Part 1: The Infrastructure Levy

Introduction

After the less-than-positive reaction to the Planning for the Future White Paper in August 2020, promising a wholesale “once in a generation” reform of the planning system, the Government’s proposals have significantly shifted.  Ministers’ suggestions that various changes would no longer be pursued led to the release of the Levelling-up White Paper this February. 

The White Paper described the Government’s ‘levelling-up’ programme aiming to reduce national inequality through: boosting productivity, spreading opportunities and public services, restoring community, and empowering local leaders/communities.

On 11 May 2022, the Government held its first reading of the proposed Levelling-up and Regeneration Bill.  Amongst other administrative reforms, the Bill contains several planning changes (some of which stem from those set out in the 2020 White Paper). We will cover a number of the main planning changes proposed over the coming weeks:
 

1. Infrastructure Levy
2. Enforcement
3. Environment
4. Policy
5. Other changes

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Infrastructure Levy

Currently, developer contributions are typically secured through the planning process by planning obligations (section 106 agreements) and Community Infrastructure Levy (“CIL”).  CIL is a locally set charge based on the new floorspace created in a development.  It is a relatively new beast, with the regulations being made in 2010 and most charging authorities getting CIL in place four-five years later (although there are still some which have not).  CIL can be costly – in some places north of £500/m2 of new floorspace – and it is generally payable upon implementing a development.  The CIL regime has been subject to criticism for its rigid complexity and many have been inadvertently caught out as a result of an administrative failing. 

Section 106 agreements, on the other hand, are negotiable but have been criticised for leading to delays in the grant of planning permissions.

Whilst CIL was initially intended to replace section 106 agreements (there was a limit on no more than five s106 agreements securing the same matter, to encourage CIL to be collected for such bigger infrastructure expenditures); this was ultimately lifted.  The requirement on local authorities to maintain an adopted list of CIL spending was similarly lifted and the Government encouraged both section 106 agreements and CIL to be secured to try to bring forward collections of contributions to fund much-needed infrastructure. 

Back in summer 2020, the Government had proposed replacing the current system of section 106 agreements and CIL with a single nationally-set value-based flat rate charge known simply as the Infrastructure Levy. 

The Bill now contains proposals for that Infrastructure Levy, which is in a slightly different form to CIL and the previous proposals.  The main points proposed are as follows:

 

• CIL is to be abolished in England, other than in Greater London where Mayoral CIL will still apply (currently helping finance the Elizabeth Line and Crossrail 2)
• The Infrastructure Levy is to be rolled out over several years in a ‘test and learn’ approach to ensure the system is effective
• It is to be mandatory, set and collected locally after examination which should take into account viability (and the Homes & Communities Agency can now be a collector).  It is to be charged on the value of property when it is sold, as a percentage of gross development value
• Portions of the Levy can be received in-kind as onsite affordable homes
• More detail is to be provided through regulations, although the bones of the Infrastructure Levy appear to be similar to CIL
• Local authorities are required to prepare Infrastructure Delivery Strategies, identifying a strategy for delivering needed infrastructure and spending the income from the Infrastructure Levy
• Section 106 agreements are not being abolished but are being retained with a view to support delivery of the largest sites and deliver infrastructure integral to the operation and physical design of a site

Even if the Bill comes into law soon, we expect the current system of CIL and section 106 agreements to remain in place whilst the new Infrastructure Levy regulations come into play and it is rolled out nationally, with more time to be taken while authorities start the process for their own Infrastructure Levy and Infrastructure Delivery Strategy. 

What is unclear is how the process will determine the gross development value of a site and when this would be determined.  Currently, where viability issues are raised, many authorities require viability re-assessments at various stages of the creation of a development and these often result in different gross development values being put forward by the developer and the Council.  We wait to see how the regulations provide for this.

Furthermore, is the potential cashflow impact which the payment of the levy may have if payment is required to be at an early stage, albeit based on the expected revenue of the development.
 

Read more

Levelling-up and Regeneration Bill: planning proposals: part 2
Levelling Up and Regeneration Bill - Environmental impacts