According to a report today by the public spending watchdog, the Government’s scheme launched last February has serious operational shortcomings that could eventually undermine the flagship scheme.

Under the rules, developers must now achieve a 10% uplift in biodiversity at a site.

When on-site gains are not enough to meet the 10% requirement, off-site gains can be created by the developer elsewhere or purchased through a new private market for biodiversity units.

But the National Audit Office warns the novel and complex biodiversity scheme was launched without having all elements in place to ensure its long-term success.

A critical report published today says that local authorities are ill-prepared to police the scheme and that a mechanism for spending income from the sales of statutory biodiversity credits has still to be established.

The scheme is being rolled out in stages. Major developments came into scope last February, with small developments included last month.

Nationally significant developments will be included from November 2025.

Brian Berry, chief executive of the Federation of Master Builders, said: “The NAO’s criticism of the Department for Environment, Food and Rural Affairs, for having failed to put all necessary elements in place ahead of launch of the BNG scheme echoes the concerns that were raised by small house builders at the time.

“SME house builders were broadly supportive of the aims of a BNG scheme, but they have been warning for some time that excessive regulation and additional costs to firms preparing for the changes, coupled with local authorities being significantly underprepared, will make it near impossible for smaller firms to manage.

“The NAO report has confirmed their fears. We will now need to see a substantial re-think from DEFRA, including increased funding for local authorities, if the Government wants to see a long-term environmental benefit.”

Berry added: “DEFRA’s acknowledgment that there had been mixed readiness among local authorities at the launch is a positive first step.

“Local authorities have been tasked with enforcing planning regulations at their own discretion, and DEFRA has said that it does not intend to provide central monitoring.

“The lack of involvement DEFRA has in the biodiversity credit market is also extremely worrying, especially as smaller builders are more likely to need to offset biodiversity offsite. Unless these issues are addressed, BNG will create substantial barriers to small house builders.”