The Levelling Up and Regeneration Bill is seeking to implement a new mandatory Infrastructure Levy (IL) in England. This would reform the existing system of developer contributions of Section 106 planning obligations and the Community Infrastructure Levy (CIL).

A consultation has been recently published for this new IL enabling responses to this proposal to be made by 9 June 2023. This will have a major impact on the way in which affordable housing will be secured and delivered in the future.

The current system and why this is being reformed

Under the current system there are two broad routes for local authorities to secure developer contributions:

1. planning obligations through Section 106 agreements
2. the CIL which is a fixed charge levied on the floor space of a new development (where adopted by the local authority).

Affordable Housing is generally secured via a Section 106 Agreement.

Planning obligations can be uncertain for communities and take time to negotiate. CIL is inflexible in changing market conditions and unable to efficiently capture value where values fluctuate after rates have been set. The government considers the reform necessary to ensure that local authorities receive a fair contribution to use towards infrastructure such as affordable housing, schools, GP surgeries, green spaces and transport infrastructure, and to make the system simpler and quicker.

The New Infrastructure Levy

The IL seeks to replace the current system of developer contributions with a single charge which is mandatory, more streamlined and locally determined.

The IL will be charged on the value of the property at completion per square metre and applied above a minimum threshold. The rates and minimum thresholds will be set and collected locally with local authorities being able to set different rates within their area based on certain factors. This includes the viability of development in the area and the desirability that rates can deliver affordable housing at a level equalling or exceeding what developers deliver now in that area.

The IL will include a new “right to require” which will allow local authorities to mandate the amount and type of on-site affordable housing. It will allow local authorities to set the “percentage of the levy value delivered in-kind by developers as on-site affordable housing”.

Although the IL will be mandatory for all local authorities, it will be gradually introduced through a phased test and learn process over several years, so everyone can prepare and adapt to the change. Sites permitted before it takes effect will continue as before under CIL and Section 106 requirements. Nonetheless, the IL will replicate some existing exceptions from CIL.

Although Section 106 agreements will remain in the new system, to what extent it is not yet known. The government has mentioned that s106 agreements will remain for the “largest” sites, for instance where paying the IL may not always be enough to fully mitigate the impact of a development and make it acceptable in planning terms. In addition, s106 agreements may be utilised for restricted purposes, perhaps where sites cannot be used to calculate Gross Development Value per metre squared or where buildings are not the main focus of development such as minerals or waste sites.

The consultation

The consultation seeks views on the case for other suitable exemptions or reduced rates, including a proposal to apply exemptions to qualifying small sites and publicly funded infrastructure. It also invites views on reliefs from the levy where affordable housing is delivered including potential for a complete exemption where the affordable housing on the site meets a particular threshold. Contributions to inform the preparation and content of regulations are sought to inform the design of the IL and of regulations that will set out its operation in detail.

Those affected are encouraged to respond by 9 June 2023.

Conclusion

The IL seeks to secure at least as much, if not, more, affordable housing than the current system. This will be achieved through the new ‘right to require’. The precise detail is not yet known, however developers may be required to deliver greater obligations with the lack of scope to negotiate reducing affordable housing delivery based on viability, unlike the current system. Further detail is awaited and we consider it is important to raise any concerns now as part of the consultation process.

As the IL will be non-negotiable, developers must now take full account of the Levy payments they will make when agreeing a price for land and will not have the opportunity to overpay for land and then negotiate contributions downwards through viability assessments. It may also capture types of development that were previously outside the scope of CIL, and so contributions may now become liable under the proposed Levy, for example in situations relating to purpose built student accommodation and warehousing models.

How Capsticks can help

We encourage you to make responses on the consultation on the proposed approach of implementing the IL through Citizen Space. If you would like assistance with this please get in touch or comments can be made directly here.

Our housing and regeneration team, one of the largest in the country, advises on all types of development transactions from forward funded schemes, section 106 developments and stock rationalisations to plot sales and general asset management work. We are experts on all aspects of planning law including s106 agreements, CIL advice, planning appeals, Compulsory Purchase Orders and all general planning law matters.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Suzanne Smith and Jennifer Eng to find out more about how Capsticks can help.