April 2018 published A
Better Balance: A Roadmap to Biodiversity Net Gain.48
A UK Green Business Council (UKGBC) report, ‘Insights into Nature and Biodiversity: Industry
trends, commitments and best practice examples’49 features a snapshot of current ecologicalmetrics; an overview of the UK policy context; and best practice examples of the integration of
biodiversity into development. It also features key learnings from the charity’s Gold Leaf
members, a group of high-profile construction and property businesses committed to being at
the leading edge of sustainability. Headline findings include:in 2018, 22% of UKGBC’s Gold Leaf members had a commitment to biodiversity net gain
(up from 9% in 2017)44% of UKGBC’s Gold Leaf members have a nature and biodiversity strategy in place.

UKGBC also comment that “increased natural space can increase property and land values by
as much as 25%”.50 In addition: “developments with biodiversity strategies have a greater
chance of planning approval from local authorities, enjoy greater inward investment and faster
property sales, and even reduced building energy costs”.
Currently, there is no formal mechanism for monitoring whether net gain negotiated throughplanning consents is delivered in practice. There is data on the value of environmental
improvements secured through S106 agreements, worth £115m in 2016-17.51 However, there is
44 Completion figures and policies taken from 2017 annual reports from Barratt, Bellway, Berkley, Bovis, Crest Nicholson and Redrow.
45 https://www.berkeleygroup.co.uk/sustainability/sustainable-development-goals
46 https://tools.breeam.com/filelibrary/Briefing%20Papers/BREEAM-Annual-Digest---August-2014.pdf
47 https://www.cieem.net/data/files/Publications/Biodiversity_Net_Gain_Principles.pdf
48 https://www.balfourbeatty.com/media/317352/balfour-beatty-a-better-balance-a-roadmap-to-biodiversity-net-gain.pdf
49 https://www.ukgbc.org/news/ukgbc-launches-insights-into-nature-and-biodiversity-in-built-environment-at-major-industry-event/
50 https://www.ukgbc.org/news/ukgbc-launches-insights-into-nature-and-biodiversity-in-built-environment-at-major-industry-event/51

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/685301/Section_106_and_CIL_research_rep
ort.pdf See Table 3.1.

18

no breakdown of this sum by type and location of improvement or on the losses that trigger
these contributions. This means it is difficult to determine whether net gain is delivered orwhether small losses in habitat add up to a significant loss of habitat, both at a local andnational level.
2.3.2.3 International current practiceCurrently, 69 countries have a national policy in place or under development for biodiversity
offsetting.52 In 2016 France introduced a law requiring no net loss.53 German law has required
avoidance and mandatory offsetting since 1976.
Several territories in Australia have offsetting laws,54 including Victoria’s 14-year-old system of
mandatory traded offset credits. A consultation paper shows that this has improved developer
behaviour - developers cite ‘reducing offset costs’ as a major reason for their actions tominimise biodiversity impacts.55 Habitat banks sell ‘over the counter’ credits, and developer
reports suggests this has streamlined the process.
Wetland habitat compensation has been mandatory in the USA since 1972. There is a
developed credits-based system with over 1,000 wetland banks. Third parties also help
developers with the offsetting process.56

2.4 Summary of key issues
The evidence shows a lack of policy certainty and regulatory ‘level playing-field’ for delivering
net gain – that is to say that there is a wide variation in how developers, industry bodies and
LPAs have adopted net gain policies (some have clear policies, while many do not). The
inconsistencies can also create delays and uncertainty for developers. The lack of policy
certainty is specifically cited by planners and ecologists when discussing barriers to delivering
net gain. While there is some adoption of net gain approaches, it is unlikely to be sufficient todeliver net gain at a national level. The recent trends outlined in Section 2.2 demonstrate thecontribution of development to the overall loss and damage of habitat, biodiversity and otherenvironmental goods due to development.57,58
Furthermore, the current government ambitions on house building and infrastructure are likely toaccelerate land use change, with implications for habitat and the wider environment. Placing theenvironment at the heart of planning and development will support our 25YEP ambition tocreate better places for people to live and work, as well as the wider government agenda on
house building and infrastructure.

52 http://www.wsp-pb.com/Globaln/UK/WSP%20Biodiversity%20whitepaper.pdf
53 http://www.environmentbank.com/news/post.php?s=2016-10-15-frances-new-biodiversity-law
54 Biodiversity Offsetting Green Paper, 201355 http://www.wsp-pb.com/Globaln/UK/WSP%20Biodiversity%20whitepaper.pdf
56 http://www.wsp-pb.com/Globaln/UK/WSP%20Biodiversity%20whitepaper.pdf
57 https://www.rspb.org.uk/globalassets/downloads/documents/conservation-projects/state-of-nature/state-of-nature-uk-report-2016.pdf
58 http://uknea.unep-wcmc.org/Resources/tabid/82/Default.aspx . See Chapter 4 on biodiversity in the context of ecosystem services.

19

3 Rationale for intervention
This section outlines the key market failures with reference to supporting evidence in Section 2,
and summarises the government’s rationale for intervention.

3.1 Public goods
Definition: goods and services that are non-rivalrous and non-excludable are subject to nonprovision by the market alone.
Habitats are a major component of our natural capital, with the biodiversity they support
underpinning the delivery of many ecosystem services.59 Many ecosystem services are nonexcludable (i.e. you cannot prevent someone else enjoying the benefits of carbon
sequestration) and non-rivalrous (i.e. the benefit you derive from improved water quality does
not affect the benefit derived by someone else), and are not usually directly rewarded financiallyby the market (e.g. if you created one hectare of habitat, you are much more likely to be paid atmarket rate for habitat creation rather than the full economic value, which would include theenvironmental benefits). Lack of coordination and incentives leads to significant under provision(or no provision) by the market. Habitat creation is likely to be underprovided by developers, as
demonstrated by the inconsistent adoption of net gain approaches across the planning system,and the adverse impact of development on biodiversity to date.

3.2 Externalities
Definition: there are wider positive (negative) impacts on others which are not taken into
account by the individual making the decision, leading to under (over) provision.
Land use change through development imposes a range of positive and negative environmental
externalities (e.g. habitat provision/loss, remediation/pollution) with consequent social andeconomic impacts. These impacts are not fully internalised in development decisions, leading toa tendency towards habitat loss and other environmental damage. This is demonstrated byhistorical trends in biodiversity and habitat loss outlined in Section 2.2.
Habitat creation and biodiversity deliver ecosystem services (e.g. carbon sequestration, water
quality, pollination) that both mitigate negative externalities and deliver positive externalities.60
While the delivery of net gain has financial costs (e.g. on site habitat creation) and potential
financial benefit (e.g. through house prices), the non-financial benefits (i.e. ecosystem services)
are not fully internalised in development decisions, leading to under provision. The adoption ofnet gain policies by some developers, industry bodies and LPAs shows some recognition of theenvironment in development decisions, but the adoption is inconsistent and not widespreadenough for it to be fully internalised.

3.3 Information asymmetries
Definition: people lack good information about the quality of relevant goods or services which
may cause them to make choices that are not in the best interest (i.e. suboptimal) for society as
a whole.
The lack of consistent accounting and reporting of habitat impacts across the planning systemmeans that economically suboptimal choices are more likely to be made. The current system of
59 http://uknea.unep-wcmc.org/Resources/tabid/82/Default.aspx. See Chapter 4 on biodiversity in the context of ecosystem services.
60 http://uknea.unep-wcmc.org/Resources/tabid/82/Default.aspx

20

inconsistent and optional developer reporting measures reduces market efficiency by creating
information asymmetries and increasing transaction costs. For example, LPAs and developers
often have different information on site characteristics, expectation and potential for habitat
delivery, and development viability (i.e. financial constraints). This is demonstrated by the factthat few LPAs and developers have adopted variations of net gain approaches, with differing
uses of the Defra biodiversity metric. In addition, industry guidance that advocates net gain
approaches is voluntary.
In summary, full and transparent information on habitat gains and losses is not always supplied
to decision makers in the planning system and this asymmetry facilitates habitat loss andenvironmental damage from development.

3.4 Equity
Definition: inequalities exist that have not been addressed by the market. Refers to differential
impacts on individuals across a range of socioeconomic and demographic characteristics.
Unequal access to nature and greenspace most affects those who live in the most deprived
areas of England.61 This extends to access where people live as well as visit. This isdemonstrated by the variations in net gain approaches across the planning system, which leads
to inconsistent provision of on-site (and local) creation of nature and green spaces throughdevelopments. This further exacerbates inequality of access to nature.

3.5 Summary
Overall, the provision and conservation of habitats and biodiversity suffer from the above market
failures. They are public goods and produce positive externalities whilst mitigating negative
externalities produced by development. These characteristics lead to too little new habitat
creation and too much habitat loss and damage respectively. The current system of inconsistentand optional developer measures not only fails to internalise the externalities outlined, it also
reduces market efficiency by creating information asymmetries and increasing transaction costs,
and in some cases may create perverse incentives against creating habitat-rich places.
There is a clear rationale for government to create a level playing field across the planningsystem, ensuring the socially optimal delivery of habitats, mitigating and preventing
unnecessary habitat loss and providing more equitable access to nature.

4 Policy objectives
The primary aim is to secure a measurable improvement in habitats for biodiversity whilst
streamlining development processes. A measurable net gain is necessary to achieve both theconservation outcomes (i.e. to improve the environment in a generation) and to deliver the
streamlining and community support objectives (i.e. support for development is unlikely to grow
if the aggregate impact of development on nature remains negative).62 Net gains for biodiversity
are also already sought, but not always delivered, through planning policy in the NPPF and so
any weaker objective would be counterproductive. For further information on why a marginal
gain, as opposed to ‘no net loss’, is required see Annex 3.

61 https://www.gov.uk/government/publications/25-year-environment-plan
62 http://www.bsa.natcen.ac.uk/media/38952/bsa28_8housing.pdf. See Table 8.3. The survey suggests that improving amenities such as green

space and parks is the second best incentive (after employment opportunities) that could persuade those initially opposed to local housebuilding (or uncommitted) to support it.

21

The objectives that have guided policy development to date are that net gain:

delivers habitat creation, meeting government’s ambition to leave the environment in abetter state than it inherited it for the next generation
is simple, streamlined and certain for developers. It is easy to understand and will notprevent, delay or reduce housebuilding
is of clear benefit to people and local communities.

A successful policy requiring net gain in habitat from development could correct the market
failures outlined in Section 3. It would require market participants to internalise the costs andbenefits of land use change in decision making and restore and create habitats that add value
to society.63 It would also improve market efficiency through greater transparency and certainty
in planning processes, creating a level playing field with standardised requirements and better
information, potentially saving developers time and money. Finally, it could facilitate significant
growth in the market for offset credits (i.e. habitat banking) to allow 'off the shelf' offsetting,which has potential to be an efficient and scalable option for developers.

5 Policy design
5.1 BackgroundThe consultation IA assessed a range of regulatory and non-regulatory options:






Option 0: Business as usual (voluntary approach)
Option 1: National schedule tariff
Option 2: Mandatory tariff with biodiversity metric (preferred)
Option 3: Regulatory approach (no tariff)
Option 4: Enhanced voluntary approach

We took forward Option 2 as our preferred option for further development and consultation.
Option 0 was retained for comparison and as a baseline for the cost benefit analysis. Options
1, 3 and 4 were discounted following multi-criteria analysis, which means we did not takeforward options that:augment or enhance existing voluntary approaches, as this does not support the wider
delivery of net gain, provide a level playing field, or adopt the recommendation from theevaluation of the Biodiversity Offsetting pilots for a mandatory approach
add burdensome regulation(s) that would not easily be mitigated by streamlining
processes elsewhere and could potentially add new and unfamiliar processes
are not compatible with or undermine the mitigation hierarchy.

Following consultation and further policy development, the approach taken forward for the final
impact assessment is a mandatory requirement with biodiversity metric (preferred). Thisapproach mandates net gain through the use of a specified biodiversity metric to developmentin scope of the Town and Country Planning Act 1990 (TCPA).64 Developers will have the option,
once the mitigation hierarchy has been demonstrated, to pay for remaining units through amarket for biodiversity units, which will include statutory biodiversity credits provided by
63 https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/ecosystemserviceaccounts1997to2015. The latest(release date 30th January 2018) partial asset value of UK natural capital is estimated to be £761 billion in 2015.
64 https://www.legislation.gov.uk/ukpga/1990/8/contents

22

government. Net gain activities undertaken will contribute to and be part of a wider strategic
framework to recover nature at the local authority spatial scale.
For the purposes of demonstrating the costs and benefits of this chosen approach, we assume
the baseline comparator is business as usual, which assumes that existing voluntary
approaches continue, in line with the NPPF.
The preferred approach is explained in more detail in Section 5.2.2. Variations in policy
assumptions (e.g. scope, level of net gain), are tested via sensitivity analysis in Section 6.11.

5.2 Description of policy approach
5.2.1 Baseline comparator: business as usual (voluntary approach)
Existing voluntary approaches continue, in line with the NPPF. This strengthened wording
drives provision of net gain in the planning system, and supports the use of metrics (albeit not a
specific one) by calling for measurable change in biodiversity. The development process issummarised in Figure 3.
Figure 3: development process under business as usual
LPA hasbiodiversity net
gain
requirement

Developer
calculates
baseline and postdevelopment
biodiversity units

Net gain of
biodiversity units

Calculation
verified

Permission
grantedDeveloper createsor enhances
nearby habitat
themselves

Habitat creation
verifiedOR
Developer
amends designs
to increase on-site
biodiversity units

Net loss of
biodiversity unitsOR
Developer cannot
create or enhance
nearby habitat
themselves

LPA has a
generalbiodiversity
policyrequirement

Developer
estimates LPA
requirement andintegrates into
design.

LPA accepts
minimum
threshold

Developer pays
third party for
local habitat
creation orenhancement

Permission
grantedOR
LPA negotiates
greater
biodiversity
mitigation

Developer
increases onsite
biodiversity
features

Permission
granted withconditions

OR
LPA refuses
application
Grey
Blue
Green

Decision / requirement
Developer action
Planning permission outcome

23

Developer
agrees tonegotiate S106
agreement

However, many of the issues discussed in Sections 2 and 3 remain, particularly the lack of alevel playing field (under inconsistent requirements, a developer looking to comply fully withplanning policy might be outbid for land by a less ambitious or scrupulous developer. Net gain
policy and metrics can vary widely across LPA boundaries meaning that process costs are
greater for developers and LPAs than in a consistent system). Continuing with business as
usual is unlikely to achieve the policy objectives set out in Section 4. Furthermore, it would stillmean the majority of LPAs have a general biodiversity policy rather than specific requirements
to achieve net gain.
5.2.2 Chosen approach: mandatory requirement with biodiversity metric
Delivering net gain for biodiversity is mandated for new development in scope of the TCPA.
Sections 5.2.2.1-6 describes the policy components for this approach. The underlying policy
assumptions are:

mandatory biodiversity net gain is implemented through legislation, to secure biodiversity
outcomes when planning permission is granted

the new requirement will apply to development under the TCPA with exemptions for
permitted development, householder development including extensions, some targetedbrownfield sites with viability issues. A simplified process will be used for small sites (seeSection 5.2.2.2 for further details)



a national mandatory level of net gain will be established. Following consultation, we
propose that 10% is the right level to demonstrate net gain (see Annex 3 for further
evidence on the level of net gain)planning applicants will demonstrate to decision makers that proposals will deliver net
gain by providing an assessment that can be scrutinised through the planning process.
This will be informed by mandating the use of the Defra biodiversity metric to assess
habitats before and after development

the net gain activities undertaken will contribute to and be part of a wider strategic
framework to recover nature at the local authority spatial scaledevelopment will still follow the biodiversity mitigation hierarchy and the spatial
preference is for compensation to be provided near to where losses occuroutcomes can be delivered on-site, off-site (e.g. via an identified local compensation site)or via payment to government who will provide statutory biodiversity credits into thecompensation market , which will go towards local/strategic delivery, in adherence withthe mitigation hierarchythe policy will apply in England only.

Changes to the policy components (e.g. scope, level of net gain) may impact the effectivenessas well as cost and benefits of the policy. Variations in policy assumptions are tested via
sensitivity analysis in Section 6.11.
5.2.2.1 Scope

Delivering net gain for biodiversity will be mandated for new development in scope of the TCPA.
This includes buildings and structures for any use including commercial, industrial, institutional,
leisure and housing or other accommodation, where these require permission from local
planning authorities.

24

The scope does not include permitted development65 such as specific development on
infrastructure land by providers (statutory undertakers); it also does not include nationallysignificant infrastructure, which falls within scope of the Planning Act 200866 rather than the
TCPA. Developments that would not result in measurable loss or degradation of habitat, forinstance change of use of or alterations to buildings, would also not be in scope.
The duty to ensure net gain will apply to all LPAs as defined by the TCPA, which includes (but is
not limited to) District Councils, National Park Authorities and various joint planning boards andcommittees. It will also apply to decisions to grant planning permission by a Secretary of State,at least in some cases, such as on appeal, on call-in and under certain orders.
5.2.2.2 Exemptions

The consultation asked whether exemptions to a mandatory biodiversity net gain policy might
be made to developments by size, sector or site location. Some types of development are likely
to have a typically smaller effect on biodiversity such as small-scale alterations that do notsignificantly change habitat cover (e.g. change of use, home extensions not covered bypermitted development rights). Permitted development has been granted permission in advanceby Secretary of State and the policy does not seek to reverse that decision. Permitted
development is not subject to a similar application process to other permissions through which
to measure biodiversity impacts and secure gains. These exemptions are outlined in Section
5.2.2.1 under our chosen approach.
Exemptions have a significant influence on the likely impact and/or effectiveness of the policy.
Exemptions would either prevent net gain from being achieved across the system (thereby
preclude development from contributing as a whole to government’s ambition to leave theenvironment in a better state) or require other development types to deliver higher gains tooffset the exemptions. Exemptions might create additional complexity which in turn may create
extra burdens on LPAs in delivering net gain. However, exemptions or process leniencies might
reduce costs to business (particularly to small developers) and may reduce viability concerns forcertain sites (e.g. sites with marginal viability and substantial constraints).
At consultation, the majority of stakeholders felt that broad exemptions such as those for smallor brownfield sites would undermine the effectiveness of the policy in terms of achieving
biodiversity outcomes. However, a number of stakeholders expressed support for a form oftargeted exemption that might reduce requirements for those sites which are most costly todevelop, such as those on post-industrial or contaminated land. Support was also expressed forprocess easements for small sites that could reduce the administrative burden of responding to
the net gain requirement. This issue is further explored in the Small and Micro Business
Assessment (Section 7), with respect to the interaction between small sites and small and large
developers.
In addition to an exemption for permitted development, we have decided to take forward
additional exemptions which were cited by consultation respondents as sites where a net gain
requirement would add a disproportionate cost or process burden in relation to theenvironmental outcomes achieved:householder development, including extensions

65Development does not in all instances require a planning application to be made for permission to carry out the development. In some cases
development will be permitted under national permitted development rights. http://www.legislation.gov.uk/uksi/2015/596/contents/made66 https://www.legislation.gov.uk/ukpga/2008/29/contents25

some brownfield sites with marginal viability and substantial constraints. We expect fulldetails to be set out in secondary legislation but considerations are likely to include
where sites contain a high proportion of derelict land and buildings and only a small
percentage of the site is undeveloped, land values are significantly lower than average,
and the site does not contain any protected habitats.

In addition, government proposes to introduce process leniencies for small sites (see Table 29
in Section 7.1 for definitions of minor and major development), whereby such sites areaccorded a default condition score in the Defra metric of “2”, negating the need for small sites toundertake new habitat surveys which might add a disproportionate cost and process burden.
Means of managing survey burdens for developments up to a hectare in size, or of fewer than
40 residential units, will also be considered to ensure that significant or disproportionate newadministrative requirements are not put in place where this is not justified.
5.2.2.3 Assessment

In practice, LPAs will grant planning permission only when they are satisfied that biodiversity net
gain will be achieved alongside construction of development (with habitats to be managed for
up to around 25-30 years, see Annex 3 on permanence). This option assumes that biodiversity
net gain is delivered through the following broad mechanisms:

scenario A: the developer is able to avoid significant loss of distinctive habitats, so
mitigates and enhances on site
scenario B: The developer is unable to avoid, mitigate and compensate all impacts onsite but is able to secure local compensatory habitat creation. This is usually identified by
the developer, their consultants, a broker or an LPA. This scenario sits between Scenario
A and C
scenario C: The developer is unable to avoid, mitigate and compensate on site andunable to find local compensatory habitat to invest in. The government will provide a
supply of statutory biodiversity credits into the compensation market to fund cost-effective
habitat creation projects according to local and national conservation and natural capitalpriorities (see Section 5.2.2.4 for details).

The aim is to ensure that as a result of any development the number of biodiversity units
provided is at least 10% greater than the number of biodiversity units present on thedevelopment site prior to development (please see Annex 3 about why 10% was selected as
an appropriate level of net gain). In determining how many biodiversity units are provided as aresult of the development, the LPA needs to take account of:

the number of biodiversity units on site as a result of the development; these include preexisting units unaffected by the development and new units being created by thedeveloper
new units provided off site by the developer, either created by them or provided throughan agreement with a third party (the expectation is that some form of conservation
covenant might also be available to help secure offsite units)
units for which the developer pays government who will provide for statutory biodiversity
credits into the compensation market.

This would apply to both area (e.g. woodland) and linear (e.g. hedgerows) based features as
outlined in Section 2.3.1.

26

Achieving a consistent approach to assessing biodiversity is facilitated by using a single systemor metric. This consistency will help to improve common understanding of this approach,scrutiny by communities and stakeholders, the ability of markets to operate acrossadministrative boundaries and the operation of any national, county or local compensation
system. Therefore, the preferred option’s intention is that biodiversity is assessed consistently
using the updated Defra biodiversity metric with a planning application, as outlined in Section
2.3.1, with minimum requirements for the assessment specified. Stakeholders supported aconsistent approach to assessing biodiversity and considered the updates to the Defra metric tobe broadly helpful improvements.
We define the variables in the metric outlined in Section 2.3.1 below.
Habitat extent
This expresses the area in hectares for the habitat being assessed so does not require formal
definition or categorisation beyond this.
DistinctivenessDefinitions are set out in Table 5.
In practice, identifying the correct habitat type will require some level of ecologicalunderstanding, and professional expertise when semi-natural habitats of biodiversity value arepresent.
Table 5: Distinctiveness categories
Category
Score Example of habitat type
Very High

8

Priority habitats as defined in Section 41 of the Natural Environment and
Rural Communities Act 200667 (NERC) that are highly threatened,internationally scarce and require conservation action e.g. blanket bog

High

6

Priority habitats as defined in Section 41 of NERC requiring conservation
action e.g. lowland fens

Medium4

Semi-natural vegetation not classed as a Priority habitat such as semiimproved grassland

Low

2

Lower value semi-natural vegetation e.g. temporary grass and clover ley;intensive orchard; rhododendron scrub

Very Low0

Little or no biodiversity value e.g. Developed land; sealed surfaces

67 https://www.legislation.gov.uk/ukpga/2006/16/contents

27

Condition
Definitions are set out in Table 6.
Table 6: Condition categories
Category
Good
Fairly goodModerate
Fairly poor
Poor
N/A – Agriculture
N/A – No biodiversity value

Score
3
2.5
2
1.5
1
1
0

Determining condition involves a significant element of judgement, albeit with prescriptive
criteria, requiring some ecological expertise to match present habitats to the described criteria.
Guidance will be produced to support and standardise condition assessment for each habitat
type. However, the intention is that small developers will simply use a default multiplier of 2 forthis part of the metric assessment. It will, in some cases, be more cost effective for a small
developer to accept this default figure than to carry out a survey of condition.
Strategic Significance of Location
Definitions are set out in Table 7. As there are both strong ecological and socio-economic
drivers for compensation habitat to be local to where losses occur, it is a rule of this metric thatcompensation is penalised through multipliers unless it is located in the same LPA or local area.
Table 7: Strategic Significance categories
Category
Score
High strategic significanceWithin area formally identified in the local policy

1.15

Medium strategic significanceNot in area defined in local the policy

1.1

Low Strategic SignificanceNot in area defined in the local policy (orcompensation not within area of local policy), or
where no local environmental spatial policy is in place1

Determining strategic significance is dependent on the mapping of ecological networks including
areas for enhancement, restoration or creation and would be facilitated by the production of
local nature priority statements (LNPS) (see Section 5.2.2.5 on spatial planning). Therefore,
this categorisation of land parcels by a strategic significance score will need to be a mandatory
part of every LNPS. In the absence of a LNPS and a suitable map of strategic significance, thedefault value for strategic significance could be set at “1” in the metric; this might also
incentivise the creation of LNPSs.

28

Connectivity
Definitions are set out in Table 8.
Table 8: Connectivity categories
Category

Score

Highly aggregated / connected
Moderate aggregation / connectivity
Low aggregation / connectivity

1.15
1.1
1

The calculation will be automated using a freely available GIS tool to generate output that canbe fed into the metric calculation. A simple alternative approach will be available to make thesystem proportionate for smaller developments (e.g. defining a default value) and further
engagement will define how this operates.
Difficulty of creation or restoration
Definitions are set out in Table 9.
Table 9: Difficulty categories
Category
Multiplier
Low
MediumHigh
Very High

1
0.67
0.33
0.1

The level of risk will differ between habitat types because of ecological factors and theavailability of techniques or know-how to create habitats in a realistic time-frame. Guidance will
be produced to determine how difficult creating each type of habitat is.
Location relative to development
Definitions are set out in Table 10.
This component is a simple reflection of the fact that habitat created at a great distance from thesite of habitat losses carries a risk of depleting local areas of natural habitats and of depriving
the communities experiencing development of the associated benefits. The definitions are set
with respect to LPAs.
Table 10: Location relative to development
Category

MultiplierCompensation inside LPA, or deemed to be sufficiently
local, to site of biodiversity loss

1

Compensation outside LPA of impact site
but in neighbouring LPA

0.75

Compensation outside LPA of impact siteand beyond neighbouring LPA

0.5

29

Time to target condition
Definitions are set out in Table 11. Where there is a temporal mismatch between a negative
impact on biodiversity and compensation habitat reaching the required quality or level ofmaturity, there will be a loss of biodiversity for a period of time.
Table 11: Time to target condition categories
Number of years
Multiplier
1 year
5 years
10 years
20 years
30 years

0.965
0.837
0.700
0.490
0.343

This issue can be managed by the creation of compensation habitat ahead of the impact taking
place, either though the setting up of habitat banks or, for projects with a long lead in, bystarting the offset work ahead of the development. However, this is not always possible andeven where the management to create compensation habitat starts in advance, the time taken
for habitats to mature means that there will almost inevitably be a time lag. Where a time lag
does occur, a multiplier is applied to take account of it. This is referred to as the ‘Time to target
condition’ multiplier.
Where time discounting is used in compensation schemes a standard discount rate of 3.5% isused, as recommended in the HM Treasury Green Book.68 The maximum multiplier taking
account of temporal risk increases the compensation required almost three-fold, which equates
to approximately 32 years. Estimating how long it will take to reach the desired habitat type isagain currently a matter of expert judgment of an ecologist, albeit with the assistance of
guidance. Updated guidance is intended to give much greater clarity and certainty on this factor.
Linear features, such as hedgerows, tree lines, rivers and trees are also accounted for in
biodiversity net gain metrics. Because these operate with regard to linear features, their
mitigation and compensation should not require additional land on development sites and wewould not expect significant losses to occur on the vast majority of development sites (linear
features are typically retained as perimeters or as features in developments). The metrics forlinear features work on similar frameworks to the area-based metric but operate on length offeatures rather than area. Engagement work on the wider biodiversity metric has led to somerequests for developers to be able to count linear units towards their 10% area-based target,
suggesting that a surplus of linear units is achievable on a well-designed project. Where linear
features are lost or damaged, it is assumed in this Impact Assessment that their replacement isincorporated into on-site habitat creation.
Protected species, on the other hand, require specific provision to meet legal requirements
including, for some, development licences. District licensing is, for now, distinct from abiodiversity net gain approach. However, habitats created or enhanced to meet a species
licensing requirement can be included in biodiversity net gain calculations.
Role of LPAs and national delivery bodies
LPAs will use existing powers to validate and scrutinise applications through development
management procedures, with rights to refuse permission (and the accompanying appeals
process) acting as an incentive to agree an assessment. Guidance and related tools for the
68 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent

30

metric will be provided to LPAs and developers, with targeted training offered to LPAs and thePlanning Inspectorate (PINS) whose role in the planning process includes examining local plansand dealing with planning appeals.69
With these tools and training in place it is anticipated that the main resource that will be needed
by LPAs to implement the policy effectively is access to sufficient expert ecological advice. At
present this is provided through different models including in-house ecologists, shared services
or buying in advice from other authorities, NGOs or consultancies. The level of advice available
to planning departments is variable and LPAs report capacity is stretched. A local authority new
burdens assessment is in progress and draft assumptions have been shared with LPAs
alongside the consultation to test the related set-up and ongoing costs (see Section 6.8 formore details).
A voluntary accreditation scheme might be established building on best practice principles andstandards that have been developed by the environmental assessment sector. This will allow
LPAs to have greater confidence in assessments by accredited organisations submitted with
development proposals and focus scrutiny on those from non-accredited assessors.
It is also envisaged that Natural England, the government’s advisor for the natural environment
in England, will provide support and advice to Local Authorities and developers to enable themto implement the biodiversity net gain requirement. The anticipated costs and details of their
responsibilities are explored in Section 6.8.
Irreplaceable habitats
In the case of irreplaceable habitats and protected sites, planning policy will continue to apply.70
On irreplaceable habitats, the NPPF71 states: “development resulting in the loss or deteriorationof irreplaceable habitats (such as ancient woodland and ancient or veteran trees) should be
refused, unless there are wholly exceptional reasons and a suitable compensation strategy
exists”.
In the case of statutory protected sites and irreplaceable habitats, the biodiversity metric asused by this policy is not considered sufficient (in its normal operation) to define what suitablecompensation for losses would be, given that habitat types such as ancient woodland cannot berecreated. In this light, such habitats would not be included within the mandatory net gain policy.
Should loss of, or damage to, irreplaceable habitats occur within a scheme, compensation
arrangements would need to be agreed between the developer and relevant parties according
to existing planning policy and guidance.
5.2.2.4 Government delivery of statutory biodiversity credits

It is anticipated that, in time, a functioning market in biodiversity units will develop which will
enable developers to source offsite enhancements themselves directly from the market in order
to meet the net gain requirement where it is not possible to enhance or create sufficient habitatson site. However, a market may take time to develop so that it offers the right opportunities forhabitat compensation in the right areas.
Some local authorities already use the planning system and developer contributions, forexample through S106 agreements, to secure funding to ensure net gains can be delivered in
respect of all developments. At consultation, we asked whether a tariff was required to secure
69 https://www.gov.uk/government/organisations/planning-inspectorate/about
70 Relates to the 2017 regulations that transpose the requirements of Article 6(4) of the Habitats Directive.
71 2018 NPPF. Please see paragraph 175(c).

31habitat enhancement in order to facilitate development where net gain opportunities could not
be secured onsite or locally via the market.
Responses were mixed in terms of whether such a tariff would be required and whether itshould be collected locally or nationally. A number of respondents supported a tariff mechanismthat would facilitate development even where habitats could not be improved on site or locallybut the majority of responses on this issue favoured delivery of habitat enhancement locally andtransparently. As local authorities can already use the planning system to secure funds andhave demonstrated in some areas that they can establish local delivery arrangements (e.g.
Warwickshire), we believe the best way to encourage this is through the establishment of asystem that can support implementation of the policy (by reducing the risk that development isheld up by a lack of local habitat creation opportunities) while incentivising local markets for thedelivery of compensatory habitats.
Government therefore intends to ensure development can proceed, and funding for offsite
habitat enhancement can be secured, by taking steps to support the market for habitat
compensation through the provision of biodiversity credits. In recognition of respondents’preference for the local collection and spending of net gain compensation, as well as concerns
about the potential bureaucracy inherent in a new charging scheme, government will not
introduce a new tariff on loss of biodiversity. Instead, the risk that the market supply of habitat
creation will not meet demand will be addressed by government’s plan to provide a supply of
statutory biodiversity units, in the form of equivalent biodiversity credits, into the compensation
market. By not instating a rigid tariff mechanism, government will make it easier for local
authorities, landowners and organisations to set up habitat compensation schemes locallywhere they wish to do so, and will still provide a last-resort supply of credits from government
where this is not the case.
Revenue from the sale of statutory biodiversity credits will, where possible, be invested directly
into pre-determined local habitat creation projects, and government will design the system todiscourage any long-term pooling of revenue. Projects for investment will be selected on thebasis of their additionality, their long-term environmental benefits and their contribution to
strategic ecological networks. Investment will be made transparently and a public record ofgovernment habitat creation projects maintained for transparency and audit purposes.
Government will apply its principles for setting a cost for a tariff, which were set out in the net
gain consultation, in setting the standard cost of statutory biodiversity credits. We will also
consider the administrative costs of delivering habitat compensation schemes and theinteraction between habitat creation costs for net gain and government payment forenvironmental land management.
For the purposes of this IA, we assume a cost of £11,000 per biodiversity unit for typical off-site
habitat creation. This value is within bounds of the ‘tariff’ value proposed at consultation(between £9,000 and £15,000), as well as evidence of existing compensation schemes (usuallycharge between £6,000 and £25,000 per unit) plus a small uplift for administration.72 This should
provide an incentive for developers to use a local compensation schemes including those
operated by Local Authorities. The intention is that, as the market for biodiversity units grows,
the need will diminish for government-backed provision of statutory biodiversity credits.

72 The value does not refer directly to the cost of the units provided by government, but is within the range of biodiversity unit costs outlined at

consultation and from subsequent evidence gathered through consultation on cost of units offered for bespoke off-sets or habitat banking.

32

Whilst government still considers the consultation’s proposed range for the cost per biodiversity
unit broadly appropriate, some respondents raised concerns that it was too low and would stifle
habitat creation markets, and some that it was too high. Several respondents asked for further
evidence and work to refine this cost per unit, so government will undertake a review of the rate
and further stakeholder engagement on this subject before announcing a specific cost per
statutory biodiversity credit.
5.2.2.5 Spatial planning for nature improvement

The biodiversity net gain public consultation revealed strong support for habitat opportunity
maps to guide provision of compensatory habitat so that it delivers the greatest benefit. In theEnvironment Bill, government will introduce new duties to support better spatial planning fornature through the creation of Local Nature Recovery Strategies (LNRSs). The intention is thatthe whole of England will be covered by LNRSs with no gaps or overlaps. Each LNRS will
include a statement of biodiversity priorities for the area covered by the strategy and a local
habitat map that identifies opportunities for recovering or enhancing biodiversity.
National government will provide data, guidance and support but each LNRS will be produced
locally, with a relevant public body appointed as the responsible authority by the Secretary ofState. This will achieve the best combination of local ownership and knowledge and national
consistency and strategy which consultation responses supported. LNRSs will be produced
collaboratively with input from a broad range of partners. The intention is that LNRSs willencourage the consideration of the wider benefits of habitats (e.g. carbon sequestration andflood mitigation) and promote greater connectivity between areas of habitat. Our intention is that
LNRSs will also be a tool to support delivery of existing duties on local and public authorities toprotect and enhance biodiversity; putting biodiversity net gain at the heart of a more strategic
approach to nature recovery.
We envisage that LNRSs will inform the town and country planning process by providing animportant source of evidence to support plan-making, and underpinning actions local planning
authorities or neighbourhood planning groups choose to take to protect and enhancebiodiversity in their areas. It will continue to be the case that the development plan itself is theprincipal document at the heart of the planning system, and that planning decisions must be
taken in line with the development plan unless material considerations indicate otherwise.
5.2.2.6 Monitoring and evaluation

An effective monitoring and evaluation strategy will ensure that:

we can assess whether the policy has achieved the environmental outcomes sought at a
local and national level, as well as the impacts on developers and local communities
there is a mechanism for reviewing and improving the implementation of net gain policy.

The consultation proposes a series of measures that will be secured as part of a monitoring andevaluation strategy, including accreditation for those creating habitats, standards for digital data,area-wide baseline data and the review of random samples of development and compensationsites. Existing habitat improvement schemes typically include some funding for the monitoring of
progress on site, and we would expect this practice to continue under a mandatory approach.
By its nature, the policy will facilitate improved understanding of habitat change throughdevelopment. Consistent application of the biodiversity metric will increase the transparency ofhabitat change reporting and will create a stream of quantitative data on habitat losses andgains which will allow LPAs, local environment record centres, NGOs or Defra group to provide
enhanced oversight of the outcomes of planning decisions.
33

Specifically, data will be captured via a combination of:






LPAs reporting on net gain delivered in their areas for approved developments orsummary statistics and submit these to central government, in line with wider reporting
requirements
full remote capture (for example, by machine reading of assessments published as partof successful planning applications)sampling of online assessmentsin the future, the potential to introduce automated reporting through metric tools or a
web-based metric that allows for spatially explicit recording of habitat gains and losses (anumber of consultation responses expressed support for this type of function)

This data will allow government to understand the types of habitat reportedly being lost andgained through development, with the potential for spatially disaggregated datasets to highlight
local areas that are performing well in terms of avoiding impacts to high quality habitat andachieving positive outcomes through development. This data from submitted net gain
assessments might inform adjustments to the metric (if for example, certain habitats are unjustly
favoured for creation through the action of metric multipliers) and to the wider policy. Data fromassessments and wider project reporting could also be compared with remote sensing data toprovide broad oversight of standards.
The measures described above will help government to understand what is being planned fornet gain but will not necessarily give an accurate indication of what is delivered in practice.
Normal enforcement procedures at the local authority level, along with transparent site planningdocuments and habitat management plans, will provide some confidence that on-site habitat
delivery will be faithfully carried out.
However, for enforcement to be more effective than it is now, there will need to be greatertransparency of planned mitigation actions and suitable means of making off-site compensation
projects visible to communities and development control staff. NGOs and Local Environment
Records Centres have experience of collecting monitoring data directly from local schemes,
providing assurance or oversight and have indicated that they could play a greater role.
Improvements of monitoring and data reporting standards within the habitat market will facilitate
monitoring by public bodies and provide communities, NGOs and Local Environment Records
Centres with mechanisms to quickly verify planned enhancements.
Improved baseline habitat mapping is expected to become available in the near future, which
will greatly assist in verifying losses and the value of gains (i.e. is high value habitat truly being
created or simply said to be created where it already exists?). A robust baseline habitat map
with an appropriate digital portal could allow data collected through the metric to be marked on
habitat maps, opening created habitats to closer public scrutiny and more feasible monitoring by
local authorities. Over a longer time period, updates to habitat maps will reveal total habitatchanges. Evaluation projects could, in due course, review remotely sensed (and those verified
by ground surveys) habitat maps over time for evidence of habitat change at compensationsites in national mapping. A less complete system of monitoring could be achieved through theinspection of random (potentially stratified by LPA) samples of developments and off-site habitat
creation projects by government or its contractors.

34

The results of this delivery monitoring would be fed into policy evaluation and could informfuture decisions to revise: the level of net gain required (if delivery monitoring reveals that evena 10% increase is insufficient to achieve real gains for wildlife, or if 10% is delivering large gains
due to high standards and good industry practice then government might wish to review thisrate downwards accordingly); revision of enforcement mechanisms and resourcing; and meansof increasing scrutiny by the public and key decision makers of the habitat creation process.

6 Cost benefit analysis
This section sets out the cost benefit analysis of our preferred approach outlined in Section
5.2.2 against the baseline comparator outlined in Section 5.2.1. While informed by consultation
responses and research, considerable uncertainty remains in the analysis, reflected by therange of outcomes analysed. Monetised impacts include: those on developers; the new burdens
placed on LPAs; additional costs to Defra and Natural England; and the environmental benefits
from new habitat creation and avoided habitat loss. All other costs and benefits are statedqualitatively. A summary of the assumptions and outputs of the analysis are set out in Section
6.1, a description of the methodology and other considerations are set out in Sections 6.2 to
6.4 (further details in Annex 1 and 2), the costs and benefits are set out in Sections 6.5 to
6.10, and sensitivity analysis is presented in Section 6.11.
The cost benefit analysis captures development under the TCPA: residential, industry andcommerce (i.e. commercial), and transport and utilities, as shown in Tables 1-3 in Section
2.2.1. We use an indicative value of the biodiversity units for the purpose of calculating costs(£11,000) incurred through the offsetting market, as well as Government-backed provision at a
fixed price.
We expect there will be a wide distribution of impacts, given that the costs and benefits will behighly dependent on the location and design of individual developments. In our analysis we
assume that developers either: (1) already deliver net gain (entirely as we have proposed) or (2)do not deliver net gain (or even ‘no net loss’) and do little to mitigate or compensate habitat
damage caused by their developments.
Given this, those currently doing the most to benefit the environment should find that thisprovides certainty. Since these developers already incur all or most of the costs of net gain, themost significant change for them (within our analysis) will be benefits associated with greater
consistency in net gain within the planning process and greater consistency in expectations.
The developers who currently cause high levels of environmental damage and do little tocompensate for this will face the highest additional costs. This means, in practice, it is likely thatthe costs will fall unevenly across developers.
Biodiversity net gain should, therefore, steer development towards the least environmentally
damaging areas and design practices. A significant proportion of costs imposed on developers
are likely, in the medium to long term, to be ‘passed through’ to developable land prices,
thereby affecting landowners. This issue is further explored in Section 6.4.

35

6.1 Summary tables
Please see Sections 6.2-4 for a description of the assumptions and risks, and Annex 1 and 2
for details for further details on key assumptions and cost-benefit analysis calculations.
Table 12: Summary of cost benefit analysis assumptions by scenario
Description(assumptions are the same acrossscenarios unless stated)

Assumptions
Policy assumptions (figures not rounded)% level of biodiversity net gain

10%

% biodiversity net gain achieved onsite

Scenario A (low cost): 100%
Scenario B (central estimate): 75%
Scenario C (high cost): 0%

Years of habitat maintenance required

30 yearsBaseline residential biodiversity net gain delivery(% of developments)

29%

Baseline non-residential biodiversity net gain delivery(% of developments)

15%

Additional cost pass-through to land prices (%)

90%

Estimated residential development per year

6,701 haEstimated non-residential development per year
(Developments which are categorised as industry and commerce, andtransport and utilities, as shown in Tables 1-3 in Section 2.2.1)

Estimated total development per year
(in scope of the policy)

9,530 ha16,232 ha

Unit values - Costs (2017 prices, figures not rounded)
Costs of habitat creation (per ha): survey£900

Costs of habitat creation (per ha): net present value of 30 years’creation and maintenance costs£19,698

Unit values - Benefits (2017 prices, figures not rounded)
Average social value of habitat per residence, based on ONS
ecosystem accounts for urban areas(annual, national average)
Range of natural capital benefits per ha of habitat, derived fromaverage social value of habitat per residence(for regional values used in analysis see Table A1.2 in Annex 1).

36£4,800 per residence£3,696 - £89,248 per haTable 13: Outputs and cost benefit analysis summary by scenario£ millions (2017 prices), unless stated otherwise
Item

Scenario A

CentralScenario C

Net direct cost to developers(annual)

42.1

199.0

669.5

Net indirect cost to developers(annual, including 90% pass through to land
prices)

4.2

19.9

66.9

Annual costs to local government(Ongoing, excludes transition costs)

9.5

9.5

9.5

Annual costs to central government(Ongoing, excludes transition costs)

3.1

3.1

3.1

Avoided habitat loss
(Annual, ha)

12,8599,644

0.0

Habitat creation(Annual, ha)

1,551

5,428

17,0601,860.9

1,395.7

0.0

478.2

1,828.2

5,878.4

Present value of benefits(10 year appraisal period, social benefits
derived from local avoided habitat loss andlocal habitat creation)

15,193.4

11,395.1

0.0

Net present value (benefits – costs)(10 year appraisal period)

14,715.3

9,566.8-5,878.4

Annual social (i.e. natural capital) benefits(10 year average)
Present value of costs(10 year appraisal period, total costs todevelopers and government)

6.2 Key assumptions
For an overview of numeric assumptions see the summary tables in Section 6.1. Selected key
assumptions are tested in the sensitivity analysis presented in Section 6.11.
6.2.1 Biodiversity net gain delivery scenarios
The analysis is based around three scenarios, which each represent a version of the options
available to developers under biodiversity net gain:scenario A, the developer is able to avoid significant loss of distinctive habitats, andtherefore mitigates and enhances on site. We assume ‘no net loss’ is achieved via site
37

design and 10% net gain achieved through habitat creation on-site. This scenario ismodelled and reflects the expected minimum cost of the policyscenario B, the developer is unable to compensate all impacts on-site, but is able tosecure local compensatory habitat creation including purchasing statutory biodiversity
credits provided by government-backed provision. This scenario is not modelled
explicitly, as this would require making assumptions for what an individual development,
which are subject to site specific and spatial variation, might look like

scenario C, the developer is unable to compensate on site and is unable to find local
compensatory habitat in which to invest. Instead they have to pay for their units throughthe biodiversity unit offsetting market, which may involve paying for statutory biodiversity
credits offered by government for a fixed price. This scenario is modelled and reflects thelikely maximum cost of the policy, and provides a ceiling to offset market prices. We
assume that the biodiversity unit price is applied to the total biodiversity unit loss plus
10% net gain.

The realisation of the upper and lower bounds is extremely unlikely. Scenario A necessitatesthat it is possible for developers to completely avoid the loss of distinctive habitats (i.e. bybuilding around the habitat) while also creating habitat in the development. It is improbable that
this would be effective or even possible for all developments. Scenario C would only occur if
developers failed to respond to incentives and did not actively work to mitigate on site or todecrease costs. It is reasonable to assume that developers would carry out on-site and/or offsite mitigation when it is more time and resource effective to do so than solely relying on themarket to mitigate their developments.
In summary, the key uncertainty is the extent to which developers mitigate their developments
on site or off site. In reality, we expect costs to be within this distribution, and evidence fromexisting biodiversity off-setting schemes suggests that the majority of mitigation will take place
onsite. This also supports the assumption we made in the consultation IA where we assumed
75% of net gain would be delivered on-site – this was not challenged in consultation responses
and was supported anecdotally. In light of this, our central estimate assumes that Scenario
A occurs 75% of the time and Scenario C 25%. Therefore, Scenario B is captured
implicitly in the range between scenario A and C.
6.2.2 Land use change: residential and non-residential development
The analysis splits the rate of land use change into residential and non-residential development.
For residential development, the current rate of new dwellings created is 176,900 per year.73
Our headline analysis assumes that the housebuilding rate is constant and in line withassessed housing need data, which is estimated at 267,000 per annum.74 An increase ofthis scale is to be expected given that the ambition is to increase housebuilding to 300,000 new
homes per year (see Section 2). We test the impact of the target through sensitivity
analysis (Section 6.11).
We split the housebuilding rate into greenfield and brownfield residences according to previous
land use change. Using the average size of these types of residences, we multiplied accordingly
to get the size of residential development, which we estimate is 6,701 ha per year.

73 See Table 4 in Section 2.2.1.
74 https://www.gov.uk/government/consultations/planning-for-the-right-homes-in-the-right-places-consultation-proposals

38Non-residential developments are much more dependent on business cycles compared tohousing development rates. Given this, our analysis assumes that the non-residential
development trends continue at the same rate as in the land use change data between 2013
and 2017.75 We estimate the size of non-residential development is 9,530 ha per year.
6.2.3 Baseline delivery of biodiversity net gain
We assume 29% of residential developments already deliver net gain. Of the nine largest
housing developers (which together account for 52% of residential completions), six have someform of habitat mitigation and creation policy76, ranging from partial to comprehensive. These six
developers account for 29% of residential completions which forms our assumption. This does
not include any measures taken by the 48% of completions unaccounted for by the ninedevelopers considered, or the monetary value of current Community Infrastructure Levy77 (CIL)and S106 agreement payments to LPAs. The model makes the highly conservative assumptionthat all other residential developments are not mitigating or compensating their impacts at all(i.e. 100% habitat loss).
We assume that 15% of non-residential developments already deliver net gain. From 2000
to 2012, on average 15.4% of assessed non-residential developments achieved BREEAM
excellent – which requires scoring very highly across a range of criteria including biodiversity.78
This, and the fact that some LPAs are already delivering net gain (see Section 2.3.2), suggeststhat the proportion of non-residential development already delivering net gain is between 15%
and 25%. We take the most conservative estimate (15%). The model makes the highly
conservative assumption that the other 85% of non-residential developments are not mitigatingor compensating their impacts at all (i.e. 100% habitat loss).
The conservative nature of the baseline reflects what we outlined in Sections 2-3 - the adoptionof net gain policies by some developers, industry bodies and LPAs shows some recognition of
the environment in development decisions, but the adoption is inconsistent and not widespreadenough for it to be fully internalised, despite it being part of planning policy in the NPPF.
6.2.4 Estimating policy impact on habitat creation and avoided habitat loss
To calculate the effect of the policy a variety of steps are required. First, the average units lostfrom 1 ha of both greenfield and brownfield development is calculated at the local authority
level, based on previous land use change data and adapting Warwickshire’s estimations of ahabitats’ metric scores so that it aligns with the updated Defra biodiversity metric (please see
Table A1.1 in Annex 1 for further details).79,80,81 This is applied to the size of their respective
developments (equivalent to the size of habitat lost) to calculate units owed by developers ineach local authority. This increases by 10% when the net gain uplift is included.
To calculate the size of habitat created, the amount of units owed is taken through the inverseof the method above but also multiplied by a scalar to factor in the time and risk component of
75 https://www.gov.uk/government/statistical-data-sets/live-tables-on-land-use-change-statistics
76 Completion figures and policies taken from 2017 annual reports from Barratt, Bellway, Berkley, Bovis, Crest Nicholson and Redrow.
77 The Community Infrastructure Levy is a tool for local authorities in England and Wales to help deliver infrastructure to support thedevelopment of the area.
78 https://tools.breeam.com/filelibrary/Briefing%20Papers/BREEAM-Annual-Digest---August-2014.pdf
79 https://www.gov.uk/government/statistical-data-sets/live-tables-on-land-use-change-statistics
80 https://www.warwickshire.gov.uk/biodiversityoffsetting
81 Non-residential data is only available at the national level, local authority estimates are approximates.

39

the metric. These components incentivise developers to make up for: (a) the temporary loss ofnatural capital benefits and; (b) the risk that habitat created does not reach the condition agreed
by having to create a greater amount of habitat. See Section 5.2.2.3 for full details on the
updated Defra biodiversity metric.
This scalar is set at 1.14 using calculations from 1ha example development and habitat
creation. This assumes that: (a) the habitat created is of high distinctiveness and condition as
per the updated Defra biodiversity metric82; (b) the scalar is representative of how development
and habitat creation shall occur; and (c) developer behaviour does not change. In thesensitivity analysis (Section 6.11) we test the impact on the scalar and outputs if
developers created the least distinctive habitat allowed, or if they developed on lessbiodiverse habitat than anticipated.
Finally, to estimate the avoided loss of distinctive habitat in Scenario A, we assume it isequivalent to the amount of development not already delivering net gain. This reflects theassumption made in this scenario that the developer is able to avoid significant loss of
distinctive habitats, and therefore mitigates and enhances on site. See Annex 1 and 2 for fulldetails on the methodology.
6.2.5 Monetising cost and benefits
To estimate the costs to developers, we assume that the costs for both on-site and off-site
habitat creation are £900 per ha for site surveys83 and £19,698 per ha for 30 years’ creationand maintenance costs taken from a joint RSPB, National Trust and Wildlife Trusts study.84
The latter is discounted to a net present value (NPV) lump sum at the HM Treasury Green
Book85 rate of 3.5%. For where a developer is required to offset through the market forbiodiversity units, the indicative price for a biodiversity unit is assumed to be £11,000.
For comparison, if a developer were to pay this to offset the biodiversity units they accumulated
from an average 1 ha development (4.46 units, see line (B3) in Annex 2), they would pay£49,060 per ha. The cost per biodiversity unit (£11,000), does not refer directly to the cost of theunits provided by government, but is within the range of biodiversity unit costs outlined at
consultation and from subsequent evidence gathered through consultation on cost of units
offered for bespoke off-sets or habitat banking.
To calculate the environmental benefits of net gain we adapt a market value and use it as aproxy. The ONS ecosystem accounts for urban areas values green space within 100m of aresidence at £4,800 per residence.86 This is calculated through hedonic pricing, a method
which deduces the value of environmental components of a market good (i.e. houses) bycomparing the price change of the market good when that component is or is not present, withall else held constant.87 To derive a per hectare value, we multiply this by persons per hectare

82 High distinctiveness has a metric score of 6 and fairly good condition has a metric score of 2.5. Including high strategic significance (1.15)
and connectedness (1.15) this gives 1ha created habitat a unit score of 19.84.
83 Estimate provided by Natural England that assumes conducting a Phase 1 habitat survey on a 1 ha site would take 1 -1.5 days of an

ecologists time, plus half a day for report writing.
84 https://www.nationaltrust.org.uk/documents/assessing-the-costs-of-environmental-land-management-in-the-uk-final-report-dec-2017.pdf.
85 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent
86https://www.ons.gov.uk/economy/environmentalaccounts/methodologies/valueofnatureimplicitinpropertypriceshedonicpricingmethodhpmmeth
odologynote
87 There are a range of other problems with hedonic pricing: It assumes that the housing market is highly liquid/competitive; that purchasers

have complete knowledge of the local environmental; and several methodological difficulties isolating environmental value.

40

by region, and divide it by persons per residence (assumed to be 3).88,89 These regional values
can be found in Table A1.2 in Annex 1. These values are conservative compared to thosewhich we could have otherwise selected (see Section 6.9.1).
The literature shows that natural capital provides a wide range of services and benefits, and is
especially valuable close to people in urban and suburban areas (e.g. for recreation, health andwellbeing, landscape, air quality). The value we use is an imperfect proxy that partially reflects
the value that private individuals place on the range of natural capital benefits they receive fromlocal green space and nature. This method is conservative since it provides lower estimates forthe benefits derived compared to other valuation methods (for example NEVO and ORVal).90
Additionally, this only measures private value and is likely to be an underestimate. Section
6.9.1 explores the natural capital valuation literature further in the context of the estimatedbenefits.

6.3 Key risks
Assumptions in the cost benefit analysis, which enables outputs to be quantified, means that theinsights provided come with risks attached. Where possible the more conservative assumption
was taken, which means these risks are implicit in the outputs. The key risks outlined below aretested through sensitivity analysis in Section 6.11.
Developer behaviour, in regards to where and how much they build, is assumed to remain
mostly unchanged in response to the policy. This enabled the use of previous land use data toestimate habitat loss and resulting biodiversity units owed. While there is evidence to suggestthat developers have opted to build on less distinctive site from voluntary adoption of net gain,
we do not feel that the evidence is sufficient to extrapolate from. For that reason, we took themore conservative assumption for the purposes of this analysis. We would expect, under amandatory biodiversity net gain requirement, that less biodiverse habitats (on average) would
be brought forward in future and promoted by local authorities (e.g. through spatial planning) for
development.
Similarly, we also expect that developers will create more distinctive habitat, ‘trading up’ fromthe previous habitat type, which is one of principles of using the biodiversity metric (see Section
2.3.1). In our analysis we explicitly assume that developers will create habitat that is highdistinctiveness, of fairly good condition, is connected and is strategically significant. This gives a
biodiversity unit score of 19.8 per hectare before factoring baseline, time and risk components.
This assumption is held constant across region and time. If this was not reflected in reality thenthe quality of the habitat would be inferior to that estimated. However, it would mean thatdevelopers would still need to deliver the same number of biodiversity units, so would have tocreate more habitat as a result.
We also assume that the majority of net gain is delivered on site, and in our central estimate weassume that Scenario A occurs 75% of the time and Scenario C 25%. In reality, for any given
development the costs are likely to fall within the range between scenario A and C, subject tosite specific characteristics. Therefore, if Scenario A or C was more likely at an aggregate level,
88 https://lginform.local.gov.uk/reports/lgastandard?mod-metric=176&mod-period=1&mod-area=E92000001&mod-group=AllSingleTierInCountry_England&mod-type=namedComparisonGroup89 Example: West Midlands – 1.49 persons per ha; divide by 3 equals 0.5 residences per ha; multiplied to value per residence (£4,800) gives

value per ha (£2,400).
90 Natural Environment Valuation Online (NEVO) and Outdoor Recreation Valuation (ORVal) are online tools, produced by Exeter University, toestimate the benefits derived from a particular site to changes made to an area. They focus on ecosystem services and recreational benefits
respectively.

41

this would have implications for the costs to developers (e.g. if Scenario C occurred it would be
more costly to developers) and the environmental benefits (e.g. if Scenario C occurred it would
reduce the benefits from avoided habitat loss, but increase the benefits (albeit longer term) of
habitat creation).
We assume biodiversity unit values for land use types (see Table A1.1 in Annex 1). This
enabled the calculation of biodiversity lost from 1ha of development per local authority bymultiplying these values to land use change proportions. If the true values are less thanrepresented then the unit burden on developers would be less. This would reduce the amount of
biodiversity units developers would need to compensate but also the amount of habitat (andtherefore benefits) produced. The smaller the true biodiversity unit values of land use types are,the smaller the cost to developers in all scenarios. The opposite impact would occur if thebiodiversity unit value is higher than assumed. To provide confidence in our estimated values,
we have aligned them with those predicted for similar habitat by the Warwickshire’s biodiversity
impact calculator. In addition, there are similar risks in our assumption that land use changeremains constant across the appraisal period.
In addition, we assume that residential development increases at a rate based on assessedhousing need. However, there is a scenario where residential development is equivalent to theGovernment’s housebuilding target of 300,000 per annum. Moreover, we assume that nonresidential development trends continue at the same rate as 2013-17. These assumptions havea low risk of influencing the analysis since we assume development remains at a constant rate
– higher rates of development would simply increase the magnitude of the costs and benefits.
However, we do test the impact of the housebuilding target through sensitivity analysis.
Finally, there may be an impact on developer contributions such as S106 and CIL, which are
currently used to deliver net gain, and other environmental and local improvements in a
discretionary manner. As outlined in Section 2.3.2, the existing data does not provide abreakdown (e.g. type, location) of current spend on environmental improvement (£115m in
2016-17 through S106) or on the losses that trigger these contributions. A mandatory policy
would diversify the mechanisms to deliver net gain (e.g. retaining more habitat on site, use offsetting market) which may change how much of this is delivered though S106 directly. Thatsaid, the overall spend on environmental improvement (via contributions and other means)should increase. While we do not monetise the impact on S106 in our analysis (it is difficult toassess from the available data), we note the considerable uncertainty around the nature of the
impact.

6.4 Pass-through of costs to land prices
When we impose mandatory requirements that are transparent and clearly defined across all
developers, developable land prices should fall to absorb the policy cost as developers ‘pass
through’ the cost. Evidence from industry and academia supports the theory, showing thatdevelopment costs are passed back through to land prices once the market has adjusted to thenew policy. House prices and developer profits appear inelastic with respect to extra costs, withland prices absorbing the change.91,92,93 An exemption for developments that are in progress
before (and potentially for some time after) the implementation of mandatory biodiversity net

91 https://www.savills.co.uk/research_articles/229130/240942-0
92 https://www.citymetric.com/politics/granting-planning-permission-massively-increases-land-values-shouldnt-state-get-share-1154
93 https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1759-3441.1999.tb00944.x

42

gain will be put in place to manage the costs incurred which cannot be passed through into land
valuation.
RICS data94 gives a 2017 value for agricultural land of £21,947 per ha. The average value ofresidential land is £6.02 million per ha95. Once land is granted planning permission, there isoften a value uplift of many multiples of the original value. The difference is largely due tosignificant differences in economic value from the goods or services provided by the land,
although there is an element of ‘scarcity rents’ due to the highly inelastic (i.e. fixed) supply ofland. Therefore, this uplift can be dampened (e.g. by new charges, costs of complying with new
regulations) to a certain point (beyond this land would not be brought forward for development),
with no deadweight loss to productive activity. If the money is used to produce goods thatsociety values, the net result is an increase in economic efficiency.
Developable land is valued using a residual land value calculation: the maximum revenue adeveloper could expect to receive from sales, minus the minimum cost needed to achieve this,risk factors and a profit margin. The sale price is set externally by housing demand variables(including wages and interest rates). Profit margins are set largely by competition between
developers. Therefore these things are unresponsive to cost increases and land prices adjust
instead.
For this reason, we would expect to see most of the monetisable costs (and benefits) todevelopers passed through to the price of land that has planning permission, thereby impacted
landowners. In the case of additional development costs, this will revise down the result of aresidual land value calculation: there will be a dampening effect on the uplift to the price of landfollowing planning permission. Therefore, we anticipate that developers or house buyers should
not bear the cost of biodiversity measures if they are mandatory and apply uniformly to all
developers for a given piece of land.
Based on the above, we use a conservative assumption for this impact assessment that
90% of costs to developers are passed through to the post-planning-permission uplift indevelopable land values, which represents a loss (i.e. a cost) to land owners. For the
purposes of this analysis, we assume that the while the costs imposed on developers are
direct, the pass through effect that impacts landowners is indirect. This indirect effect is
contained within the headlines figures since it is a pass through (i.e. a proportion) of
direct effects. Furthermore, the pass through effect is unlikely to be instantaneous and would
take time to fully impact land prices. The costs to developers in context are explored in Section
6.5.1.

6.5 Costs to developers (monetised)
The net direct costs to developers under these assumptions falls in the range of £42.1m £669.5m per year. The central estimate is £199.0m per year. After applying 90% passthrough of costs to land prices, the indirect cost to developers is £19.9m per year, where therange is between £4.2m and £66.9m. The calculations are set out in Annex 2.
Due to further evidence gathering, the cost benefit analysis now considers the impacts to bothresidential development and non-residential development. Our analysis holds development
constant throughout the profile, at rates based on assessed housing need and land use change
94 https://www.rics.org/uk/knowledge/market-analysis/ricsrau-rural-land-market-survey/. The mean of RICS rural land market survey transaction

and opinion based estimates of 2017 prices for agricultural land, converted from acres to hectares.
95https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/407155/February_2015_Land_value_publication_FINAL.pdf

43

for residential and non-residential development respectively. However, as there is only national
level data available for non-residential development land use change, local approximations are
estimated by assuming that proportions of national non-residential developments are the sameas that for residential developments.
6.5.1 Others costs to developers (partially monetised)
Familiarisation costs to developers are calculated based on the time required for training andthe hourly wage for the respective employees. The training could be done through formal
sessions or on-the-job. Those requiring training would include a mix of ecological consultants,
planners and landscapes architects, expected to last up to one working day.
97% of developers are sole proprietors or micro businesses, so while there are roughly 35,000
developers, they employ around 80,000 people (see Section 7 for further details).96 If every
employee was trained, either on the job or through formal training, that would be equivalent toaround two employees per developer. We expect that not every developer would complete
training for their employees, and if they chose to it is unlikely to apply to all their employees. We
therefore assume one person per developer would require training.
To estimate the familiarisation costs, we multiply the 35,000 expected to be trained by anaverage of the salaries relating to respective job roles (calculated to be £36,285 per year) andadd 30% to consider overhead costs. Our analysis estimates the total familiarisation costs
to be roughly £6.3m in year one. This is a highly conservative assumption, because in someinstances developers will use sub-contractors (e.g. an ecological consultancy) to provide thenecessary expertise to support net gain delivery.
6.5.2 Costs to developers in context
The estimated GVA of developers in England is £12.2bn, who have an annual turnover of£23.1bn.9798 In addition, the government’s National Infrastructure and Construction Pipeline up to
2020/21 includes over 600 infrastructure projects worth over £425 billion99, although not all of
this infrastructure will be within the scope of this policy.
While the appraisal analyses the impact at an aggregate level, there will also be site and spatial
specific impacts that could affect the viability of certain developments. We provide someprovisional analysis below, but acknowledge that mandating biodiversity net gain is one of anumber of upcoming government policies which could have a cumulative impact on viability(e.g. upon the residual land value for which a site can afford).100 We are working acrossgovernment to identify developments with specific characteristics (e.g. size, type) and/or areasthat may be particularly impacted.

96 https://www.nomisweb.co.uk/ . ONS data from Business Register and Employment Survey. Developers defined by the Standard Industrial

Classification (Revised 2007) Section F 41.10: ‘Development of building projects’. 2017 data.
97 https://www.ons.gov.uk/methodology/classificationsandstandards/ukstandardindustrialclassificationofeconomicactivities/uksic2007. As

defined by the Standard Industrial Classification (Revised 2007), Section F 41.10: ‘Development of building projects’.
98 https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/bulletins/uknonfinancialbusinesseconomy/previousReleases.

Data missing for England on turnover, GVA and purchase of inputs, but available for the UK. UK values scaled down to 90.27% to estimate
England values, as this is the ratio of England to UK number of enterprises (32,500 and 36,000 respectively).
99https://www.gov.uk/government/publications/national-infrastructure-and-construction-pipeline-2017
100 https://www.gov.uk/government/topical-events/spring-statement-2019. Policy announcements at the Spring Statement include introducing a‘Future Homes Standard’ by 2025, so that new build homes are future-proofed with low carbon heating and world-leading levels of energy
efficiency.

44

Tables 14 and 15 show the regional average costs of delivering net gain per hectare todevelopers under each scenario for residential and non-residential developments respectively.
The tables show that costs increase as the amount of off-site delivery completed rises,demonstrated by the increasing costs as one moves from Scenario A to the central estimate to
Scenario C.
Delivery costs were calculated by averaging estimated local authority costs and dividing by theaverage estimated annual development101 of that region. Costs included are site surveys anddelivering biodiversity units owed (be it on site or off site delivery). Also included, for reference,is the estimated biodiversity unit lost per hectare of development and the annual extent ofdevelopment. The biodiversity unit loss is estimated at a local authority level for residential
development (hence the regional variation in biodiversity loss and costs presented), but is held
constant for non-residential development to reflect the national level assumptions made in theanalysis.
Tables 16 and 17 displays the regional average delivery costs per building unit to residential
developers under each scenario, split by greenfield and brownfield. This follows the similarcalculations described above, except the costs are divided by housing density102 rather thanannual development. This enables comparison against housing build costs and developer
contributions.
Table 18 considers the build costs of residential development (£/m2) by region.103 The
subsequent columns are estimated by multiplying according to average greenfield (0.033 ha)and brownfield (0.02 ha) residential development sizes respectively. These figures were used tofind net gain delivery costs (Tables 16 and 17) as a proportion of build costs shown in Tables
19 and 20 for greenfield and brownfield developments respectively. Our analysis demonstrates
that, while there is a range of expected cost from delivery of net gain, relative to build costs they
are relatively small for brownfield (between 0.1% and 0.8%) and greenfield (between 0.1% and3.9%) developments. However, regions in the Midlands and the North have the highest potential
costs as a percentage of build costs, but also have lower developable land prices whichindicates potential for site specific housing viability issues.104
Figure 4 shows the average house price and the estimated average contributions from S106
and CIL per new home. While house prices have increased by around 20% since 2007-08,
contributions have remained relatively constant. This implies that, per housing unit, developers
have been making smaller contributions as a proportion of their revenue. Also of note is thateven the highest estimate for delivery costs per housing unit (Scenario C, Yorkshire and The
Humber, £4,242 per housing unit) is equivalent to 15% of average contributions in 2016-17. The
value closest to the median (Scenario C, London, £278 per housing unit) amounts to around
1%, while the figure closet to the average (Scenario B, South East, £944 per housing unit) is
equivalent to 5%.
Currently, data on non-residential developments105, which covers a broader range ofdevelopment types, is limited and not the same granularity as for residential so there is no
101 That is expected annual net additional dwellings split by proportion that are greenfield and brownfield, multiplied by respective averagedwelling size, and then totalled.
102 https://www.gov.uk/government/collections/land-use-change-statistics. See Table P331.
103 https://www.rics.org/uk/products/data-products/bcis-construction/bcis-review-online/
104 https://www.gov.uk/government/publications/land-value-estimates-for-policy-appraisal-2017
105 MHCLG provide some non-residential development data on planning applications, land use change and land values.

45

representative brownfield and greenfield example. However, we can use MHCLG data on land
use values,106 to estimate the cost of net gain delivery as a percentage proportion (%) ofindustrial and commercial107 land values for around 70 towns in 38 different Local EnterprisePartnership (LEPs) areas. The range of costs are presented in Tables 21-23. Figure 5 plots the
distribution of all three scenarios as a proportion of land value for each town within a LEP.108
The analysis shows that the majority of the costs across scenarios are expected to beless than 5% of land value, and that regions with higher costs (i.e. implying a potentialsite specific viability issue) tend to be in the North. A similar conclusion was reached onresidential development.
Similarly, the London Plan Viability Study109 provides build costs for some non-residential
projects within central, inner and outer London. These costs range from £819 per m2, for anindustrial project in outer London, to £2,610 per m2 for office accommodation in central London.
To compare, the highest estimate of net gain delivery costs (scenario C) to non-residential
developments is £4.79 per m2 (£47,855 per ha) – equivalent to between 0.2% and 0.6% ofLondon non-residential build costs.
There are two points worth noting. Firstly, London has the lowest average biodiversity loss per
hectare of development (therefore lowest delivery costs) and is likely to have the highest build
costs (demonstrated by costs decreasing as developments move from central to outer London).
Net gain delivery costs as a proportion of builds costs, therefore, is likely to be higher outside ofLondon. Secondly, build costs and net gain delivery costs would not be applied equally across adevelopment (i.e. it would be inaccurate to scale the above values for a representative
development size). This is because while proportional habitat delivery costs would be applied
across the entire development space, proportional build cost only apply to a) the section of thedevelopment that is floor space, and b) can have multiple floors. Despite this, net gain delivery
costs would still be a relatively small proportion of build costs.
Overall, the analysis indicates that net gain delivery costs are likely to be low as a proportion of
key variables such as build costs and land prices. In addition, it is unlikely to lead to a significant
increase on existing average developers contributions. While the analysis identifies regions
where potential residential and non-residential viability issues may arise (e.g. Midlands, theNorth), this analysis is not a prediction of where site specific viability issues may arise inreality. We continue to work across government to identify particular areas and/or
developments that may be adversely impacted by mandating biodiversity net gain and otherrelated policies.

106 https://www.gov.uk/government/publications/land-value-estimates-for-policy-appraisal-2017
107 Commercial development has two definitions in the MHCLG land values data: (1) office edge of city centre and; (2) office out of town -business park.
108 There are 594 observations in total, reflecting 198 different land values estimates across three land value categories (industrial, commercial

office edge of city centre and office out of town / business park) and around 70 towns in 38 LEPs, which are each compared against the three
net gain scenarios to estimate the delivery costs as a % of land value.
109 https://www.london.gov.uk/sites/default/files/london_plan_viability_study_dec_2017.pdf (pg.46, table 7.2)

46

Table 14: Net gain delivery costs (residential)
Costs per ha of development (£, 2017 prices)

RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and
The Humber

Estimatedbiodiversity
unit loss per haof development
4.4
5.2
2.7
5.1
4.5
4.4
4.6
4.8
4.9

Annual residential
development notdelivering net gain in
the baseline (ha)
643
365
1,158
125
386
894
509
373
304

Scenario A
3,445
3,427
3,585
3,501
3,515
3,456
3,424
3,461
3,519

Centralestimate
18,32919,951
13,157
19,647
18,952
18,552
18,47018,527
19,282

Scenario C
62,98369,522
41,872
68,08565,26563,841
63,61063,72566,570

Table 15: Net gain delivery costs (non-residential)
Costs per ha of development (£, 2017 prices)

RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and
The Humber

Estimatedbiodiversity
unit loss per haof development
3.9
3.9
3.9
3.9
3.9
3.9
3.9
3.9
3.9

Annual nonresidential
development notdelivering net gain in
the baseline (ha)
1,095
622
1,971
213
658
1,522
867
635
517

Scenario A
3,150
3,150
3,150
3,150
3,150
3,150
3,150
3,150
3,150

Centralestimate
14,334
14,334
14,334
14,334
14,334
14,334
14,334
14,334
14,334

Scenario C
47,88547,88547,88547,88547,88547,88547,88547,88547,885

Table 16: Net gain delivery costs per greenfield development (residential)
Costs per housing unit (£, 2017 prices)

RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and
The Humber

Estimatedbiodiversity unit
loss per ha ofdevelopment
7.3
7.7
7.6
8.2
8.0
7.4
7.0
7.3
8.0

Average housing
density
25
27
64
24
26
27
25
26
24
47

Scenario A
175
161
110
192
192
162
170
172
203

Centralestimate
1,018
1,011
467
1,159
1,137
948
998
1,003
1,212

Scenario C
3,545
3,562
1,538
4,059
3,972
3,305
3,481
3,496
4,242

Table 17: Net gain delivery costs per brownfield development (residential)
Costs per housing unit (£, 2017 prices)
RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The
HumberEstimatedbiodiversity
unit loss per haof development
2.0
2.4
1.5
1.9
2.2
1.9
2.2
2.3
2.1

Averagehousingdensity
32
30
69
31
32
35
29
29
31

Scenario A
64
68
32
59
61
56
70
69
60

Centralestimate
243
287
94
233
242
207
270
268
231

Scenario C
777
943
278
757
787
660
869
864
744

Figure 4: Average house prices and average contributions
agreed with developers per new home (NAO report)
230,037

250,000

Amount (£)

200,000

191,904

175,344150,000
100,000
50,00019,972

19,321

19,1490
2007‐08

2011‐122016‐17

Year
Average house price

Estimated average agreed developer contributions per new home permissioned

National Audit Office report: Planning for new homes110- Figure 13

Table 18: Residential build costs
RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The Humber

Build costs (£/m2)
1,240
1,316
1,516
1,228
1,291
1,391
1,203
1,266
1,115

110 https://www.nao.org.uk/report/planning-for-new-homes/

48

Average m2 of new
dwelling
98
100
82
93
94
101
100
90
97

Build costs (£/ newdwelling, 2017 prices)
121,029
131,067
124,606
113,951
121,896140,287
120,399
113,733
108,126

Table 19: Greenfield delivery costs as proportion of build costs
RegionScenario A

East
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The Humber(delivery costs by scenario, as a % of build costs)
Central estimate
Scenario C

0.1
0.1
< 0.1
0.2
0.2
0.1
0.1
0.2
0.2

0.8
0.8
0.4
1.0
0.9
0.7
0.8
0.9
1.1

2.9
2.7
1.2
3.6
3.3
2.4
2.9
3.1
3.9

Table 20: Brownfield delivery costs as proportion of build costs
RegionScenario A
< 0.1
< 0.1
< 0.1
< 0.1
< 0.1
< 0.1
< 0.1
< 0.1
< 0.1

East
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The Humber(delivery costs by scenario, as a % of build costs)
Central estimate
Scenario C
0.2
0.6
0.2
0.7
0.1
0.2
0.2
0.7
0.2
0.6
0.1
0.5
0.2
0.7
0.2
0.8
0.2
0.7

Table 21: Costs of net gain delivery as a % of industrial land values
Net gain delivery costs as a % of land
value (average)
RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The
HumberNumber oftowns insample
7
4
9
4
9
9
10
9
8

Average land values(min - max range)(£ millions)
1.1 (0.5 - 1.8)
0.6 (0.3 - 0.8)
4.0 (1.8 - 6.2)
0.3 (0.2 - 0.3)
0.5 (0.3 - 0.9)
1.7 (1.1 - 2.4)
0.8 (0.4 - 1.1)
0.6 (0.4 - 1.0)
0.5

(0.2 - 0.7)

49

Scenario A
0.4
0.6
0.1
1.3
0.7
0.2
0.4
0.5

CentralEstimate
1.6
2.9
0.4
6.0
3.2
0.9
2.0
2.4

Scenario C
5.4
9.7
1.4
20.1
10.8
3.0
6.8
8.1

0.7

3.3

11.2

Table 22: Costs of net gain delivery as a % of commercial land values (office edge of city centre)
Net gain delivery costs as a % of land
value (average)
RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The
HumberNumber oftowns insample
7
4
7
4
9
9
10
9
8

Average land values(min - max range)(£ millions)4.9(0.9 - 20.9)
1.1(0.9 - 1.3)
131.4
(2.5 – 573)
0.9
(0.9 - 1.1)
2.1
(0.9 - 12.3)
5.9(0.9 - 21.7)
2.9(0.9 - 15.6)
2.1 (0.9 – 12.0)
2.2

Scenario A
0.2
0.3
0.1
0.3
0.3
0.2
0.2
0.3

CentralEstimate
0.9
1.4
0.3
1.6
1.5
0.7
1.1
1.5

Scenario C
3.0
4.7
1.0
5.3
4.9
2.3
3.8
4.9

0.3

1.4

4.7

(0.9 - 11.1)

Table 23: Costs of net gain delivery as a % of commercial land values (office out of town - business park)Net gain delivery costs as a % of land
value (average)
RegionEast
East Midlands
London
North East
North WestSouth East
South WestWest Midlands
Yorkshire and The
Humber120

Number oftowns insample
7
4
2
4
9
9
10
9
8

Average land values(min - max range)(£ millions)1.5(0.6 - 3.7)
0.6
(0.3 - 0.8)
2.4
(1.8 – 3.0)
0.4
(0.2 - 0.5)
0.6
(0.3 - 1.4)
2.6
(1.1 - 8.7)
1.0
(0.4 - 1.6)
0.7
(0.4 - 1.3)
0.6

Scenario A
0.3
0.6
0.1
1.0
0.7
0.2
0.4
0.5

CentralEstimate
1.4
2.7
0.6
4.5
3.0
0.8
1.8
2.3

Scenario C
4.6
8.9
2.1
15.0
10.2
2.6
6.1
7.6

0.7

3.2

10.6

(0.2 - 1.3)

Figure 5: Distribution of net gain delivery costs as a % of industrial
and commerical land use value

Frequency

100
80
60
40
20
0
0%

5%

10%

15%

Biodiversity net gain costs as a % of land value

20%

Frequency
There are 594 observations in total, reflecting 198 different land values estimates across three land value categories (industrial,commercial office edge of city centre and office out of town / business park) and around 70 towns in 38 LEPs, which are eachcompared against the net gain scenarios to estimate the delivery costs as a % of land value.
506.6 Benefits to developers (not monetised)
Developers will benefit from certainty and a level playing field, resulting from a standardised
approach to delivering biodiversity net gain across LPAs. The streamlining of the process could
potentially result in savings for developers. A survey found that developers rate the overall
complexity and associated costs of dealing with this as the most significant cause of extra costin the planning process.111 This is in addition to excessive and unpredictable delays. However,while consultation responses have supported this idea, we have little quantified evidence torobustly monetise these benefits.

6.7 Indirect benefits to market participants (not monetised)
As transaction costs and information asymmetries in the development industry fall, economic
theory suggests that market efficiency will improve and there may be non-monetised indirect
benefits to other market participants such as the construction sector. These may include
reduced delays and uncertainty.
Mandating biodiversity net gain with the option to offset would create demand for habitats to becreated by third parties to resolve excess biodiversity units owed by developers. Biodiversity
banks and others who are cost-effective at creating habitat would be able to sell (excess)habitat at a price that would provide a profit. Due to limited evidence we are unable to gauge thesize and demographics (i.e. biodiversity banks, land owners, other developers) of the current
supply for a market for biodiversity units. We are also unable to judge how long it would take forthe market to mature. For this reason we are unable to quantify these benefits.
Additionally, this could act as a redistribution of income towards developers who areenvironmentally proactive. This would work by environmentally proactive developers being
incentivised to produce habitat greater than required by their biodiversity units liability. They
would then be able to sell their excess units to the offset market for which there would bedemand from environmentally harmful developments. As a result, redistribution occurs throughthe sale and purchase of biodiversity units between developers. As with the supply of
biodiversity units, there is insufficient evidence to quantify this effect.

6.8 Costs and benefits to government (monetised)
There are transition and ongoing costs of policy delivery for central and local government toaccount for familiarisation, training, monitoring and enforcement. There may be an impact on
developer contributions such as S106, which is currently used to deliver net gain and otherenvironmental and local improvements in a discretionary manner (see Section 2.3.2). However,a nationally mandated policy will minimise ambiguity and create a level playing field for LPAs.
As part of consultation, we have tested assumptions for new burdens with local authorities toestimate the additional staffing (i.e. full-time equivalent / FTE) cost of delivering net gain. We
directly engaged with the Local Government Association and the Association of Directors ofEnvironment, Planning and Transport and invited individual authorities to discuss
implementation. It was highlighted that the resource required was best arranged by unitary andcounty authorities (i.e. upper-tier authorities). We estimate that each upper-tier authority would
require on average:

0.65 FTE (range between 0.5 and 2 FTE) ecologists for set up, lasting one to three years

111 https://www.fmb.org.uk/media/35090/fmb-house-builders-survey-2017.pdf

51




0.65 FTE (range between 0.5 and 2 FTE) permanent ecologists, for monitoring after set
up.
0.65 FTE (range between 0.5 and 2 FTE) permanent ecologists to advise authorities

Therefore, an upper-tier authority would require on average 1.3 FTE (1-4 FTE) ecologists in any
given year. This totals to 197.6 FTE across 152 upper-tier authorities. Of this requirement, 22.8
FTE are needed for spatial planning, with skills in coordination, engagement and evidence use.
We expect that additional (fewer) resources would be required for upper-tier authorities withmore (fewer) planning applications and environmental assets. Our analysis scales therepresentative resource requirement of LPAs according to the amount of development taking
place within those areas.112 We multiplied the FTE estimates by the current salary for agovernment ecologist (£37,096) and then added 30% as an approximation of overhead costs.113
For local government, our findings indicate that the initial annual costs total £9.5m throughout
the first two years. Thereafter, costs are ongoing equalling £9.5m per year. Of these costs,£1.1m are associated with spatial planning.
To identify costs to central government we consulted with Natural England to understand the
additional resource required to deliver net gain. They estimated additional ongoing resource
requirement is around 38 FTE, the majority of which would be advisors (i.e. SEO grade) with asmall proportion of managers (i.e. Grade 7). These jobs will generally cover: central oversight ofnet gain (project management, maintaining metric, light touch accreditation, monitoring andreporting); central co-ordination and financing of the government’s biodiversity unit purchases;
and provide support/training to LPAs and to engage in strategic sub-regional partnerships tofacilitate strategic solutions. The estimated ongoing cost is £1.8m per annum, based on Natural
England staff costs at those grades.
Furthermore there will be additional costs, to Defra Group, from the labour and capitalrequirement to improve spatial planning for nature. The labour requirement is estimated to be
21 FTE, the majority being senior advisors and the rest being advisors / analysts. Each senioradvisor would be recruited at a Defra Group area level (probably based in Natural England) tosupport provide technical and logistical support to Local Authorities in their development ofLocal Nature Recovery Statement (LNRS). Using Defra staff costs, this is estimated to amountto £1.2m per year. The capital costs are estimated to be:£0.5m in the first year only, required to research and develop the appropriate datacollection techniques£0.1m ongoing, for data operation.

In total, the expected cost of spatial mapping to central government equals £1.3m ongoing witha one-off £0.5m capital costs.
In summary, the estimated costs to local government are £9.5m per year ongoing and thecosts to central government are £3.1m per year ongoing with an initial £0.5m capital cost.
We continue to work with local authorities and our agencies to quantify any additional costs todeliver biodiversity net gain, in addition to professional organisations to make sure there isaccess to the right training, ecological expertise and systems required.
112 Our analysis demonstrated that there is a strong correlation between the running costs of planning departments in local authorities and theamount of development within their boundaries.
113 CIEEM salary and employment survey 2017-18

52

6.9 Benefits to society (monetised)
The most significant benefit is local and national habitat delivery and the accompanying natural
capital benefits. This will contribute to delivering a clear benefit to people and local
communities, and help achieve government ambitions on the environment. It will also alleviate
the pressure of development on biodiversity and land use (i.e. slowing the overall rate of habitatand biodiversity loss).
The concepts of natural capital and ecosystem services114 best illustrate the benefits that
additional habitat and biodiversity, which underpin all ecosystem services, will bring:

provisioning: energy, both renewable and non-renewable sources; wild animals;
minerals; wild plants; timber; navigation – use of waterways for transportation;
agricultural production and caught fish; water
regulating: carbon sequestration; waste water cleaning; air pollution removed byvegetation; mediation of smell, noise and pollution removed by water; flood, erosion andlandslide protection; temperature regulation; water flow control and water condition
regulation
recreation and cultural services: setting for outdoor recreation (day trips by UK
residents); scientific and educational interactions; heritage and aesthetic interactions;value place on nature simply existing (non-use and symbolic values); settings for outdoor
physical activity (health benefits).

Additionally, there is a growing body of literature exploring the mental health and wellbeing
benefits of access to green space.115,116 A recent Defra evidence review117 finds the linkages
between these natural environments and multiple direct health outcomes are increasingly wellunderstood. In addition, there is “strong and consistent evidence for mental health andwellbeing benefits arising from exposure to natural environment”, which suggests the growing
potential of the natural environment to contribute in various policy contexts (e.g. health andsocial care systems).
The key natural capital benefits are derived from avoided habitat loss and habitat creation.
From the analysis, the central estimate finds that 5,428 ha of habitat is created per year.
Our range estimates habitat creation is between 1,551 (Scenario A) and 17,060 ha(Scenario C) per year. For avoided habitat damage (i.e. to distinctive habitats), ourcentral estimate is 9,644 ha per year, with a range between 0 (Scenario C) and 12,859 ha(Scenario A) per year. Detailed calculations can be found in Annex 2.
Figure 6 illustrates the accumulation or loss of habitat from the development sector under eachscenario, including the counterfactual (where mandatory net gain is not implemented). Figure 7
shows the net habitat creation, where each scenario is compared against the counterfactual(i.e. the counterfactual equals zero). Both graphs consider total habitat created and avoided
habitat loss. Figure 7 is derived from Figure 6 by subtracting the counterfactual line from thescenario trends. This is illustrated on both graphs using Scenario C in 2024 as an example.
114 https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/ecosystemserviceaccounts1997to2015
115 Sandifer, Sutton-Grier, Ward, Exploring connections among nature, biodiversity, ecosystem services, and human health and well-being:

Opportunities to enhance health and biodiversity conservation, Ecosystem Services, Volume 12, 2015
116https://www.balfourbeatty.com/media/317352/balfour-beatty-a-better-balance-a-roadmap-to-biodiversity-net-gain.pdf. The paper indicates

that: “…places with high quality “green infrastructure” – such as public parks, green spaces, green roofs and trees – have a positive impact on
physical and mental wellbeing, have better air quality, are less likely to flood, and attract more investment”.
117 http://sciencesearch.defra.gov.uk/Document.aspx?Document=14290_HealthandtheNaturalEnvironment_FullReport_29.08.18.pdf

53

Our estimates show that on-site delivery produces greater net habitat in the short term – sinceno habitat is lost and off-site delivery would take some time. However, as we move towards thelong term, off-site delivery is shown to produce more net habitat. This occurs because more
habitat is produced from off-setting, since for all habitat destroyed more has to created (seeSection 2.3.1), which eventually counteracts the initial loss of habitat. Note that Figures 6 and7 display habitat created rather than matured habitat (habitat at intended condition, 20-30 years
after creation) created and are cumulative, not per annum, numbers. So while Scenario C isestimated to create the most habitat after 7 years, this does not translate to Scenario C will
deliver the greatest benefits (i.e. natural capital) after 7 years.
Table A1.2 in Annex 1 sets out the range of values (between £3,696 and £89,248 per ha),adapted regionally, derived from the ONS ecosystem services for urban, which we use as
proxy for the value of matured habitat, which allows for the estimation of the benefits of thepolicy.
The (10 year) average social benefits of the policy falls in the range of £0m - £1,860.9m
per year. The central estimate is £1,395.7m per year. Our analysis does not capture thebenefits of habitat creation within a 10 year appraisal period as we expect it will takedevelopers 20 years, on average, to create new habitat at the desired condition. This iswhat causes our benefits range to start from zero, since under Scenario C developers only
create habitat to offset their development, with no mitigation on site. As a result, only avoided
habitat loss is monetised in our analysis under a 10 year appraisal period. The sensitivity
analysis (Section 6.11) investigates how these estimates change over a 40 year appraisal
period. While the natural capital benefits delivered are highly dependent on the location anddesign of individual developments, such variation (beyond what is captured regionally) is
difficult to capture at an aggregate level. Therefore, these benefits are likely to be undervalued(see Section 6.9.1 for further discussion).

Figure 6: Cumulative habitat trend by scenario(ha, creation and loss)
40,00020,000
‐
2021

2022

2023

Hectares‐20,000‐40,000

2024

2025

2026

2027

Net habitat creation(Scenario C, 2024) = 51,181

2028‐60,000‐80,000‐100,000‐120,000‐140,000YearCounterfactual

Scenario A

54

Scenario C

Central estimate

2029

2030

Figure 7: Net cumulative habitat creation(ha, accounting for avoided loss and habitat creation)
180,000
160,000
140,000

Hectares120,000
100,000
80,00060,000Cumlative habitat (Scenario C, 2024) - Cumlative
habitat (Counterfactual, 2024) = - 254 - (- 51,435) =51,18140,00020,000
‐
2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Year
Net habitat creation Scenario A (ha)Net habitat creation Scenario C (ha)Net habitat creation central estimate (ha)6.9.1 Wider public benefits in context
The benefits of many natural capital investments often demonstrate good value for money andthe benefit cost-ratios (BCRs) sometimes exceed other capital investments such as road andrail. Evidence from the National Capital Committee118 demonstrates high return investment
opportunities in woodland planting, peatland restoration, wetland restoration and addressing air
quality and greenspaces in urban areas. BCRs typically vary between 3 to 1 and 8 to 1, and are
based on partial valuations of benefits. For example, restoration of 140,000 ha of peatland
would deliver net benefits of over £500 million over 40 years in carbon values alone.
There is a growing literature of valuation evidence for different natural capital assets and spatial
scales. For example:

ONS119 has developed various ecosystem services accounts, mostly at the UK level.
Recently, it estimated that UK urban green space has a stock value of between £100-200
billion depending on the methodology used,120 and for woodland £87 billion (2015
prices).121 It has also developed a tool that assesses the value of air pollution removal by

118 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/516725/ncc-state-natural-capital-third-

report.pdf. See executive summary, sections 4.1 (Box 4.1 gives an example of prioritising woodland creation) and 5.1 (Box 5.6 provides benefit
cost ratios for various categories of capital investment alongside natural capital investment.)
119 https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/naturalcapital
120 https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/ecosystemaccountsforurbanareas
121 https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/landandhabitatecosystemaccounts

55vegetation,122 which estimates this pollution removal saved the UK around £1 billion(2012 prices) in avoided health damage costs in 2015


Eftec123 has developed a partial valuation of natural capital for the Greater Manchester
Combined Authority (GMCA). It estimates total annual benefits of over £900 million (2017prices), with health benefits (air quality and noise regulation, physical and mental health)contributing to more than half of the benefits. This translates to an estimated natural
capital stock value of £25.4 billion (2017 prices). Given the extent of GMCA is 127,613
ha, the benefits are equivalent to £7,300 per ha annually (Table A1.2 in Annex 1 showsthat we assume the annual environmental benefits per ha of new habitat creation or
avoided habitat loss in the ‘North West’ region is £8,192), or nearly £200,000 per ha instock value

the Forestry Commission124 has reviewed natural capital valuation for urban trees,demonstrating estimated annual benefits in various areas such as Wrexham (£2 million
per year), Glasgow (£6.7 million per year) and Greater London (£130 million per year).
These are partial valuations that account for benefits such as carbon sequestration, andair pollution removal

University of Exeter have constructed online tools to provide estimates for the of existing
and changing land uses for a range of asset types: Outdoor Recreation Valuation(ORVal)125 and Natural Environment Valuation Online (NEVO)126. Under the former tool,
the average per hectare value for a selection of parks is £30,000. This only considers
recreational benefits and not wider natural capital benefits of accessible greenspace, andtherefore is considered likely to be an underestimate.

As outlined in Section 6.2 and Section 6.9, the benefits assessment is uncertain, reflecting anational based approach to the analysis for a policy that will have spatially specific impacts. To
demonstrate the validity of this approach, we combine land use change data (Table 24) withvaluations from ONS ecosystem services accounts to demonstrate alternative estimates for thevalue of avoided habitat loss. Table 25 presents a summary of the natural capital data, while
Table 26 demonstrates the value of avoiding the recent annual losses of selected asset types
shown in Table 4.
The analysis demonstrates that there are significant benefits that could be realised by avoiding
future losses of distinctive and valuable habitat, assuming recent trends continue. For example,
the estimated net present value of avoiding the loss of 100 ha per year of urban green space(proxy for outdoor recreation) is around £350 million (2016 prices) based on annual benefits, or£2.2 billion (2016 prices) based on natural capital stock value. While avoiding woodland andfarmland losses also delivers benefits (albeit less significant than urban green space), it should
be noted that all estimates made here are based on partial valuations of the ecosystemservices provided. In other words, the true benefits are likely to be much greater than thoseestimated here and in the headline analysis, particularly as some key ecosystem services (e.g.
biodiversity) are not quantified.

122

https://www.ons.gov.uk/economy/environmentalaccounts/articles/ukairpollutionremovalhowmuchpollutiondoesvegetationremoveinyourarea/2018-07-30123 https://naturegreatermanchester.co.uk/wp-content/uploads/2018/06/NCA-for-GM-Final-Report-270618.pdf
124 https://www.forestry.gov.uk/pdf/FINAL_REPORT_FCRP027.pdf/$FILE/FINAL_REPORT_FCRP027.pdf. See section 10 on Urban Trees.

The exact price years for quoted figures is not obvious from the report, but most likely between 2010 and 2015.
125 https://www.leep.exeter.ac.uk/orval/
126 https://www.exeter.ac.uk/leep/research/nevo/ - tool not formally released at time of writing.

56

Table 24: Annual land use change to developed uses within policy scope in England (hectares)

2013-142014-152015-16

Agriculture
(ha)
1,400
2,500
1,950

Forest, open land
and water (ha)
250
375
375

Outdoor recreation
(ha)
100
100
100

2016-17

1,900

350

75

Annual average
Annual average

1,950

325

100

Year

9,675
875
350
(all developed uses in land
use change data)
All figures are rounded, so sub-totals may not equate to stated totals and averages. Data from Table P361 - see Table 1
for sources and definitions. Developed uses only includes the categories within scope of the policy – residential, industry
and commerce, and transport and utilities.
Table 25: ONS ecosystem services accounts - summary data
Natural capital benefits (total)

Natural capital benefits (per ha)

Asset

Extent(ha)

Annual flow(£ billions)

Stock value(£ billions)

Annual flow(£)

Stock value(£)

Urban greenspace1(2016 prices)73,600(England)

5.8

187.9

78,8042,553,564

2.7

87.6

855

27,717

1.6

50.6

89

2,876

Woodland2(2015 prices)3,160,000

Farmland2(2015 prices)

17,600,000(UK wide)(UK wide)

Notes: Stock values estimate the lifetime benefits over 100 year appraisal period, using variable discount rates as outlined in the HMT Green
Book: 3.5% for 0 - 30 years, 3.0% for 31-75, and 2.5% for 76 - 100 years. Some of the estimated values are derived from the published data
– for example, the annual flow of benefits for woodland was derived from the total stock value.
1
urban green spaced used as a proxy for “outdoor recreation”. Valuation data taken from ONS ecosystem accounts for urban areas, basedon visits to publically accessible greenspace in England only.
https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/ecosystemaccountsforurbanareas
2
valaution data from the latest ONS ecosystem accounts for freshwater, farmland and woodland based on UK wide data on extent andecosystem services benefits.
https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/landandhabitatecosystemaccounts

Table 26: Natural capital benefits of avoid habitat loss - an alternative analysis
Value of natural capital
benefits based on:

Net present value (10 year
appraisal period) of natural
capital benefits based on:

Average annual
avoided loss (ha)Annual flow(£m)

Stock value(£m)

Annual flow(£m)

Stock value(£m)

Urban greenspace

100

7.9

255.4

354.3

2,198.0

Woodland

3251

0.3

9.0

13.5

77.5

Farmland

1,950

0.2

5.6

8.4

48.3

Asset

Notes: Stock values estimate the lifetime benefits over 100 year appraisal period, using variable discount rates as outlined in the
HMT Green Book: 3.5% for 0 - 30 years, 3.0% for 31-75, and 2.5% for 76 - 100 years. The net present value estimate assumes that
previous average annual losses are avoided over a 10 year appraisal period.
1
the land cover map analysis (see Section 2.2.2) suggests that average annual loss of woodland to urban development is around
500 ha per year between 2007 to 2015. For the purposes of this illustrative analysis, we use the annual loss figure from the land usechange data, although we acknowledge that this includes open land and water in addition to forest.

57

6.10 Net present value and equivalent annual net cost to business
Based on direct impacts to developers, the central net present value estimate over a 10 year
appraisal period is £9,566.8m (2017 prices), (range between £-5,878.4m and £14,715.3m),
based on a discount rate of 3.5%.127 The estimated equivalent annual net cost to business(EANDCB, 2016 prices) is £170.7m, based on the central scenario. As discussed in Sections
6.4, the pass through effect to land prices (representing a cost to landowners) means that the
impact on developers is likely to be significantly lower (£17.1m per year). However, the headline
figures report the direct impacts (which contains the indirect effects) – otherwise this would be
misrepresentative of the costs to businesses and landowners (e.g. if only costs after passthrough was considered) or be double counting (e.g. the indirect impacts are already contained
within the headline figures).

6.11 Sensitivity analysis
The impact of changes to assumptions and risks, outlined in Sections 6.2 and 6.3, on key
outputs are assessed though sensitivity analysis. This section outlines how this analysis was
conducted (Section 6.11.1) and reports the findings (Section 6.11.2).
6.11.1 Description of sensitivity analysis
All analysis in this section is compared against both the headline 10 year appraisal period
analysis (Table 27) and extended 40 year appraisal (Table 28). The impact on ‘net indirect
costs to developers’ are not displayed in the tables since the percentage change will always
match the direct costs to developers. That is, the absolute value of indirect costs are 10% of thedirect costs.
Our headline analysis assumes that the housebuilding rate is constant and in-line with assessedhousing need data, which is estimated at roughly 267,000 per annum.128 An increase of thisscale is likely given that the government’s ambition is to increase housebuilding to 300,000 per
year (see Section 2). We consider the results if we changed our analysis so that thehousebuilding increased to 300,000 per year for every year in the appraisal period.
We expect that developers will continue to build over the same level of habitat as before(averaging 4.46 units per ha) and shall choose to create the most distinctive habitat available(estimated at 19.84 units per ha before time, risk and baseline deductions). The tables
demonstrate changes to results if developers were to create the least distinctive habitat possible
within the bounds of the policy (estimated at 11.05 units per ha before time, risk and baseline
deductions). The tables show the change in results if developers were to develop on habitat thatis 20% less distinctive than current trends.
Our analysis assumes that the amount of habitat delivered, as of result of net gain, on-site is
75%. It was indicated, by consultation responses, that the ‘majority’ of habitat would bedelivered in this way. To that end, we test that 50% is delivered on site. This is considered to be
the lowest bound for what could be expected to be meant by ‘majority’.
The benefits are derived using the ONS ecosystem services accounts for urban areas, which
estimates greenspace within 100m of a property to be worth £4,800 per residence. This is a
127 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent
128 https://www.gov.uk/government/consultations/planning-for-the-right-homes-in-the-right-places-consultation-proposals

58conservative estimate relative to those offered by Natural Environment Valuation Online (NEVO)
and Outdoor Recreation Valuation (ORVal), and the wider literature (see Section 6.9.1 forfurther discussion). We test this further by applying a 20% reduction to the value used. Similarly,
we apply a 20% increase to all costs to test against optimism bias.129
This analysis examines the cost and benefits of implementing net gain at the 10% level. There
are advantages of a significant margin of gain (e.g. it increases the likelihood that net gain will
be achieved), but the increased costs this would lead to should be considered alongsidepotential development viability issues. We consider how these values are affected if thispercentage was doubled (20%) or halved (5%) respectively. Finally, we consider the impact if allsensitivities that decreased benefits, increased costs and expanded scale of the policy wereconsidered collectively.130
As per guidance from HM Treasury Green Book, the appraisal period in our analysis runs for 10
years. Given the 20 year time lag between habitats being created and reaching maturity, thismeans that benefits of the policy are not adequately reflected in the headline analysis. Table 28
shows the results for the same aforementioned scenarios but over a 40 year appraisal period to
capture the full lifetime impacts.

129 Costs included are: survey costs, habitat creation, price of biodiversity unit, staff .costs (including familiarisation)
130 Sensitivities included are: housing targets, developers creating suboptimal habitat, developers building on less distinctive habitat, onsite

delivery, environmental benefits and optimism bias.

59

Table 27: Outputs and cost benefit analysis change by scenario (10 year appraisal, 2017 prices)(Change from headline analysis beneath. If blank, it indicates no change was estimated)

Headline
analysisGovernment
housingtarget met

Estimated residential
development per year

6,701

7,529
(+12%)

Avoided habitat loss
(Annual, ha)

9,644

10,085(+5%)

Habitat creation (Annual,
ha)

5,428

5,699
(+5%)

Developers
create lessdistinctive
habitatDevelopers
build on lessdistinctive
habitat

Net gain onsite delivery
percentage
is 50%

20% reductionin estimate forenvironmental
benefits

Optimism
bias(increase allcosts 20%)

Double levelof net gain
(20%)

Halve levelof net gain
(5%)

All
7,529
(+12%)

6,429(-33%)
21,178(+290%)

4,343(-20%)

6,723(-30%)

9,306(+71%)

6,979(+29%)

4,653(-14%)

30,492(+462%)(£ millions, unless stated otherwise, change from headline analysis beneath)Net direct cost to
developers(annual)Present value of costs(10 year appraisal, total
costs to developers andgovernment)
Present value of benefits(10 year appraisal, social
benefits derived from local
avoided habitat lost andlocal habitat creation)
Net present value(total, 10 year appraisal
period, 3.5% discount rate)

199.0

209.2
(+5%)

265.4
(+33%)

194.4
(-2%)

355.8
(+79%)

238.8(+20%)

236.8(+19%)

180.0(-10%)

489.9(+146%)

1,828.2

1,916.3(+5%)

2,400.4(+31%)

1,788.8(-2%)

3,178.3(+74%)

2,188.4(+20%)

2,154.2(+18%)

1,665.3(-9%)

4,350.1(+138%)

11,395.1

11,916.0(+5%)

9,566.8

9,999.7(+5%)

8,994.6(-6%)

9,606.3(+0%)

60

7,596.7(-33%)

9,116.1(-20%)

4,418.4(-54%)

7,287.8(-24%)

6,355.2(-44%)
9,206.6(-4%)

9,240.9(-3%)

9,729.8(+2%)

2,005.1(-79%)

Table 28: Outputs and cost benefit analysis change by scenario (40 year appraisal, 2017 prices)(Change from headline analysis beneath. If blank, it indicates no change was estimated)

40 yearappraisal

Government
housingtarget met

Estimated residential
development per year

6,701

7,529
(+12%)

Avoided habitat loss
(Annual, ha)

9,644

10,085(+5%)

Habitat creation (Annual,
ha)

5,428

5,699
(+5%)

Developers
create lessdistinctive
habitatDevelopers
build on lessdistinctive
habitat

Net gain onsite delivery
percentage
is 50%

20% reductionin estimate forenvironmental
benefits

Optimism
bias(increase allcosts 20%)

Double levelof net gain
(20%)

Halve levelof net gain
(5%)

All
7,529
(+12%)

6,429(-33%)
21,178(+290%)

4,343(-20%)

6,723(-30%)

9,306(+71%)

6,979(+29%)

4,653(-14%)

30,492(+462%)(£ millions, unless stated otherwise, change from headline analysis beneath)Net direct cost to
developers(annual)Present value of costs(40 year appraisal, total
costs to developers andgovernment)
Present value of benefits(40 year appraisal, social
benefits derived from local
avoided habitat lost andlocal habitat creation)
Net present value(total, 40 year appraisal
period, 3.5% discount rate)

199.0

209.2
(+5%)

265.4
(+33%)

194.4
(-2%)

355.8
(+79%)

238.8(+20%)

236.8(+19%)

180.0(-10%)

489.9(+146%)

4,700.4

4,927.4(+5%)

6,174.9(+31%)

4,598.7(-2%)

8,179.4(+74%)

5,626.6(+20%)

5,540.3(+18%)

4,280.4(-9%)

11,197.1(+138%)

100,127.6

104,751.5(+5%)

127,241.0(+27%)

98,258.6(-2%)

76,299.4(-24%)

80,102.1(-20%)

102,962.8(+3%)

98,710.0(-1%)

92,022.5(-8%)

95,427.3

99,824.0(+5%)

121,066.0(+27%)

93,659.9(-2%)

68,120.1(-29%)

75,401.7(-21%)

97,422.6(+2%)

94,429.6(-1%)

80,825.4(-15%)

61

94,501.0(-1%)

6.11.2 Results of sensitivity analysis
The tables demonstrate that biodiversity net gain, as outlined in our preferred approach(Section 5.2.2), is expected to deliver measurable benefits under all scenarios. This is still true
even if all sensitivities, which have a negative impact upon our estimates, were realised.
According to our analysis, the policy’s greatest dependency is the proportion of developments
which avoid habitat loss and deliver on site (Scenario A) and those which damage existing
habitats and pay compensation (Scenario C). The sensitivity analysis shows that decreasing
this percentage to 50% significantly increases costs and reduces benefits by nearly a third. This
amounts to a 54% decrease in the net present value of the policy under a 10 year appraisal
period. This is misleading however, given that a lot of the benefits are transferred from avoided
habitat damage to created habitats. Due to the 20 year delay in the realisation of benefits fromcreated habitat, the transferred benefits are not accounted for. In the 40 year appraisal, thesame effect leads to a 29% decrease in the estimated net present value of net gain. While thisis still a substantial decrease, it is clear that the created habitat benefits not being realised has a
noticeable effect on the results.
When analysing the impact of changing the level of net gain required, we show that doubling (to20%) and halving (to 5%) the net gain percentage increases costs to developers by 19% anddecreases costs by 10% respectively in both a 10 year and 40 year appraisal period. As aresult, doubling the percentage reduces the overall net present value by 3% and halving thepercentage improves this by 2% under a 10 year appraisal period. In the 40 year appraisal,
however the benefits increase by 3% and costs decrease by 1%. Consequently, the net present
value increases by 2% or decreases by 1% in response to doubling or halving the level of net
gain.
While this suggests that varying the level of net gain between 5% and 20% has very limited
impact on the outcome, there is a trade-off between cost implications for developers and thelikelihood of net gain being delivered at a national level (e.g. less costly/likely at 5% net gain
compared to 10%, and vice versa for 20%). Our chosen policy approach, which sets out that
10% is the right level to demonstrate net gain, considers this trade-off among other issues.
These are discussed further in Annex 3.
Also of note, if developers were to create the least distinctive habitat allowed (see Section 2.3.1
on “trading down”) we estimate the amount of habitat created would increase by 290%,
improving net present value by 27% in the 40 year appraisal. This increase is true for the extent
of habitat, however the quality per hectare of this habitat would be less than that assumed in theheadline analysis. This is reflected in that there would be no change to the amount of
biodiversity units delivered. For this reason, we anticipate that this would not lead to acorresponding increase in environmental benefits, although a small change in the overall
benefits may be possible in this case.

7 Small and micro business assessment
7.1 BackgroundA small business is defined as one employing fewer than 50 full-time equivalent employees, anda micro-business as one employing up to 10 employees. There are 34,580 developers in
England, with 45% located in London and the South East. In addition, 97% (33,535) and 3%(990) of developers are classed as micro and small business respectively. Only 50 developers
62

can be classed as medium or large businesses.131 The sector also employs 81,000 people.132
Micro and small developers reflect approximately 60% of gross value added (GVA) and 50% of
turnover.133
In a planning context, the impact of mandating biodiversity net gain will vary depending on thesize of the: Developer: in the absence of mitigation steps, new regulations are typically more costly
for small businesses to implement compared to medium or large ones; and Development: minor developments (i.e. small sites) have far less (and sometimes
negligible) impact on habitats compared to major developments. However, small
developments happen frequently enough such that their cumulative impact is not
insignificant over time (see land cover map analysis conclusions in Section 2.2.2).
Table 29 presents the definitions of minor and major developments by development type.
Table 29: Definitions of minor and major developments, by development type
Residential development
Non-residential development
Minor development(i.e. small sites)

Where the number of dwellings to beprovided is between one and nine
inclusive on a site having an area of lessthan one hectare; OR where the numberof dwellings to be provided is not known,a site area of less than 0.5 hectares.

Where the floor space to be created isless than 1,000 square metres OR where
the site area is less than one hectare.

Major development

Where the number of dwellings to beprovided is ten or more; OR where thenumber of dwellings to be provided is notknown, a site area of more than 0.5
hectares.

The provision of a building or buildings
where the floor space to be created by
the development is 1,000 square metresor more OR development carried out on asite having an area of one hectare or
more.

Source: MHCLG, Planning applications in England. https://www.gov.uk/government/collections/planning-applicationsstatistics

There is limited evidence overall on the interaction between size of developer and sites. For
example, the data shows that for residential development, 96% of small sites are built by
developers that are responsible for 10 projects or fewer.134 However, the data does not indicate
how many of those developers with fewer than 10 projects are genuinely small, and how many
are actually large developers operating under a different name. A House of Commons briefing
paper on self-build and custom build housing estimates that these account for between 7-10%
of new housing in the UK.135
When analysing planning applications and land use change, a 2014 study by Glenigan136 foundthat the vast majority of residential planning applications are for small sites. Similarly, analysis ofrecent planning application data suggests that small sites cover 80% of permissioned residential
131 https://www.nomisweb.co.uk/. ONS data on number of enterprises by employment size band. Developers defined by the Standard Industrial

Classification (Revised 2007) Section F 41.10: ‘Development of building projects’. 2018 data.
132 https://www.nomisweb.co.uk/ . ONS data from Business Register and Employment Survey. Developers defined by the Standard Industrial

Classification (Revised 2007) Section F 41.10: ‘Development of building projects’. 2017 data.
133https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/datasets/uknonfinancialbusinesseconomyannualbusinesssurve

yemploymentsizeband. ONS data Non-financial business economy in the UK by employment sizeband. UK level data for construction industry(Standard Industrial Classification Section F, which includes developers 41.10) used as a proxy.
134 MHCLG analysis of Glenigan planning pipeline data.
135 https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06784
136 https://www.glenigan.com/sites/default/files/Residential-Planning-Outcomes-and-the-NPPF-Apr-14FINAL.pdf?sid=37864

63

sites, but only 12% of permissioned residential units.137 For non-residential developments, small
sites make up 90% of applications,138 but there is no comprehensive data on the number ofcompletions given the range of development types this includes, and the fact that somedevelopers operate across different sectors.
The land cover map analysis (see Section 2.2.2) indicates that minor developments (e.g. lessthan 1 ha) make up majority of land use changes in terms of frequency, but only a small
proportion of the land use change overall. In other words, the majority of habitat lost to urban
development is small in scale but many in number. This means that the significant habitat lossof recent years is an accumulation of many small losses, each of which may not seem
individually problematic. This is in addition to the losses from major developments, which makeup the majority of land use change in terms of area.
Assuming that the relationship between planning applications and completions is similar forresidential and non-residential development, our best estimate is that micro and small
developers represents between 10-20% of residential and non-residential development. This isequivalent to between 1,600 ha and 3,200 ha per year based on the total development in scope(16,232 ha) given in Table 12 in Section 6.1.

7.2 Exemptions and mitigations
At consultation, we tested the assumption that including broad exemptions for micro/small
developers or small developments carries a risk of making the policy ineffective by undermining
the net gain delivered elsewhere. We also highlighted that it would represent a weakening ofexisting NPPF policy, which was recently revised to strengthen policy wording on biodiversity
net gain.
The consultation IA set out how broad exemptions could have unintended consequences. For
example, exemptions for:

small developers may exempt lots of small sites but not those by large developers
small developments would capture both small and large developers. It may introduce
an incentive to subdivide plots when trading land to avoid biodiversity obligations andachieve higher pricessome developers or developments would leave the maximum value of the land
unaffected for some market participants. This would make cost pass-through to land
values less likely and also prevent a competitive level playing field.

However, we proposed that permitted development and developments that would result in
negligible loss or degradation of habitat, for instance material change of use of or alterations tobuildings and house extensions, would fall out of scope. Beyond this, we also consulted onwhether appropriate exemptions could be made to developments by size, sector or site location,in cases where there would be little environmental impact or be proportionate wheredevelopment would otherwise be compromised.

137 Internal MHCLG analysis, based on planning application data provided by Glenigan for the year to 2018 Quarter 1.
138 https://www.gov.uk/government/collections/planning-applications-statistics. Analysis of planning applications for the year ending December

2017. There were 75,126 planning applications for non-residential developments, where 67,884 (90%) are classed as minor developments(small sites). ‘Non-residential development’ includes the following categories defined within the dataset: Office/research and development/lightindustry; General industry/storage/warehouse; Retail and services; Traveller pitches; and all other major developments.

64Feedback from consultees and industry experts suggests that both minor and major
developments should be in scope of the policy. However, we recognise the potential
disproportionate regulatory burden on small developers or developments. A survey has raised
concerns about the disproportionate cost and delay SME house builders report in bringing small
scale developments through the planning system.139
Therefore, our preferred option proposes that, as an alternative to broad exemption, that
aspects of the process are simplified for small developments. This supports our core policy
objective for environmental obligations in the planning system to be streamlined, a benefit to all
developers, whilst having a policy that is scalable, simple and administratively light as possible.
Mitigation steps for small developments include:aiming to create no increase in survey burden for small developers and ensurethat processes are proportionate to the impact on biodiversity. A simple walkover
survey and habitat plan for the proposed development prepared by an appropriately
qualified person, who could be an in-house member of staff without very specialist
experience, should suffice for assessments of biodiversity net gain if a survey is not
required for other biodiversity reasons. In contrast, a large developer or a development
affecting biodiverse habitat would typically be expected to engage an experienced
ecologist to carry out or review the assessmentuse of an abridged version of the biodiversity metric with condition values prepopulated, resulting in marginally lower or higher levels of net gain on individualsites but close to the target overall. This is compared to a large development where
the assessor would need to establish the habitat condition as part of the survey

the ability to purchase, through local markets or from government, any necessary
biodiversity units upon receipt of planning permission. Whilst this mechanism
applies to both small and large developers, it is expected that this will particularly benefit
smaller developers who may not have access to wider land portfolios for compensation,or room within developments for full impact mitigation



guidance on implementing on site measures through generic good design and ‘offthe shelf’ habitat banking. This is compared to a large development where design
considerations may be more site specific and bespoke habitat improvement may benecessary

We will also be exploring options throughout implementation for avoiding new process burdens
to developments that are slightly larger than our stated definition of ‘small sites’ in Table 29. It is
intended that significant additional survey requirements will not be created through biodiversity
net gain policy (as was found to be the case by the evaluation of the biodiversity offsetting
pilots), particularly with regard to developments smaller than 40 residential units or 1 hectare
which might be more likely to be undertaken by smaller development businesses.

8 Justice Impact Test
The impact of mandating net gain for biodiversity on the justice system is estimated to beminimal. We might expect an initial increase in biodiversity-related cases on commencement
due to unfamiliarity with the policy and/or e.g. developers testing the legislation. However, thebaseline of proxy cases is low and any increase on this is likely to be modest. Long-term,

139 https://www.fmb.org.uk/media/35090/fmb-house-builders-survey-2017.pdf

65

biodiversity net gain policy will make it clearer upfront to developers what is required of themand the approved metric and supporting guidance will reduce scope for disagreement.
Payments, or increased costs, which are based on an assessment of the biodiversity value ofland determined via the biodiversity metric are, to an extent, novel. While the Defra metric isestablished and in use by a number of local authorities and developers, familiarity is notconsistent at a national level. We might reasonably expect initial challenges around, forexample, the application of professional judgement in assessing habitat ‘condition’ under the
metric (see Section 5.2.2.3). To note, however, that the biodiversity offsetting pilots in Warwick
and Coventry, which have been in operation since 2012, have seen no appeals or legal
challenges under their offsetting-related requirements.
In the long term, we would expect initial challenges to be worked out through case law and theconsistency provided by the proposed mandatory approach and single metric to build common
understanding and enable constructive scrutiny by communities and stakeholders. This will
reduce significantly the scope for disagreements to reach the courts.
We submitted a Justice Impact Test to the Ministry of Justice (MoJ). The outcome is that MoJ
consider that the impact our preferred policy approach on the justice system is likely to beminimal, but that Defra would be expected to meet any downstream costs to the justice systemshould these arise.

66

Annex 1: Key cost benefit analysis assumptions
Table A1.1: Estimated biodiversity unit value of land use types
Previous land use
type

Biodiversity
units (1 ha)DistinctivenessCondition

Connectivity

Strategic
significanceCommunity Service

0

0

2

1

1

Defence

0

0

2

1

1

Industry andCommerce

2

1

2

1

1

Minerals and Landfill

0

0

2

1

1

Residential

2

1

2

1

1

Transport and utilities

2

1

2

1

1

Other developed use

4

2

2

1

1

Vacant - previously
developed

4

2

2

1

1

Agriculture

4

2

2

1

1

Forest, open land and
water

16

6

2

1.15

1.15

Outdoor recreation

4

2

2

1

1.1

Residential garden

4

2

2

1

1

Undeveloped land

10

4

2

1.1

1.1

Vacant – notpreviously developed

10

4

2

1.1

1.1

Previously developed use

Previously non-developed use

Distinctiveness values for sub-categories of habitat types were estimated for the previous
biodiversity metric by Warwickshire’s impact calculator.140 The values were averaged according
to land use types to provide a distinctiveness score, that could be applied to MHCLG’s land use
data and then scaled up to match the new biodiversity metric.141,142 Each land use type was thengiven a score for the remaining categories (connectivity, condition, strategic significance, time tocreate and difficulty of creation). Multiplying these values as per the biodiversity metric gives
estimated biodiversity unit value of land use types (Table A1.1). Please note that theseestimated values are indicative for the purpose of a national level appraisal analysis. In
practice, actual scores will vary by site and spatial characteristics, and shall be judged byecological expertise.
Land uses with unit value of zero are included in the table to demonstrate that they wereconsidered. For example, we estimate ‘defence’ would have a distinctiveness score of zero, but
in reality the score might be greater than zero. However, our estimate reflects the classification

140 https://www.warwickshire.gov.uk/biodiversityoffsetting
141 https://www.gov.uk/government/statistical-data-sets/live-tables-on-land-use-change-statistics
142http://publications.naturalengland.org.uk/publication/6020204538888192

67methodology143 which indicates that the majority of this land type would have no distinctivenessvalue (those being barracks and buildings). There are sub-groups within the defenceclassification that may have a distinctiveness value (airfields and firing ranges). We expect that
if they did then they would be classified under a different land type – as with residential andresidential gardens which are separated.
Table A1.2: Estimated regional natural capital value of habitat
Region
North East
North West
Yorkshire and The Humber
East Midlands
West Midlands
East
LondonSouth East
South West

Value of habitat(£ per ha, 2017 prices)
4,912
8,192
5,632
4,832
7,152
5,136
89,2487,568
3,696

Persons per hectare
3.07
5.12
3.52
3.02
4.47
3.21
55.78
4.73
2.31

Residences per hectare
1.02
1.71
1.17
1.01
1.49
1.07
18.59
1.58
0.77

The regional natural capital value of 1ha of matured habitat is derived from the ONS ecosystem
accounts for urban areas, which values green space within 100m of a residence as £4,800 per
residence on average144. This is divided by the number of people in a residence (assumed to be3) to get value of habitat per person in a residence (£1,600). This number is then multiplied bypersons per hectare for each region to give estimated regional value of habitat (Table A1.2).145
This assumes that each person in every region value habitat equally, and the regional
difference is driven by the density of people in that area.

143

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/432348/DCLG_LUCS_New_Methodology_G
uidance.pdf
144 https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/uknaturalcapital/ecosystemaccountsforurbanareas
145 https://lginform.local.gov.uk/reports/lgastandard?mod-metric=176&mod-period=1&mod-area=E92000001&mod-group=AllSingleTierInCountry_England&mod-type=namedComparisonGroup68

Annex 2: Cost benefit analysis calculations
Table A2 outlines each calculation step in the cost-benefit analysis. Values given are indicative to provide a reference – either displaying total
values or an average local authority value. Some calculations in the table will not add up perfectly due to rounding and averaging.
Table A2: cost benefit analysis step-by-step calculations
Indicative values
Calculation line

All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Description

Unit values(A1) Habitat scalar to factor time and difficultycomponents of the metrics(A2) Costs to developer of surveys(A3) Net present value (NPV) of habitat creation andmaintenance costs per hectare

Calculate metric unit for habitat lost and habitat
created for an example development. Divide throughto get scalar.
Estimate provided by Natural England that assumes
conducting a Phase 1 habitat survey on a 1 ha sitewould take 1 -1.5 days of an ecologists time, plus halfa day for report writing.
NPV of habitat creation and maintenance costs(£1,070 per year) over 30 years, assuming a discountrate of 3.5%. The annual cost is derived from thisstudy,146 which estimates a need to restore
250,646ha of priority habitat per year (see Table 4.1)
at a cost of £250,376,000 per year (see Table 5.1) –giving a priority habitat restoration costs per hectareof c£1,000 per annum. The report also identifies aneed to create 27,153ha of priority habitat per year
(see Table 4.1) at a cost of £31,036,000 (see Table
5.1) giving a priority habitat creation cost per hectareof c£1,150 per annum. The average of the two costs
is £1,070 per year.

146 https://www.nationaltrust.org.uk/documents/assessing-the-costs-of-environmental-land-management-in-the-uk-final-report-dec-2017.pdf

69

1.14

£900

£19,698

Table A2: cost benefit analysis step-by-step calculations
Indicative values
All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Calculation line

Description(A4) Cost of a biodiversity unit

Value assumed for typical off-site habitat creation,
based on evidence of existing compensation
schemes (usually charge between £6,000 and£25,000 per unit) plus a small uplift foradministration.
Average social value of habitat per residence, basedon ONS ecosystem accounts for urban areas.

£11,000

Multiply assumed biodiversity value of 1ha of a land
use type by the proportion of brownfield/greenfielddevelopment that is that land use type in each local
authority
Sum line (B1) for relevant land use types for each
local authority.

Range of units lost from a representative 1haresidential development in an average LA byland use type: 0.0 – 2.65

(A5) Value of habitat per residence.

£4,800Residential development(B1) Biodiversity units lost from a land use type in a
representative hectare of brownfield or greenfield
residential development at local authority level(B2) Biodiversity units lost from a representative ha ofbrownfield or greenfield residential development at local
authority level(B3) Weighted average biodiversity units lost from a
representative ha of (all) residential development

Sum brownfield and greenfield values in line (B2).

(B4) Expected residential development at local authority
level

MHCLG assessed local housing need data147

147 https://www.gov.uk/government/consultations/planning-for-the-right-homes-in-the-right-places-consultation-proposals

70

Brownfield units lost from 1ha development inaverage LA: 2.07
Greenfield units lost from 1ha development inaverage LA: 7.53
Units lost from 1ha development in average
LA: 4.46

Total assessed housing need: 269,714 p.a.

Table A2: cost benefit analysis step-by-step calculations
Indicative values
Calculation line

Description

All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum(B5) Expected residential development at local authority
level (for sensitivity analysis only)

Scale up line (B4) so that it sums to 300,000 p.a. inline with Government target

Multiplier to scale up assessed housing need:
1.11(B6) Expected residential development that do not
implement net gain (without intervention)

Multiply line (B4) – that is unscaled residential
development - by (1 minus 29%). Analysis of 2017
annual reports of the 9 largest housebuilders (whoare responsible for 52% of completions). Of these, 6
already have full or partial net gain or a similar policy.
These 6 account for 29% of all completions.
Multiply line (B6) by proportion of residential
developments which comes from previously
undeveloped or developed land use type respectively

Total assessed housing need not delivering
net gain: 189,578 p.a.

(B7) Expected number of residential developments thatare greenfield or brownfield

Greenfield residential development in average
LA: 228 p.a.
Brownfield residential development LA: 353
p.a.
Size of all greenfield residential developmentin average LA: 8 ha p.a.
Size of all brownfield residential developmentin average LA: 7 ha p.a.

(B8) Size of individual residential greenfield or brownfielddevelopments

Multiply line (B7) by representative size for agreenfield (0.033ha) and brownfield (0.02ha)
developments respectively.

(B9) Size of all residential developments (notimplementing net gain)

Sum values in line (B8)Size of all residential development in average
LA: 15 ha p.a.

(B10) Expected biodiversity units lost p.a. fromresidential development

Multiply lines (B2) by line (B8) for greenfield andbrownfield respectively. Sum.

Units lost from greenfield development inaverage LA: 16.64 p.a.
Units lost from brownfield development inaverage LA: 52.71 p.a.
Units lost from development in average LA:
70.30 p.a.

71

Table A2: cost benefit analysis step-by-step calculations
Indicative values
Calculation line

Description

All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum(B11) Expected units delivered by net gain fromresidential development

Net gain requires 10% is delivered on top of all
habitat lost - line (B10).

Residential net gain requirement in average
LA: 77.33 p.a.

(B12) Onsite and offsite habitat delivered in ha forresidential development

Subject to scenario assumptions. Multiply line (B11)by the respective proportions below and by line (A1)then divide by line (B3).
Onsite habitat:
Scenario A – 100%Central Estimate – 50%
Scenario C – 0%
Offsite:Scenario A – 0%
Central Estimate - 50%
Scenario C – 100%

Onsite habitat created in average LA:
Scenario A: 2 ha p.a.
Central Estimate: 1 ha p.a.
Scenario C: 0 ha p.a.
Offsite habitat created in average LA:
Scenario A: 0 ha p.a.
Central Estimate: 5 ha p.a.
Scenario C: 21 ha p.a.

Non-residential development(C1) Biodiversity units lost from a land use type in a
representative ha of brownfield or greenfield nonresidential development

Multiply assumed biodiversity value of 1ha of a land
use type by the proportion of brownfield/greenfielddevelopment that is that land use type

Range of units lost from a representative 1ha
non-residential development in average LA byland use type: 0.0 – 3.37

(C2) Biodiversity units lost from a representative ha ofbrownfield or greenfield non-residential development at
local authority level

Sum line (C1) for relevant land use types.

Brownfield units lost from 1ha development ofIndustry & Commerce: 1.51
Residential: 2.25
Transport & utilities: 2.41
Greenfield units lost from 1ha development ofIndustry & Commerce: 6.36
Residential: 7.73
Transport & utilities: 7.49

72

Table A2: cost benefit analysis step-by-step calculations
Indicative values
All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Calculation line

Description(C3) Weighted average biodiversity units lost from a
representative ha of (all) non-residential development

Sum brownfield and greenfield values in line (C2).

Average units lost from 1ha development ofGreenfield: 7.48
Brownfield: 1.80
Average: 3.88

(C4) Size of all non-residential development

Divide line (B4) at local authority level by line (B4) at
national level. Using land use change data, subtract
total residential development size from total all
development size. Multiply the two values.
Multiply line (C4) by (1 minus 15%).

Size of all non-residential development inaverage LA: 29 ha p.a.

(C6) Size of non-residential developments notdelivering net gain that are greenfield/brownfield

Multiply line (C5) by proportion of non-residential
developments which are greenfield/brownfield
respectively.

Size of all greenfield non-residential
development in average LA: 9 ha p.a.
Size of all brownfield non-residential
development in average LA: 16 ha p.a.

(C7) Expected biodiversity units lost p.a. from nonresidential development

Multiply lines (C2) by line (C6) for greenfield andbrownfield respectively.

Units lost from greenfield development inaverage LA: 67.32 p.a.
Units lost from brownfield development inaverage LA: 28.80 p.a.
Units lost from development in average LA:
96.49 p.a.

(C8) Expected units delivered by net gain from nonresidential development

Net gain requires 10% is delivered on top of all
habitat lost - line (C7)

Non-residential net gain requirement inaverage LA: 106.14 p.a.

(C5) Non-residential development not already delivering
net gain73

Size of all non-residential development notdelivering net gain in average LA: 25 ha p.a.

Table A2: cost benefit analysis step-by-step calculations
Indicative values
All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Calculation line

Description(C9) Onsite and offsite habitat delivered in ha for nonresidential development

Subject to scenario assumptions. Multiply line (C8)by the respective proportions below and by line (A1)then divide by line (C3).
Onsite habitat:
Scenario A – 100%Central Estimate – 75%
Scenario C – 0%
Offsite:Scenario A – 0%
Central Estimate - 25%
Scenario C – 100%

Onsite habitat created in average LA:
Scenario A: 3 ha p.a.
Central Estimate: 2 ha p.a.
Scenario C: 0 ha

(D1) Annual cost of additional resources required by local
authorities.

Multiply the FTE required for each grade, as
identified by the new burdens assessment, by therespective staff costs.

(D2) Annual cost of additional resource required by
Natural EnglandMultiply the FTE required for each grade, as
identified by Natural England, by the respective staff
costs. Sum with capital costs.

Average upper-tier authority FTE resource
cost: £125,384 p.a.
Total annual ongoing costs to local
authorities: £9.5m p.a.
Total annual ongoing cost to Natural England:£1.8m p.a.

(D3) Annual cost of spatial planning to Defra GroupMultiply the FTE required for each grade, by therespective staff costs. Sum with capital costs.

Total annual ongoing cost of spatial planning
to Defra Group: £1.3m p.a.

(D4) Total annual cost to local and central government

Add lines (D1) to (D3). Note that not all values inlines (D2) and (D3) are ongoing.

Annual ongoing costs to local and central
government: £12.6m p.a.

Offsite habitat created in average LA:
Scenario A: 0 ha
Central Estimate: 8 ha
Scenario C: 31 ha

Local and central government costs

74

Table A2: cost benefit analysis step-by-step calculations
Indicative values
Calculation line
Costs to developers(E1) Onsite and offsite habitat for all development(E2) Total cost of habitat created onsite(E3) Total cost of habitat created offsite

All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Description
Sum figures from line (B12) and (C9) for onsite andoffsite respectively.

Multiply respective amount in line (E1) by line (A3)

Sum lines (B11) and (C8) multiplied by respective
scenario percentages, then multiply by line (A4)

Onsite habitat created in average LA:
Scenario A: 5 ha p.a.
Central Estimate: 4 ha p.a.
Scenario C: 0 ha p.a.
Offsite habitat created in average LA:
Scenario A: 0 ha p.a.
Central Estimate: 13 ha p.a.
Scenario C: 52 ha p.a.
Onsite habitat creation cost in average LA:
Scenario A: £93,713 p.a.
Central Estimate: £70,285 p.a.
Scenario C: £0 p.a.
Offsite units owed in average LA
Scenario A: 0 p.a.
Central Estimate: 45.87 p.a.
Scenario C: 183.47 p.a.
Cost of offsite units owed in average LA
Scenario A: £0 p.a.
Central Estimate: £504,543 p.a.
Scenario C: £2,018,173 p.a.

75

Table A2: cost benefit analysis step-by-step calculations
Indicative values
All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Calculation line

Description(E4) Total cost of surveys

Sum line (B9) and line (C5). Multiply by line (A2).

Development not currently implementing net
gain in average LA: 39 ha p.a.
Survey costs in average LA: £35,499 p.a.

(E5) Annual ongoing cost to developers of net gain
delivery (direct)

Sum lines (E2) to (E4) for costs in an average LA.
Multiply this by 326 (number of local authorities) to
get total developer costs.

Total developer costs in average LA:
Scenario A: £129,212 p.a.
Central Estimate: £610,327 p.a.
Scenario C: £2,053,672 p.a.
Total developer costs:
Scenario A: £42.1m p.a.
Central Estimate: £199.0m p.a.
Scenario C: £669.5m p.a.

(E6) Annual additional cost to developers of net gain
delivery after 90% pass-through to land prices (indirect)

Line (E5) multiplied by 0.1, to account for 90% passthrough.

Total developer costs in average LA:
Scenario A: £1,292 p.a.
Central Estimate: £6,103 p.a.
Scenario C: £20,536 p.a.
Total developer costs:
Scenario A: £4.2m p.a.
Central Estimate: £19.9m p.a.
Scenario C: £66.9m p.a.

76

Table A2: cost benefit analysis step-by-step calculations
Indicative values
Calculation line

All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Description

Assessment of the benefits from habitat creation and avoided loss
(F1) Cumulative habitat lost (counterfactual)
Sum lines (B8) and (C4) for annual lost (a). Assumed
to be linear, for nth year: Ln = a X n(F2) Cumulative habitat created onsite
Annual onsite habitat created (b) is the respective
amount from line (E1). Habitat assumed to becompleted after z years. Also linear, for nth year: Nn= b X (n-z). Where n-z is bounded to zero. That is
before or on year z: Nn = a X 0 = 0(F3) Cumulative habitat created offsite
Assumed y delay between development start andhabitat creation from offsetting due to agreeing andsettling payment. Annual offsite habitat created (c) is
the respective amount from line (E3). For nth year: Fn= b X (n-y-z).
(F4) Avoided habitat damage
Scenario A (and relevant proportion of the central
estimate) assume developers avoid damage on
habitat. Avoided percentage (d) is equal to proportionof habitat created onsite.
For nth year: An = a X Ln
(F5) Cumulative habitat created in a given year
Sum lines (F2) to (F4) minus line (F1) for each
respective year. For nth year: Yn = Nn + Fn + An - Ln.

(F6) Net habitat created in a given year

Sum lines (F2) to (F4). For nth year: Yn = Nn + Fn +An.

77

Annual habitat loss: 12,859 ha p.a.
Annual increase total onsite habitat:
Scenario A: 1,551 ha p.a.
Central Estimate: 1,163 ha p.a.
Scenario C: 0 ha p.a.
Annual increase in total offsite habitat
Scenario A: 0 ha p.a.
Central Estimate: 4,265 ha p.a.
Scenario C: 17,060 ha p.a.
Annual avoided habitat loss
Scenario A: 12,859 ha p.a.
Central Estimate: 9,644 ha p.a.
Scenario C: 0 ha p.a.
Annual increase in total habitat
Scenario A: 1,551 ha p.a.
Central Estimate: 2,214 ha p.a.
Scenario C: 4,202 ha p.a.
Annual increase in net total habitat
Scenario A: 13,484 ha p.a.
Central Estimate: 10,807 ha p.a. (4,265 ha p.a. –not matured habitat)

Table A2: cost benefit analysis step-by-step calculations
Indicative values
Calculation line

All figures are unrounded. Costs are stated in 2017 prices.
Values are the same across scenarios unless stated.
p.a. = per annum

Description

Scenario C: 0 p.a. (17,060 ha p.a. – not matured
habitat)(F7) Value of habitat by region (1 ha)

Divide (A5) by assumed people per residence (3).
Multiply by persons per hectare by region.

Range of regional values for 1ha of habitat:£4,832 - £89,248 per ha(F8) Value of net habitat created in a given year

Multiply values for respective years in line (F6) byline (F7). Call this v.

Value of annual benefits from annual increase in
net total habitat (for given year only)
Scenario A: £338.4m p.a.
Central Estimate: £253.8m p.a. (£398.2m p.a.
after habitat maturity)
Scenario C: £0m p.a. (£454.0m p.a. after habitat
maturity)(F9) Annual social (i.e. natural capital) benefits(10 year average)

Multiply line (F8), v, by Gauss’ arithmetic formula forfirst 10 years. This gives sum of benefits for first 10
years. For n years: Vn = v X n(n+1)/2

10 year annual average benefits
Scenario A: £1,860.9m p.a.
Central Estimate: £1,395.7m p.a.
Scenario C: £0m p.a.

Divide this by 10 for 10 year average annual benefits.

78

Annex 3: Further evidence on level of net gain and permanence
Two key policy components we tested at consultation concerned the level of net gain andpermanence of habitat offsets. While key policy parameters are outlined in Section 5, thisannex sets out additional evidence and considerations for both policy components.

Level of net gain required
Two primary factors were considered in selecting a suitable level of net gain:
 the capability of the policy to deliver genuine gains for nature (and thereby giveconfidence of enhancement to communities in receipt of development) and any
consequent social and economic benefits
 the capability of the development sector (and others) to meet the requirement without
significantly affecting development rates or inhibiting sustainable economic growth
Sources of uncertainty in the delivery of compensation-based conservation policy include
scientific sources, such as measurement error and narrow scope of measurements, andcommunicative sources such as under-specificity (because the metrics are highly simplified
relative to the depth of ecological information that would be necessary for net gain in thestrictest sense). Further process uncertainties include the risk of habitat degradation before
application submission (i.e. baseline alteration), allowances for imperfect enforcement, the riskof insolvency of offset providers and/or developers, the risk of systematic undervaluation of
habitats and wider (indirect) pressures of development on general biodiversity from light, sound,
predation by pets and recreational use.
The time lags in between development and compensatory habitat reaching equivalentbiodiversity are also significant. It can take centuries for some types of compensation habitats toacquire ecological communities that are equivalent to lost habitats across different measures of
biodiversity.1 This is not applicable to all compensation projects (it would likely be accelerated
where part of the existing ecology is retained nearby to the compensation site) and is notpractical in the design of compensation habitat within desirable development timeframes.
Therefore, a more achievable multiplier is included in the biodiversity metric that relates to thecreation timeframe of the habitat itself. The permanence of offsets (i.e. the expectation that not
all compensation habitat will exist as long as the development it is compensating for, further
discussed in the next section) represents another factor by which overall gains might beundermined in the medium to long term.
Compensation habitat creation undertaken through schemes around the world have beendelivered with reported success rates that range from 0% (where success is defined as fully
ecologically functioning habitats) to 74% in long-term established offsetting schemes.2 Other
studies have found lower success rates of between 6 and 20%.3 It is therefore considereddesirable, despite expectations that this policy will achieve higher success rates than thosecommonly reported in the literature (due to improving habitat creation understanding, risk
multipliers in the metric and lessons from past experiences), to set a more ambitious
requirement for net gain to increase the likelihood that development schemes will deliver net
enhancement in aggregate, or at least prevent loss of biodiversity.
1Curran, Hellweg and Beck, Is there any empirical support for biodiversity offset policy? Ecological Applications, Volume 24, 2014
2 Bull et al., Biodiversity offsets in theory and practice. Oryx, Volume 47, 2013
3 Maron et al., Faustian bargains? Restoration realities in the context of biodiversity offset policies. Biological Conservation, Volume 155, 201279

Setting a higher level also means that gains could be achieved with an imperfect level ofscrutiny and monitoring of individual sites (and the costs that such extensive monitoring andenforcement would incur). The evidence on past habitat compensation success rates in theliterature, and practical limitations on the intensity of monitoring and enforcement, suggest thata target rate above a nominal 1% gain would likely be appropriate to avoid net loss inbiodiversity in practice.
In summary, there are a number of factors that make halting biodiversity loss throughdevelopment an unlikely prospect with any level of gain which is close to 0% (e.g. 1%). The
department therefore favours a high level of net gain in principle, though the available evidence
does not identify any particular level of gain as uniquely suitable.
The analysis undertaken in this IA indicates that the level of requirement makes relatively
modest difference to the costs of mitigating and compensating for impacts (see Section 6.11)
when assessed against the more significant costs of achieving no net loss and wider
development policy objectives. The majority of the costs associated with net gain are incurred tocorrect for the initial loss of biodiversity through development (i.e. achieving only ‘no net loss’).
When compensation for development’s impacts is incorporated, a 10% net gain could be seen
as a requirement to deliver approximately 110% of the total lost biodiversity (approximately
because the 10% is applied to the full biodiversity value of the development site, rather than
only those lost or in the structures’ footprint). A 10% gain therefore represents a relatively small
proportion of overall habitat creation/enhancement requirements.
Industry evidence from developers and LPAs implementing biodiversity net gain approaches
suggest that the average gains achieved on developments vary widely, between a few percent
and over 300%. Whilst very high gains are possible for some developments and theaforementioned evidence demonstrates the desirability of a very high rate, the level of gain
selected for a mandatory requirement must be applicable (and therefore achievable) for all
appropriate development in scope: a wide range of development types and sizes.
The planning authority for Lichfield District requires a net gain of 20% on new development (thisis measured against gross units lost, rather than the full within-boundary baseline, but this will
be similar for many schemes), and experience there to date suggests that developers are able
to meet this requirement and often achieve much greater levels of biodiversity net gain.
Evidence was received during consultation of several commercial sites aiming for net gains of
25% (though it is unclear what metric these schemes were using). Some other authorities inEngland are currently considering 5% net gain policies and some accept a marginal 1% gain.
Advice to the department from some Natural Capital Committee members4 suggests, in line withevidence from academic literature, that a level of net gain at, or ideally above, 10% is necessary
to give reasonable confidence in halting development’s role in biodiversity loss. Consultation
responses more generally highlighted the fact that many existing industry commitments are
based on rates of around 1%-5%; this does not prove that higher levels are unachievable, but
gives the strongest sense of what is achievable even under the pre-existing policy-driven
approach and without improved guidance, design and compensation markets.

4 Pers. comm. 201880

In light of the advantages of a significant margin of gain, but also the need for a rate that can be
mandated with confidence that it will not significantly affect the delivery of appropriate
development, 10% was selected as a reasonable level of gain to consult on.
A 10% gain provides a small margin of gain to account for the outlined process, epistemic andlinguistic uncertainties whilst operating within the parameters of established and successful net
gain planning policies which are not thought to significantly affect development rates or viability.
In simple terms, it is the most achievable level of net gain that the department could confidently
expect to deliver genuine net gain, or at least no net loss, for biodiversity and thereby meet its
policy objectives.
Consultation responses were mixed with regard to this rate: development stakeholders typically(but not unanimously) asked for a lower rate, whilst several environmental NGOs requested thata higher level of gain should be set to be confident of real net benefits for wildlife. Some
respondents acknowledged that the rate would need to be set somewhere initially, and thatmonitoring and evaluation would be necessary to identify an optimal rate in the future. This IA
examines the costs and benefits of implementing net gain at a 10% level as part of our chosen
policy approach detailed in Section 5.2.2.

Permanence
Developments typically remove some habitats permanently. If offset habitats are establishedtemporarily, with no guarantee that they will be retained beyond a fixed period, the result will be
a net loss of habitat. This could also be true if a habitat is protected for a second fixed term byoffsetting from a second development elsewhere (though protection in itself would not be
considered eligible as compensation). This is because over time, a single hectare of offset
habitat would have been used to offset multiple hectares of lost habitat elsewhere. A discussionof the issue in the evaluation of the biodiversity offsetting pilots illustrates that there is a current
lack of guidance. The pilots prepared management plans of 25-30 years in the absence of
guidance on the meaning of ‘in perpetuity’ for offset sites.5 We will provide clarity on this issue,
and will also develop guidance or policy that address the risk of compensation sites being‘recycled’ after 25-30 years to offer compensation to more than one development.
We have so far assumed that developer responsibility for management is time-bounded to 30
years (though in practice this responsibility is often passed on earlier to the agency contracted
by the developer to create and manage compensation habitat). But permanence of land usechange, with another entity responsible for long-term management, is being considered.
International evidence shows that an existing policy in France requires offsetting for as long as
the impacts occur. Options to achieve this include giving land to a Public Land Trust or
designating land as a protected area.6 The U.S.A and Australia7 also mandate offsets which lasteither as long as the development itself, or for perpetuity. It should be clarified that whilst
management obligations are unlikely to extend beyond 30 years in most cases, it is notexpected or intended that compensation habitat will subsequently be removed or be stripped ofany acquired protections after this timeframe expires.
Concerns over perpetuity have centred on deliverability and the willingness of landowners toenter into long term stewardship agreements. The solutions most commonly seen are to
5 http://sciencesearch.defra.gov.uk/Default.aspx?Menu=Menu&Module=More&Location=None&Completed=0&ProjectID=18229
6 http://bbop.forest-trends.org/documents/files/frances_new_biodiversity_law_and_implications_for_no_net_loss_of_biodiveristy.pdf
7 https://www.ncbi.nlm.nih.gov/pubmed/19924472

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purchase land, with a conservation non-governmental organisations (NGO) or local authority
assuming responsibility for long-term management, or habitat banking using unproductive or
marginal land offered by landowners who are happy to keep newly created habitat indefinitely.
Conservation covenants might also facilitate longer term delivery and reduce the cost of setting
management agreements. We are exploring the impact that a requirement or incentive forlonger term delivery through conservation covenants would have on deliverability.

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