Farwell Section 106 and the Community Infrastructure Levy!
The ‘Planning for the Future’ White Paper proposes that Section 106 Agreements and the Community Infrastructure Levy would be abolished and replaced by an ‘Infrastructure Levy’ where value-based rates would be set nationally – a single rate or varied rates could be set.
The aim would be to raise more revenue than under the current system of developer contributions. The Levy would continue to be collected and spent locally.
Strategic Community Infrastructure Levies currently operating in combined authorities, could be retained as part of the Infrastructure Levy to support the funding of strategic infrastructure.
The Government would seek to capture a greater proportion of the land value uplift that occurs through the grant of planning permission through the proposed new levy and use these developer contributions to enhance infrastructure delivery. The value captured will depend on several factors including the development value, the existing use value of the land, and the relevant tax structure. It would be charged on the final value of a development (or to an assessment of the sales value), based on the applicable rate at the point planning permission is granted.
The Infrastructure Levy would be extended to capture changes of use which require planning permission, even where there is no additional floorspace, and for some permitted development rights including office to residential conversions and new demolition and rebuild permitted development rights. The existing exemption of self and custom-build development from the Infrastructure Levy would continue.
The Infrastructure Levy would be charged at the time of occupation with possible measures to prevent occupation as a potential sanction for non-payment.
Affordable housing could be secured through on-site delivery, which could be made mandatory where an authority has a requirement. In effect, the difference between the price at which the unit would be sold to the affordable housing provider and the market price would be offset from the final cash liability to the Levy. Measures would be put in place to incentivise the developer to build quality affordable housing.
Alternatively, local authorities could accept Infrastructure Levy payments in the form of land within or adjacent to a site and they could then build the affordable homes, enabling faster delivery.
First Homes, sold by the developer direct to the customer at a discount to market price, would offset the discount against the cash liability.
The Government could provide standardised agreements, to create rules around how risk sharing would work. For example, if house prices fall, to the extent that Levy liabilities are insufficient to cover the value secured through in-kind contributions, local planning authorities could be allowed to ‘flip’ a proportion of affordable housing units back to market units which the developer can sell.
Any increases in the Levy would need to be balanced against risks to development viability. A ‘value-based minimum threshold’ would be introduced below which the levy would not be charged. Where the value of development is above the threshold, the Levy would only be charged on the proportion of the value that exceeded the threshold.
Greater powers will be given to local planning authorities to decide how developer contributions are used, including to cover affordable housing provision which will be expected to be as much or more than presently provided by Section 106 Agreements. Local authorities could be allowed to spend the Levy on, for example, improving services or reducing council tax once the provision of local infrastructure has been fulfilled. They will be allowed to use the Infrastructure Levy funds to support both existing and new communities.
To assist with the timely delivery of infrastructure, the Government would allow local authorities to borrow against Infrastructure Levy revenues so that they could forward fund infrastructure.
Neighbourhood’s will continue to receive a share of the levy from development within their areas to spend as they consider appropriate.
A small proportion of the Infrastructure Levy income could be set aside for local planning authorities to cover their overall planning costs (in addition to those already covered by application fees), including the cost of preparation and review of Local Plans and design codes and enforcement activities.
Developer contributions should be openly and digitally accessible.