The London Borough of Barking and Dagenham Council (LBBD Council) has proposed to give the subsidy to Barking and Dagenham Homes Limited (BDHL).

The subsidy will fund a series of housing developments totalling 569 affordable homes, with some already completed and the rest expected by March 2025.

Under its proposal, LBBD council intends to enter into long lease agreements with BDHL for several of these homes with the latter retaining ownership of the freehold.

BDHL will pay a lease premium to LBBD Council to cover construction costs, funded by a low-interest loan from the council.

The subsidy’s notional value equals the difference between commercial interest rates and the council's lower rate.

The value of the subsidy amounts to about twice the value of the underlying loan.

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Under UK law, any proposed subsidy that exceeds £10m qualifies as a ‘subsidy and scheme of particular interest’. As such public authorities are required to refer such subsidies to the Subsidy Advice Unit or SAU.

The SAU - part of the CMA -  provides non-binding advice about these subsidies and does not pass judgment on whether or not the subsidy should be awarded.

LBBD Council referred the subsidy to the SAU in October, with the latter having now published a report on this.

In its report, the SAU found LBBD had followed statutory guidance around subsidies with a clear policy objective and equity rationale explained.

However, the SAU did find several areas of the subsidy’s assessment where stronger evidence and more information could be included.

In particular, the SAU has flagged more information could have been provided as to how these homes would be delivered without a subsidy, and a greater consideration of how the subsidy could impact competition and investment in the area.

Overall, the SAU has said the LBBD council could have provided a better overview of the potential negative consequences of the subsidy.