Infrastructure Levy – 12 weeks of Planning (episode 4)

By Aimee Howard, Senior Account Executive at Newington Communications

Each week during the 12 week consultation, the Newington team will be analysing an aspect of the proposals in the ‘Planning for the Future’ proposals. 

Read our latest analysis below to understand how the proposed planning changes will affect your future projects.

Our analysis of the Planning White Paper this week focuses on the proposal to replace the existing Community Infrastructure Levy (CIL) with a new, consolidated ‘Infrastructure Levy’.  

Discussions in government have been taking place for an extensive period on the existing levy and its effectiveness. It is thought the previous system was too complicated and led to too many delays in the planning system, but will the new levy be a change in the right direction? 

A new direction  

The new Infrastructure Levy (IL) would replace CIL and the use of section 106 agreements. The payments generated through the IL would then be used for the provision of affordable housing, instead of securing this through section 106 agreements. 

Section 106 agreements can be subject to often intense and heated negotiations with planners and councillors alike. It is often an opportunity for the local authority to negotiate significant improvements to the local area. In many instances and rightly so, councillors across the country use this opportunity to ensure something possible and tangible is improved or included as part of the proposals. 

The new IL will prevent the use of section 106 agreements for the provision of infrastructure – for example improvements to the public realm, a community centre or a GP surgery. These amenities, usually obtained through section 106 agreements, will now have to be secured by the IL. This may bear some fruit for the delivery of housing overall as the lengthy section 106 negotiations would be significantly reduced.  

The White Paper does not make clear how individual site infrastructure will be secured. It is expected the IL receipts will have to be spent on sites close to the development in question, but it is unclear how these receipts will be applied on a site by site basis. 

The pothole problem  

It is widely known when new developments are proposed existing residents often use the consultation process to take issue with the state of the local roads.  

The published White Paper does not touch on any proposed changes to section 38 or 278 of the Highways Act 1980. Under these sections, new estate road is adopted and developers are bound to improve the existing highways or pay commuted sums for their maintenance.   

Helping with cash flow – but for who? 

A concern for some local authorities is that the levy will be payable to them on completion of the development. With many local authorities facing financial issues in light of the pandemic, having to foot the bill for any upfront infrastructure may prove difficult.  

In real terms the new IL allows developers the opportunity to exchange and complete on primary phases of their development, providing them with much needed relief for their cash flow and space to pay the final IL liability.   

To safeguard local authorities, the White Paper sets out that they will be able to borrow against future revenues to fund the upfront infrastructure. However, will this be a financial burden too far? Given IL will be calculated at the outset and completion will be some years away from this point, how will a change in circumstances be looked at? This may cause some issues for the local authorities, who are looking to borrow against future revenues, as the figure may be uncertain and could be subject to a reassessment.  

How will affordable housing be delivered? 

The section 106 agreements have always been used to secure the provision of affordable housing on-site. However, the new proposals will provide this through the IL. Under the new system, Registered Providers (RP) will be able to purchase affordable housing from developers at a discount market rate.

The price sold to the RP and the market rate will then be offset by the final IL liability. This is likely to be welcomed by developers who will have the ability to lower their IL liability and have fewer ongoing obligations in relation to the development. 

It is worth noting that developers could be given the option to provide affordable housing both in-kind and on-site. Alternatively, they could be asked to provide it as a way of paying the levy liability.  

The government views the new IL as a means of securing more affordable housing, but many in the industry feel it will reduce the deliverability of affordable housing overall. The National Housing Federation’s Chief Executive Kate Henderson wisely points out that half of all affordable housing built each year is secured through section 106 agreements.  

The new IL puts councils in charge of a more flexible infrastructure pot where affordable housing and other infrastructure components are all mixed, rather than separate considerations as they are often now. 

One or two levies? 

The new IL will be nationally set and may even sit in tandem with local levies, including the Mayor of London’s CIL. Many local authorities do not currently charge CIL, however the IL is likely to be mandatory and apply to all use classes and even permitted development. 

Conclusion 

The White Paper is now open to consultation and provides developers and local authorities to put forward their views. The new levy needs to work for both the applicant, who is investing the time and effort to bring forward the development, and local councils who are working in the interests of their local residents. 

The key to this will be striking the balance between what is viable, and what the local community sees as an improvement to their local and social infrastructure. 

Politically, the key to winning voting members over will still be how the development is contributing locally, and how residents react to the proposals during the consultation process. With no tangible improvements (such as those secured under section 106 agreements) to point to during the consultation process, the community engagement may be another hurdle for developers to overcome. 

However, a simplified levy system will shorten the time lag between a resolution to grant planning consent and those new homes being built. The current process can add months, or even years to the planning timeline, and for a government focused on the actual delivery of new homes, this is the critical difference.

We would love to hear your thoughts on the changes to CIL and work with you to convey these messages through the consultation process. Get in touch with us today to discuss the matter further.

You can catch up with previous weeks here:

Week 1 - Phil Briscoe reviews the Planning White Paper
Week 2 - Paddy Kent considers the changes to Local Plans
Week 3 - Beth Park examines housing targets