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Planning for the Future: Infrastructure levy poses more questions than answers

Shared ownership / iStock-962302472

The government’s mooted infrastructure levy is full of tantalising possiblities but – as yet – too light on detail for anyone to properly assess how it will function, says Julia Berry

In his foreword to the recent white paper on Planning for the Future, the Prime Minister refers to “radical reform unlike anything we have seen since the Second World War” which will make it “harder for developers to dodge their obligations to improve infrastructure”. 

Although most developers will take great issue with the second statement, there can be no dispute that the new proposals relating to delivery of infrastructure are indeed radical. However, crucially, they will also need to be clearer and more certain than the current tangle of CIL legislation. 

It is difficult to see how the various options for reform offered up for consideration can be delivered without further detailed legislation to incorporate new discretions and procedures, which will inevitably give rise to their own delays and issues for debate. The Government may find they are substituting one complex and flawed process for another that does nothing more to address the fundamental issue of ensuring delivery of the required infrastructure.  

“The Government may find they are substituting one complex and flawed process for another”

The white paper contains three primary proposals, referred to as ‘Pillars’, each with its own set of options offering a variety of more, or less, radical alternatives. ‘Pillar Three’ tackles the problem of infrastructure delivery, with the aim of making the system clearer, simpler and more predictable. It also seeks to avoid what is often perceived by the public as a ‘watering down’ of developer obligations and the inherent delays in negotiating the provision of affordable housing, on a site-by-site basis, through lengthy section 106 agreement negotiations. Will it meet this aim?  

The white paper proposes a change to the infrastructure levy that will, in effect, amount to a straightforward tax on development that could sit alongside current local levies, such as the London Mayor’s CIL.

The name of the levy is hardly altered (from Community Infrastructure Levy to Infrastructure Levy), although there is a significant change in the way the levy works. The tax will be based on an assessment of the final value of the development above a set threshold, using rates which could be set nationally, and could also capture changes of use rather than just additional floorspace. 

Payment will be due on occupation, rather than at the start of development when returns are a long way off. This is one aspect that is certain to be welcomed by all developers, as long as the required infrastructure does not lag too far behind and is in fact delivered.

Local authorities will still be the collecting authorities but they will have much more power over how the funds raised are spent. They will also be able to borrow against the revenue which the tax raises, to enable forward funding of infrastructure and earlier delivery. Unlike CIL, which only half the local authorities have chosen to charge (and not for all development), the new levy could be mandatory and apply to all use classes and permitted development.

The white paper talks about the new levy replacing s106 obligations, which will be “removed”, although we assume that some form of agreement will also still be required for other development impact mitigation, which the levy will not cover and which cannot be adequately dealt with by condition, and to regulate the development. Delays in negotiating these are, therefore, likely to continue.

“We assume that some form of agreement will also still be required for other development impact mitigation, which the levy will not cover”

There has already been a lot of interest as to how the tax will secure affordable housing, as it is intended to replace the current system of largely on-site developer provision. However, developers could be given the option of choosing to provide affordable housing in-kind and on-site, or indeed they could be required to provide it in certain circumstances, as a way of paying the levy.

A range of alternative options for the delivery of affordable housing are suggested, including land transfers and first refusal rights for local authorities and affordable housing providers to buy units at a discounted price, which could then be sold on, or sold back to the developer. These are interesting ideas, but there is no detail provided as to how they will actually work, how prices and values will be set, how to deal with the land transactions and the inevitable tax ramifications, how these decisions will be made and secured in the long-term, nor how to address changed circumstances, viability and market fluctuations. These are all difficult and fundamental issues which will require complex legislation. 

We should also query how other planning benefits or on-site infrastructure which a development may bring with it will be taken into account. When will all these details and permutations have to be decided? If a sum is calculated at the outset, which may be several years prior to the actual point of payment, how will changes in circumstances be addressed?  If reassessment is permitted at the point of payment however, how will local authorities be able to borrow against the expected funds with any certainty?  

Ultimately, we do not have enough detail as yet on the basic question of how the levy or its threshold will be set. All these issues will be crucial to the success of the system, to ensure it encourages delivery and deals with fluctuations in the market. How under-resourced local authorities will cope with these new responsibilities and ensure the delivery of balanced communities also remains to be seen. 

Julia Berry is a consultant with Reed Smith

Photo l iStock


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