Changes to developer contributions and CIL
Ten years after the Community Infrastructure Levy was introduced and after years of tinkering with the regulations, the Government have concluded that the system is not working and is in need of reform.
This has not come quick enough for many in the development sector however, the Government’s proposals in the Planning White Paper include merging Section 106 agreements and CIL into a new consolidated ‘Infrastructure Levy’, or ‘IL’. This would be based upon a flat rate, valued-based charge, set nationally, at either a single rate, or at area-specific rates. Whilst the principle is supported, it has raised many questions, to which the initial reaction is that ‘the devil will be in the detail’. The lack of detail can also be seen as an opportunity for the industry to try and shape the future of planning obligations. We have outlined below some of our observations on the latest proposals.
S106 agreements can take months, if not years, to negotiate, they are dreaded by some developers and can add significant time, uncertainty and financial costs to a development scheme. The proposals in the Planning White Paper promises a measure of financial certainty for developers as to what the size of an obligation will be. In addition, the Government is proposing to delay the point at which the levy is payable providing significant and in some cases vital cash-flow benefits to the developer. These changes would be welcomed by the development industry and encourage further development, particularly in light of the slump in building earlier this year.
However, one of the key advantages of S106 agreements is their flexibility – they enable a legally binding agreement to be reached covering multiple topics and aspects, including financial contributions, the timing / phasing of said payments, affordable housing tenure mix and land transfers etc. How would details such as this be formally agreed upon? Yes, negotiations in relation can be protracted, but it enables a bespoke and context specific approach to be taken to a proposal (where required).
Given that one of the main aims of IL is certainty (or if you want to look at it another way, inflexibility), this could potentially hamper the ability to provide adequate room for maneuver to allow potentially tricky (or marginally viable) sites to come forward. This could be an unintended (and diametrically opposed) consequence of the Government’s desire to ‘build, build, build’. The fact that circa 50% of LPAs still do not use CIL is perhaps telling, in that some areas prefer to take a more tailor-made approach to infrastructure funding despite CIL being around for well over a decade now. Previously this was even more pertinent considering the previous S106 pooling restrictions that were in place for a number of years, in (part, at least) an attempt to encourage Councils to adopt CIL.
In our opinion, care will need to be taken, particularly around the idea of a ‘nationally-set value-based flat rate charge, set nationally, at either a single rate, or at area-specific rates’. Realistically, we cannot see the IL being set at a national level. There is simply too much of a gap between various areas of the country, say between central London and a former industrial town in the north of the country (to rely on the typical stereotype) for a single flat rate to work. A national rate would run the risk of making some areas unviable and therefore deterring development from coming forward by being too high to reflect local economic circumstances and financial returns, whilst in others it would not deliver sufficient funding to adequately provide the required infrastructure. This would also run counter to the Government’s stated desire to ‘level up’ the north.
In addition, the scale / geography at which any ‘area-specific rates’ mentioned above would be set is likely to be key, and could still run into trouble when considering the potential merging of many districts and boroughs into larger unitary authorities, as is currently being proposed. This has the potential for a single unitary-wide rate to be too high in some areas and too low in others, within these enlarged authorities. It is also presumed that the current method which an LPA has for collecting contributions would be maintained until the new IL was adopted, and on the basis of other changes to the planning system, it is assumed that there would be appropriate ‘transition periods’ to enable this to take place smoothly.
Overall, the proposed levy will need to be developed in such a way that provides clear advantages over the current system that enables flexibility and nuance to be taken into consideration, as well as enabling local priorities to be met. This is key if the Government is to avoid being accused of centralising power further, as is the case with the proposed revisions to the standard method for calculating housing need.
Lastly, and perhaps most importantly, the new levy needs to avoid making many brownfield sites, which often have the greatest issues in relation to viability, unattractive to the market. If this does happen, it would simply pile further pressure on LPAs under the proposed changes to the planning system, more inclined (or even ‘required’?) to allocate ever greater amounts of greenfield land for development to deliver their housing targets. This would shift the planning system from one that directs development from where it should go, to where it is (financially) possible to go, which does not seem a particularly optimal outcome, given the stated desire for beautiful and well-designed places, which is a key plank of the overall package of planning reforms being put forward by the Government.